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Politics › Trump's killing of TPP could foil Abe's free trade strategy

by December 30, 2016 General


A strong headwind in the form of U.S. President-elect Donald Trump is expected to thwart Prime Minister Shinzo Abe’s attempt to boost Japan’s export-oriented economy by expanding free trade in 2017.

With Trump eager to scrap a Pacific rim trade deal pushed by U.S. President Barack Obama and Abe, Japan may struggle to reap as many benefits from free trade as it hopes, while feeling threatened by China’s growing influence in trade rulemaking in the Asia-Pacific region.

Failure to put the Trans-Pacific Partnership pact into effect would prompt Japan to shift its focus to negotiations on the Regional Comprehensive Economic Partnership—another mega trade agreement between the 10-member Association of Southeast Asian Nations plus Australia, China, India, Japan, New Zealand and South Korea.

Japan scrambled to ratify the China-excluding TPP deal, believing it could give Tokyo the chance of grabbing a leadership position to establish free trade rules in the region.

RCEP, however, has been promoted by China in the absence of the United States, and Abe has voiced fears about Beijing’s possible control over trade.

“There’s no doubt that there would be a pivot to RCEP if the TPP doesn’t go forward,” Abe said during a parliamentary session a week after Trump’s victory in the Nov. 8 U.S. presidential election.

“RCEP doesn’t include the United States, leaving China the economy with the largest gross domestic product” in the trade bloc, Abe said of the regional market-opening pact under negotiation since 2013.

Toru Nishihama, chief economist at the Dai-ichi Life Research Institute, said China wants to “build hegemony by imposing its rules in the Asia-Pacific region,” referring to Beijing’s recent launch of the Asian Infrastructure Investment Bank, in an apparent effort to counter the Asian Development Bank led by the United States and Japan.

“Unless the TPP enters into force, Japan would have no choice but to allow China to realize its ambition,” Nishihama said.

Some analysts question the “quality” of RCEP.

“Even if RCEP is established, high-level provisions like those in the TPP would not be enacted because of the participation of China and India,” said Kazuhito Yamashita, a research director at the Canon Institute for Global Studies.

“Both countries would not be able to approve the high-level provisions, not only in the chapters newly added to the TPP, such as on state-owned enterprises, trade and the environment, and trade and labor, but also in the chapters concerning services, investments, intellectual property, and government procurement,” said Yamashita, a former agricultural ministry official.

Covering around 40 percent of the global economy, the TPP groups Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

As a step to pursue a higher quality of free trade, Yamashita called for the launch of the TPP “without the United States.”

Under the current rules, the TPP’s implementation requires ratification by nations accounting for 85 percent of the combined GDP of the 12 member countries. Without ratification by the United States, which represents over 60 percent of the trade bloc’s GDP, the deal is dead in the water.

Trump has vowed to pull the United States out of what he calls the “job-killing” free trade pact as soon as he takes office on Jan. 20, echoing his well-worn slogan of “America First.”

“We should make a new TPP agreement without the United States,” Yamashita said, adding, “Someday the United States, when it has been left out of the Asian Pacific Ocean area, may request to join the new TPP agreements.”

But Toshiki Takahashi, a senior researcher at the Institute for International Trade and Investment, disagreed with the idea, pointing out that a TPP without the United States would have only limited impact on the member countries.

“The value of the mega FTA would not be high unless the economic power of the United States joins,” Takahashi said.

The potential collapse of the TPP could also hamper Abe’s efforts for an early conclusion of the free trade deal with the European Union.

“Although Japan and the European Union are now aiming to reach a broad agreement in 2017, Tokyo is likely to face a rocky road ahead,” said Junichi Sugawara, a trade policy expert at Mizuho Research Institute.

“Without the TPP, the European Union would lose motivation to tap into the Japanese market as soon as possible, which could make it more difficult for Japan to extract concessions from its negotiating counterpart,” Sugawara said.

In addition, Europe could have little room to concentrate on free trade talks with Japan in 2017, as Britain’s negotiations to leave the European Union may begin, major elections are scheduled in France and Germany, and the political situation is expected to remain unstable in Italy, he said.

In the Japan-EU free trade talks, launched in 2013, Tokyo is seeking the removal of tariffs imposed by the bloc on Japanese cars and electronics, while Brussels wants Japan to eliminate duties on farm products such as pork and cheese.

Both sides pledged to broadly agree on the pact by the end of 2016, but they dropped the plan in December.

Japan and the European Union, which will be reduced to 27 nations after Britain’s withdrawal is finalized, already missed the initial deadline for reaching a deal by the end of 2015.