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Economy

Trump signals shift on multilateral trade -- or does he?

Davos speech raises hopes of a US return to the TPPP but not everyone is convinced

U.S. President Donald Trump delivered an address Friday at the World Economic Forum in Davos, Switzerland.   © AP

DAVOS, Switzerland U.S. President Donald Trump hinted that he may be willing to bring America back into the Trans-Pacific Partnership trade agreement in a speech here on Jan. 26 that also emphasized the need for fair and reciprocal trade.

Trump, the first sitting U.S. president to attend the World Economic Forum since Bill Clinton in 2000, devoted much of his address to trade issues.

"The United States is prepared to negotiate mutually beneficial, bilateral trade agreements with all countries," including the "very important" nations in the TPP, he said. "We have agreements with several of them already. We would consider negotiating with the rest, either individually or perhaps as a group, if it is in the interests of all."

This represents a pivot for Trump, who ordered the withdrawal of the U.S. from the Pacific Rim trade and investment pact shortly after his inauguration a year ago, instead focusing on bilateral agreements where Washington could better use its leverage. The 11 remaining member countries, including Australia, Canada, Japan, Malaysia and Singapore, have since retooled the deal into the Comprehensive and Progressive Trans-Pacific Partnership. They announced just three days prior, on Jan. 23, that they will sign a revised TPP agreement in March.

Trump provided no specific timeline for new negotiations.

The president also warned that the U.S. "will no longer turn a blind eye" to unfair economic practices by trade partners, including intellectual property theft and excessive government subsidies. Such behaviors are "distorting the global markets," he said.

The comment was likely meant as a shot across the bow of China, with which the U.S. has a massive trade deficit. Washington is moving to remedy that imbalance through higher tariffs and other steps.

"We support free trade, but it needs to be fair and it needs to be reciprocal," Trump said.

Sue Trinh, head of Asian currency research at RBC Capital Markets, said, "It's sort of worrying how easily he seems to flip and flop in terms of his stance."

Trump essentially offered the prospect of a return to the TPP, first mentioned on Jan. 25 in an interview with American broadcaster CNBC, as a gift to Davos attendees worried about the U.S. turning its back on international cooperation.

If America rejoined the pact it once championed, the free trade agreement would become the world's largest by far, with its members accounting for nearly 40% of global gross domestic product, up from 13% under the current membership.

The TPP is a comprehensive framework that includes not only tariff cuts, but also complex international rules governing such areas as intellectual property and e-commerce. It was meant to let the U.S. and Japan set down rules of the road for modern trade as well as curb China's efforts to use its economic heft to build a rival sphere of influence. Trump's criticism of Beijing over violations of intellectual property rights suggests that his administration's stance has moved closer to the ideas behind the TPP.

The pivot also comes amid fretting by American industry about the retooled pact. The new agreement, rebuilt around the hole left by Washington's departure, would allow member nations to reap the benefits of lower tariffs while leaving the U.S. out in the cold.

Agricultural and other industry trade groups -- key support blocs for Trump's Republican Party -- have repeatedly lobbied the White House to rejoin the TPP, fearing the prospect of losing ground in Asian markets. With a midterm election coming up in the fall, Trump likely saw this as a necessary concession.

The president said in the CNBC interview that he would only be open to joining a substantially reworked TPP, calling the deal in its original form "horrible." The administration's top priority is narrowing a trade deficit in goods that exceeds $700 billion annually. Renegotiating the agreement might put pressure on countries to reduce their trade imbalances with the U.S. This would give an unpopular administration a victory to tout as Republicans brace for a tough election battle.

Steven Mnuchin, U.S. Secretary of the Treasury, attends the World Economic Forum (WEF) annual meeting in Davos, Switzerland on Jan. 25.   © Reuters

But Trump's change of heart may not be as sincere as it seems. The administration has shown little sign that it has fully thought through the idea of a return to the TPP. Other U.S. officials did not even seem to be on the same page as Trump at Davos, with Treasury Secretary Steven Mnuchin on Jan. 24 calling the U.S. "fans of bilateral trade agreements."

Trump campaigned on opposition to the TPP. The working-class voters who form the core of his support are largely hostile to free trade agreements, which they blame for allowing Mexico and Asia to "steal" American jobs. A senior U.S. official stressed that Trump's view of the TPP as a "terrible" deal has not changed, a move likely intended to reassure the president's support base ahead of the election.

The Japanese government, which has spearheaded the effort to rework the TPP, intends to continue for now with plans to sign the CPTPP in March while also trying to work out what the White House wants.

"We'll explain the significance of the TPP and confirm Mr. Trump's intentions," Deputy Chief Cabinet Secretary Yasutoshi Nishimura told reporters on Jan. 26.

Tokyo is taking seriously what some may dismiss as another off-the-cuff remark by the U.S. president. "He was asked twice about the TPP and gave roughly the same answer," a Japanese negotiator said.

Trade ministers and delegates from the remaining members of the Trans Pacific Partnership (TPP) attend the TPP Ministerial Meeting during the APEC 2017 in Da Nang, Vietnam Nov. 9, 2017.   © Reuters

But while Japan welcomes a possible U.S. return to the TPP fold, neither it nor other member countries are interested in renegotiating the deal. The original version, on which a broad agreement was reached in 2015, carefully balanced the interests of each of the 12 nations then involved. Revising one part could set off a flurry of demands for more changes, bringing down the fragile edifice.

Australia is more skeptical about the prospects of an early return of the U.S. to the negotiations.

"I don't expect the U.S. to join the TPP anytime soon. We're certainly not counting on it," Australian Prime Minister Malcolm Turnbull said. "It would be great if they did," he added.

Nikkei staff writer Mitsuru Obe contributed to this report.

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