How Trump is affecting transpacific trade

America’s newfound determination to trade on a level playing field has led to a reconfiguration of some marine traffic and Brazil’s soya farm industry has been one of the benefactors of the US-Sino trade spat

DONALD TRUMP WAS SWEPT TO POWER ON THE BACK OF THE SLOGAN MAKE AMERICA GREAT AGAIN AND HE IS TRYING TO LIVE UP TO HIS PROMISE BY CLAMPING DOWN ON THE TARIFF INEQUALITY BETWEEN CHINA AND THE US BY MAKING CHINA TRADE ON A LEVEL PLAYING FIELD

OTTO Von Bismarck, the first Chancellor of the German Empire between 1871 and 1890, once said “politics is the art of the possible”.

In 2016, millions of Americans cast their votes in favour of a successful businessman who, with his campaign slogan “Make America Great Again", promised that, once in power, he would make it possible for US companies to prosper again.

One of the political instruments used by Donald Trump to deliver his promise is trade policy and, over his time in office to date, he has reshaped several trade deals, withdrawn from others and started discussions for new trade agreements.

On the transpacific trade lane, the major agreement to be affected by the Trump administration is the Trans-Pacific Partnership, a free-trade deal involving 12 countries that was negotiated by President Barack Obama but left unfinished.

The agreement, first desired by a restricted group of Pacific countries (Brunei, Chile, New Zealand, and Singapore) in 2005, was set to become the world’s largest free trade deal, covering 40% of the global economy. That was before President Trump withdrew the US from the agreement during his first week of office in 2017.

In December 2018, the TPP, renamed the Comprehensive and Progressive Trans-Pacific Partnership, came into force. It includes 11 countries, covers tariffs on goods and services, intellectual property rights, e-commerce rules, labour and environmental standards, dispute resolution mechanisms, and many other parts of trade.

Four months after its endorsement, Japanese beef imports from Australia, Canada, Mexico and New Zealand (some of the members of CPTTP), increased by more than 50% in January from a year earlier, according to Japanese government data.

The Trump administration has started bilateral discussions with Japan (one of the members of the CPTPP).

The two sides have yet to reach agreement on the scope of the trade negotiations, however, the expectation is for the Trump administration to ask for more than just tariff reductions on agricultural imports, with the core of the discussion most likely to be around cars.

The discussion is not expected to be easy with Japan already indicating that it will not accept voluntary export quotas or restraints on cars.

An idea proposed by Clyde Prestowitz, an Asian economy expert and leading trade negotiator during the Ronald Reagan presidency, is that Japan could reduce the country’s trade surplus by importing more American cars into Japan.

How seriously this idea will be considered by the Japanese remains to be seen. In the meantime, the Trump administration has expressed an intention to re-examine tariffs on imported cars, which are expected not to be imposed on Japan while the negotiation on a trade deal is on-going. Inevitably, however, this will be perceived as a threat hanging over the talks.

Figure 1 chart shows the trend in the volumes of cars exported from Japan to the US between 2000 and 2018, showing an increase of circa 3% between 2017 and 2018 but an overall contraction of more than 15% since 2000.

The trade battle between the US and China, in which both sides have been fighting over the past year and that at the time of writing does not appear likely to end soon, is the other key issue affecting the transpacific trade lane and to some extend the global economy.