By Parush Arora and Kriti Gupta
[su_pullquote align=”right”]Donald Trump signed an executive order pulling out from the Trans-Pacific Partnership (TPP) signed under the Obama administration. [/su_pullquote]
2016 has been the year of surprises. The world witnessed events like Brexit, demonetization, and the most startling one, Donald Trumps presidential victory. Though his agenda was on the extreme end of the number line, the Americans developed an enticement towards him.
As President Donald Trump took over the White House earlier this week, he signed an executive order pulling out from the Trans-Pacific Partnership (TPP) which was signed on the 4th of February 2016, in New Zealand, under the Obama administration. The TPP is a trade agreement between 12 Pacific rim countries which contains measures to lower trade barriers and establish an investor-state dispute settlement mechanism.
TPP might mean more employment within US, hence the celebrations over its repeal. | Photo Courtesy: Al JazeeraThe TPP creates a new international commission that makes decisions the American people can’t veto, making it easier for our trading competitors to ship cheap subsidised goods into US markets while allowing foreign countries to continue putting barriers in front of our exports.” - Donald Trump in one of his campaign speeches.
Possible repercussions
[su_pullquote align=”right”]Not only are countries like Japan and Australia bound to face severe consequences, some believe that scrapping the deal would infact give China more influence.[/su_pullquote]
The TPP was implemented to create a level playing field for countries that are being exploited at the helm of the growing Chinese economic clout. Among many benefits, it aimed to promote economic growth, support the creation and retention of jobs, enhance innovation, and raise living standards. Some believe scrapping the deal is a huge mistake as it would ultimately give China more influence over the region. It may also lead to the US losing its grip over the region where Obama wanted to put a tough fight against China.
Countries like Japan and Australia which were a part of the partnership will have to face severe consequences as they had hoped to gain greater access to the US and other TPP markets. Americas withdrawal from the pact came as a shock to Japan, where Prime Minister Shinzo Abe has banked on the TPP as a major pillar of his Abenomics program to end the countrys prolonged stagnation.
What China can gain
America leaving TPP leaves a door open for China to chip in and push its own brand of trade in the global economy. “Trump has single-handedly given away an enormous source of leverage over China,” Edward Alden, a senior member of the Council on Foreign Relations said. It will create an opportunity for China to rewrite the rules of free trade in the world economy.
[su_pullquote align=”right”]With the weakening of the TPP, China will look to strengthen the roots of Regional Comprehensive Economic Partnerships (RCEP) around the globe.[/su_pullquote]
With the weakening of the TPP, China will look to strengthen the roots of Regional Comprehensive Economic Partnerships (RCEP) around the globe. Its a multilateral trade deal between 16 nations including China, Japan, Australia, India, and many more. Some Asian countries like the Philippines are already aligning themselves towards the worlds most populated country. China is also welcoming some Latin American countries to join the RCEP.
Implications for India
The order has minimal effects on India as it isnt a member of the pact. However, the deal might slow down the negotiations to create an RCEP with the help of China. Economically, it wont have a major impact on India which would lose only around 0.1% of its GDP by 2030.
What lies ahead
US and China are embarking on different journeys to reach the same destination – Ultimate trade power. | Photo Courtesy: LinkedINThe TPP was a US-led economic bloc directed at undermining China and ensuring the unrestricted plundering of the regions resources by the US financial, media pharmaceuticals, and other transnational giants. However, the decision has been welcomed by political faces like Bernie Sanders who have called the pact as dead and gone”. The deal cannot come into force if the US fails to ratify it because the US accounts for more than 55% of the total GDP.
As America is looking forward to becoming inward, China is breaking the barriers with the objective to establish a new mega-market.
By adopting a protectionist and an inward-looking policy, the US is breaking the globally integrated economic system which might result in trade wars and military conflicts.