5 Years Later The United States Is Still Paying For Its TPP Blunder



Colin Grabow | CATO Institute

Last month—January 23 to be exact—marked the five‐​year anniversary of President Trump’s decision to withdraw the United States from the Trans‐​Pacific Partnership (TPP) trade agreement. The country has been paying for it ever since.

Comprised of the United States and eleven other Pacific Rim countries—including economic heavyweight Japan—the TPP was found by a 2016 Cato analysis to result in net trade liberalization. A study by the U.S. International Trade Commission calculated a real U.S. GDP increase of $42.7 billion through 2032 as a result of TPP membership while a Peterson Institute for International Economics (PIIE) working paper foresaw gains to U.S. real incomes of $131 billion through 2030.

But the United States withdrew from the TPP, and those gains never happened.

The TPP, however, was aimed at more than just lowering trade barriers. It was also an attempt by the United States—along with like‐​minded allies—to help shape the rules governing trade in the Asia‐​Pacific region. As Asia’s center both geographically and economically, China is already assured of having a significant say in such matters. The TPP was meant to ensure the United States had a prominent seat at the table when such rules were being hammered out—before it opted to push away.

In other words, U.S. losses from its TPP withdrawal have not just been economic but geopolitical. And if the TPP was deemed a useful tool in countering China’s influence during the years it was being negotiated, it would be even more of an asset now given the bilateral relationship’s increasingly acrimonious nature.

Other countries have been less short‐​sighted in their trade policies. Following U.S. withdrawal, the remaining TPP members went back to the negotiating table and struck a new deal: the Comprehensive and Progressive Trans‐​Pacific Partnership (CPTPP). As a result, these countries often have easier access to each other’s markets than what Americans enjoy. That’s a boon to consumers and businesses in CPTPP members who enjoy cheaper imports and expanded export opportunities.

Indeed, the CPTPP has proved so alluring that China and Taiwan have both applied to join while South Korea has taken initial steps toward becoming a member. Even the United Kingdom wants in.

Other notable trade liberalization initiatives have taken place in recent years as well. In late 2020, 15 countries of the Asia‐​Pacific region concluded the Regional Comprehensive Economic Partnership (RCEP). Entering into force on January 1 of this year, the RCEP—which notably includes China—contains tariff reductions and regulatory harmonization measures meant to spur trade between member countries. And in 2018, Japan and the European Union signed a trade deal that took effect the following year.

Amidst such trade integration, the United States has largely been left on the outside looking in. This means that not only has the country foregone the TPP’s projected benefits but the competitiveness of U.S. firms has been eroded owing to the lack of preferential market access enjoyed by their foreign counterparts.

As a result, a 2017 PIIE analysis calculated that the TPP/CPTPP’s net impact on the United States had swung from a $131 billion gain to a $2 billion loss. The United Nations Conference on Trade and Development, meanwhile, found that RCEP will shrink U.S. exports by over $5 billion as trade is diverted away from U.S. firms and toward foreign competitors subject to lower tariff rates under the agreement.

Even U.S. leaders have implicitly recognized that U.S. withdrawal from the TPP placed the United States on the backfoot in trade. In 2019, President Trump concluded a limited “mini‐​deal” with Japan to claw back some of the lost gains from TPP withdrawal. Presented as the prelude to a more comprehensive agreement (which never happened), the market access improvements realized from the agreement—mostly on agriculture and industrial goods—were still inferior to what would have been gained via the TPP.

Art of the deal, indeed.

On the geopolitical front, meanwhile, a recent Wall Street Journal piece points out that U.S. inaction on trade liberalization has handed a possible opportunity to China:

Beijing’s pro‐​trade steps have fueled concerns among American businesses and close allies. They worry that the U.S.’s absence in regional trade agreements gives Beijing an opening to establish its leadership in setting rules and standards for trade and economy, particularly in emerging technologies such as artificial intelligence and digital trade.

In a bid to reassert U.S. economic leadership the Biden administration is readying a new initiative called the Indo‐​Pacific Economic Framework. Although its exact contours are unknown, all indications are that it will not include improved market access measures such as tariff reductions. That means the United States will be competing for influence with China with one hand effectively tied behind its back. While Beijing offers improved access to its vast market through its participation in RCEP—and possibly the CPTPP—Washington will have few obvious enticements with which to sway other countries toward adopting its preferred set of trading rules and standards.

All of this could have been avoided. Had the United States remained in the TPP and Congress approved the deal, American consumers and businesses would be enjoying cheaper imports and expanded exports while U.S. diplomats would be better positioned to set trade rules in the Asia‐​Pacific region. Instead, all Washington has to show for its efforts is a less than comprehensive trade deal with Japan and a new economic initiative whose allure for U.S. trading partners is unclear. Rather than pursuing such half measures, the United States should return to the TPP/CPTPP. That, however, will require both vision and leadership, two commodities that are unfortunately currently lacking in Washington.

Colin Grabow is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies where his research focuses on domestic forms of trade protectionism such as the Jones Act and the U.S. sugar program.

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