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  January 26th, 2017 | Written by

Trump’s Withdrawal From TPP: What Does It Mean?

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  • TPP is technically still alive.
  • Japan is the only country to have fully ratified TPP.
  • TPP could only enter into force with both US and Japan ratification.

Early Monday morning, President Donald J. Trump signed a presidential memorandum withdrawing the United States from the Trans-Pacific Partnership (TPP). TPP is a regional trade agreement among 12 Asia-Pacific countries that combines trade and investment liberalization with high-standard rules and disciplines in areas like state-owned enterprises, labor, and intellectual property rights. President Trump has said that a reorientation of US trade policy would be a top priority of his administration, with today’s action marking the beginning of his new agenda.

Q1: What did President Trump do and why?

A1: President Trump signed a presidential memo withdrawing the United States from the TPP agreement. The memo has not yet been made public. Congress had not ratified the TPP agreement, signed by the 12 members in February 2016, so the president’s action does not represent a substantive change in US law or policy. However, President Trump has effectively ensured that the United States will not bring into force an agreement that was the central pillar of Obama administration trade policy.

By withdrawing from TPP, President Trump is honoring one of his top commitments made during the course of his presidential campaign. In a speech on October 22, 2016, in Gettysburg, Pennsylvania, Trump promised to withdraw from TPP on his first day in office. His commitment reflected a growing anxiety among a significant portion of the electorate about globalization and US trade policy, with both former Secretary of State Hillary Clinton and Senator Bernie Sanders, Independent of Vermont, also pledging to withdraw from the agreement.

During the signing, Trump said withdrawing from the agreement was a “great thing for the American worker.” In a press briefing on Monday afternoon, White House press secretary Sean Spicer indicated that the Trump administration viewed bilateral deals as more advantageous to US interests than multilateral deals, signaling a fundamental departure from past US trade policy.

Q2: Does this mean the TPP agreement is dead?

A2: While the United States’ withdrawal from the agreement strikes a near-fatal blow to TPP, the agreement is technically still alive. All parties to the TPP, including the United States, have officially signed the text, and none of the other 11 countries has signaled its intention to withdraw. Other countries are in various stages of ratifying the agreement, with Japan currently the only country to have fully ratified the agreement.

Article 30.5 of the agreement requires ratification by at least six signatories representing 85 percent of the bloc’s combined gross domestic product (GDP). In practice, this meant the agreement could only enter into force with both the United States and Japan’s ratification. With the United States out of the agreement, this makes TPP as currently constructed not viable. There has been some speculation that the other 11 members of TPP could agree on a deal without the United States, but this would require new negotiations to amend Article 30.5 and probably other provisions to ensure a new balance of benefits among the 11 remaining parties.

Q3: What does this mean for the US economy and the US position in Asia?

A3: As CSIS wrote in a recent report , TPP was designed to advance US interests in three tangible ways. First, by eliminating some 18,000 tariffs and expanding market access across the region, it would create US export and job opportunities. Second, it would establish new and updated rules for international trade and investment in areas critical to today’s global economy, such as services, intellectual property protection, digital trade, and labor and environmental standards, regulatory transparency, and state-owned enterprises. Finally, TPP was designed as an essential complement to our military strategy in Asia, a region that views economics as the foundation of security.

President Trump’s decision to withdraw means these benefits will be forgone. Moreover, critics say the decision deals a significant blow to the credibility of the United States as an economic and strategic partner, both in the Asia-Pacific region and globally. While several members of Congress, including Senator Sanders, have applauded President Trump’s action, others have already come out against him. Senator John McCain, Republican of Arizona, called the decision to withdraw from TPP “a serious mistake that will have lasting consequences for America’s economy and our strategic position in the Asia-Pacific region.” In a rapidly changing global economy, the concern is that the rules of global trade may now be written by China and other actors who do not share our interests.

Q4: What does this mean for the global trading system?

A4: With TPP now off the table, the multilateral trade agenda has effectively ground to a halt. TPP had the greatest potential to update the rules of the global trading system, and its failure represents a missed opportunity. Other items on the global trade agenda have not lived up to expectations. The World Trade Organization’s (WTO) Doha Development Round of negotiations, first begun in November 2001, have long been stalled due to deep disagreements among the major member states. Smaller sectoral agreements among WTO member states, such as the environmental goods agreement (EGA) and trade facilitation agreement (TFA), have stalled in negotiations and implementation and would have a much smaller impact. The United States’ other big trade agreement still officially being negotiated is the Transatlantic Trade and Investment Partnership (T-TIP), but this agreement has also stalled in negotiations, with progress unlikely as many key European leaders face elections in 2017.

The other major multilateral agreement currently being negotiated is the Regional Comprehensive Economic Partnership (RCEP), a proposed agreement among 16 Asia-Pacific states, including China, Japan, India, and the member states of the Association of Southeast Asian Nations (ASEAN). While RCEP has long been seen as a Chinese-led alternative to TPP, it currently includes fewer disciplines and lower standards, with the economic benefits accordingly projected to be less than those from TPP.

The failure of TPP does not necessarily mean a global slide into rising tariffs and heightened protectionism. Since the global financial crisis, the G20 group of major nations has pressured member states to reject protectionist measures, with mixed results. The true test of whether the United States and the global economy is headed into a new era of protectionism is whether President Trump will fulfill his other campaign promises to raise tariffs against China, Mexico, and other countries and whether such actions spark tit-for-tat retaliation.

Matthew P. Goodman is senior adviser for Asian economics and holds the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Daniel Remler is a research assistant with the CSIS Simon Chair.