Why did the US pull out of the Trans-Pacific trade pact?

President Donald Trump is reversing decades-old trade policies, hoping to bring jobs back to the United States. But many are skeptical.

Photo by: Reuters
Photo by: Reuters

With a signature, President Trump was able to do away with the trade pact that took the previous administration years to finalise.

What is the Trans-Pacific Partnership?

Led by the United States, the TPP was aimed at tying together the economies of 12 countries in what would have become the largest trading bloc in the world.

Japan, Vietnam, Brunei, Singapore, Malaysia, Australia, New Zealand, Canada, Mexico, Peru and Chile are the other members of the pact – all located on edge of the Pacific Ocean.

Under the agreement, the member countries would have gradually removed import tariffs and by 2030, goods would have flowed into their ports without any restriction.

Besides boosting trade and economic growth, the pact would have helped increase wages and uplift working conditions for labour in countries like Vietnam as all members were required to follow common regulations.

Together, these countries make up 40 percent of the global economic output and one third of its trade, making it the strongest economic partnership.

Did the pact threaten jobs in the US?

That's debatable.

Immediately after announcing the US withdrawal from TPP, Trump met with union leaders from the construction industry in the Oval Office.

"We just had probably the most incredible meeting of our careers," North America's Building Trades Unions' President Sean McGarvey said.

The unions said they would back the president's policies.

Factories such as this auto parts maker have shifted production to Mexico where labour is cheaper. (Reuters)

During his election campaign, Trump stressed on bringing back jobs to the US that have been out-sourced to other countries where worker wages are low.

This helped him win votes in rust-belt states like Michigan, Wisconsin and Pennsylvania, a region where thousands of people have lost jobs over the years.

From now on, Trump said, the US will lean towards bilateral trade deals that could be fine-tuned to ensure that Americans do not lose jobs because of cheaper imports.

But proponents of the trade pact believe that jobs were lost due to automation – machines performing more work – and not because companies moved production abroad.

Also, they point out that everything from aircraft to clothes are now manufactured using components and raw material supplied by different countries, making a deal like TPP profitable.

Will the deal work without the US?

Probably not.

The 12 member countries signed the pact in February 2016. But only Japan has ratified it while the other members are yet to get approval from their respective parliaments.

The trade pact was seen by supporters as a means of boosting global trade. (Getty Images)

Inclusion of the US in the deal is imperative. Theoretically the deal can still happen if only six members adopt it –  they just have to be big enough to represent 85 percent of the total GDP of the original members.

The problem here is that the US and Japan together represent 80 percent of the total GDP. Any one of these countries pulling out means the deal is dead.

What are the other members of the TPP saying?

Japan's Prime Minister Shinzo Abe said his government will continue to negotiate with Washington and try to convince the Trump administration to change its position.

"I believe President Trump understands the importance of free and fair trade, so I'd like to pursue his understanding on the strategic and economic importance of the TPP (Trans-Pacific Partnership) trade pact," Abe told a session of parliament's lower house on Monday.

Other members are adamant about proceeding with the deal without the US.

Many have opposed the pact that they see as a tool for large corporations to make more money at the cost of workers. (Getty Images)

Australian Prime Minister Malcolm Turnbull has suggested that China could become part of the pact.

New Zealand's Prime Minister Bill English has also indicated joining a counter-regional trade pact championed by China.

Will China step in to fill the vacuum?

China has already been active in Asia, trying to forge economic alliances through its proposed Regional Comprehensive Economic Partnership (RCEP).

RCEP encourages trade between 16 nations including India, Indonesia and Thailand by lowering tariffs.

Australia, Japan, New Zealand, Malaysia, Brunei, Vietnam and Singapore – all part of the TPP – have also participated in talks on the RCEP.

Former US President Barack Obama particularly focused on the pact when visiting countries in Asia as a way to counter China's growing influence.  

TRTWorld, Reuters