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Interview

Can Biden return the US to TPP? Does it matter? 2 experts explain

Cutler urges digital and medical deals with Asia; Scissors says trade pacts 'overrated'

President Joe Biden's administration is conducting a broad review of U.S. policy toward China, including trade. (Photo courtesy of the White House)

WASHINGTON/NEW YORK -- The word "trade" has largely disappeared from American headlines of late, in sharp contrast to the days of Donald Trump's presidency. President Joe Biden has made clear that the Indo-Pacific is a key area for the country's future, but has not signaled how he will engage in forming the region's trade rules.

Analysts tend to agree that a U.S. return to the Trans-Pacific Partnership, now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, will be a tough call. Meanwhile, China has made advances during Washington's absence, finalizing the larger Regional Comprehensive Economic Partnership and announcing its interest in the CPTPP as well.

Wendy Cutler, a former acting deputy U.S. trade representative, told Nikkei that even if Washington cannot return immediately to the CPTPP, it should pursue short-term alternative measures to engage economically with the Asia-Pacific region, hopefully within a year.

Scholar Derek Scissors said regional trade pacts such as the CPTPP are overrated, and that the U.S. should pursue bilateral agreements with the likes of Japan, the Philippines and Taiwan.

Edited excerpts from their interviews follow.

Derek Scissors, left, and Wendy Cutler. (Photo courtesy of AEI and the World Economic Forum)

Wendy Cutler, vice president at the Asia Society Policy Institute

Q: Will the Biden administration go back to the CPTPP?

Cutler: I do not see the Biden administration joining CPTPP in the near term, and it's questionable, although not impossible, that the president would consider this later in his term. In the meantime, it's critical that the United States reengage on the economic front in the Asia-Pacific. There are alternatives short of doing a major, comprehensive agreement like the CPTPP to get the United States back in the region.

In our recent Asia Society Policy Institute paper "Reengaging the Asia-Pacific on Trade," we recommended that the Biden administration look at narrower, sectoral deals as a first step. We identify three areas that would seem to be not only in the U.S. interest but also in the interest of our Asian trading partners, including climate change and trade, digital trade and medical supply chains.

These three issues are impactful, and over the past year, with COVID, they've elevated in importance all around the world.

On digital trade, the United States concluded an agreement with Japan last year. That agreement builds on the CPTPP provisions. Work in this sector has become more urgent with COVID, as we have become more reliant than ever on digital tools with respect to the way we work and live. This opens the possibility of expanding the digital agenda further to go beyond the U.S.-Japan state-of-the-art digital agreement.

In the climate area, it's time to revisit the stalled plurilateral negotiations in the World Trade Organization on lowering and eliminating tariffs for environmental goods and services.

In the medical area, the issue of tariffs, export restrictions and supply chains has moved to the forefront during COVID, as many countries imposed export restrictions on trade in essential medical supplies and equipment and certain medicines. This led to shortages and price distortions, impacting the ability of our first responders and citizens to access urgently needed supplies and medicines.

An employee packs masks at a factory in Germany. The issue of tariffs, export restrictions and supply chains for medical equipment gained global importance during the COVID-19 pandemic.   © Reuters

In all of these areas, there's a wealth of issues that could benefit from a regional agreement among like-minded countries.

Q: What is the time frame for pursuing these alternative measures?

Cutler: I would hope, within the year, the United States would explore sectoral negotiations in the region, while increasing its constructive participation in [the Asia-Pacific Economic Cooperation forum] and the WTO. But keep in mind that the Biden administration's immediate priorities will be addressing the COVID crisis and related economic recovery.

He will need to balance these urgent domestic priorities with international work, including working with allies and partners and within regional and international institutions. Indeed, the domestic and international agendas are interrelated in many respects. He's brought a strong team in to do both.

Q: What role can Japan play?

Cutler: In my view, Japan shouldn't spend its time trying to convince the Biden administration to return to TPP. Rather, it should update the U.S. on CPTPP developments, including the recent expression of interest by the U.K. and others to join the agreement.

Tokyo can convey to Washington that if the U.S. wanted to explore reengaging with CPTPP, Japan would be a trusted ally and partner and work with the United States and others to help find a way for the smooth reentry of the United States.

If the U.S. were to return to CPTPP, it would need to seek revisions and updates in various parts of the agreement. That's crystal clear. Some members may be hesitant to welcome such revisions. Japan could help to bridge gaps between any differences of views.

Q: China has expressed interest in joining CPTPP.

Cutler: When Japan expressed interest in joining TPP, the U.S. said it needed to be convinced that Japan could "live up to" the high standards of the TPP before it could support Japan's participation. Probably the two most important issues were agriculture and autos. We spent over a year in discussions to gain the confidence that Japan was indeed ready to join.

A similar process should be undertaken with any country, including China, considering potential accessions. If you look at China's trade regime, my assessment is they are years away from being able to live up to the CPTPP standards -- not just in the area of state-owned enterprises, but also with commitments in other areas including labor, e-commerce, intellectual property rights and the environment. 

Q: What are the prospects for "phase two" negotiations over the U.S.-Japan trade deal?

Cutler: In my view, a phase two negotiation that would lead to a comprehensive free trade agreement between the United States and Japan would distract from the urgent work we could be doing together to raise standards, develop norms and rules for trade and investment in the region and globally.

Q: Do you think the Biden administration will remove China tariffs?

Cutler: The Biden team has made it clear that they plan to look at the "phase one" agreement, including the remaining tariffs, within the context of a broader review of China policy. It's going to be very difficult for the Biden administration to lift tariffs without showing what it got in return. I can see, over time perhaps, tariffs being lifted -- not all at once but maybe in tranches, based on progress that the U.S. could make with China, for example, on structural reform issues.

Q: How about export control on Chinese companies?

Cutler: As we've already seen during the confirmation hearings of cabinet appointees, Congress will be very tough on the prospects of lifting these measures.

I would hope that, over time, the Biden administration would develop an export control and sanctions policy that focuses on key technologies with dual application, in a more targeted and selective way, as opposed to casting a wide net. A net that's too wide can work against U.S. interests.

Shipping containers are loaded onto the ship Xin Da Yang Zhou from Shanghai at the Port of Long Beach in Long Beach, California.   © Reuters

Derek Scissors, resident scholar at the American Enterprise Institute

Q: Do you see a path for the U.S. to return to the CPTPP under Biden?

Scissors: I don't think there's any chance the U.S. will return to TPP, during the first term of President Biden at least. The Trade Promotion Authority [which Congress uses to "fast track" legislation for trade agreements] expires in the middle of the year. I don't even think they're going to ask for Trade Promotion Authority. That's a much easier vote than TPP. If they're afraid to take it, I think they're too far away from this.

The main reason is that to get trade deals passed, you need Republican votes. And the environment is not such that the Biden administration is willing to put forward something that most Democrats are going to vote against and most Republicans are going to vote for.

Q: How big of a loss to the U.S. was the withdrawal from TPP?

Scissors: I don't think it was a huge loss. TPP was extremely overrated as to the U.S. economy. People talk about it as a diplomatic agreement, and then an agreement for a few U.S. businesses, which are also not important to the U.S. economy.

The agreement had clear weaknesses. I don't think it would have hurt the United States to join but it wasn't going to help. People say, "Oh, no, we're being cut out of this." But TPP had very minor impact.

Now on the diplomacy side you could say, "Well, this hurts the United States' posture in the region." That may be true, but I focus on economic issues, and as an economic event TPP is not important to the U.S.

Q: The U.S. is absent from both the RCEP and CPTPP, while China has joined the former and expressed interest in the latter. How big of a deal is that?

Scissors: RCEP is even less meaningful than TPP. There is a tendency for a lot of countries, certainly in Asia, to sign trade agreements that don't do anything. There's no point leading in that area. Where the U.S. should lead is high-standard trade agreements.

The problem for the U.S. is that we don't have a bilateral trade agreement with Japan. We have a bilateral trade agreement with South Korea, but Japan is an even more important ally of the United States. It's a bigger economy.

Now maybe that's all Japan's fault, but you don't see the United States coming forward and saying we want an agreement with Japan.

We should have a bilateral agreement, if it's possible, with Taiwan. We have a defense treaty relationship with the Philippines. Why wouldn't we try to negotiate a trade agreement with the Philippines? If these agreements were compatible, we could certainly merge them.

The problem is the U.S. isn't coming to the region and saying, "We want to sign high-standard agreements" -- not watered down because Malaysia or Vietnam or Singapore wants it to be watered down -- "and who would like to join us?"

That's the failure: the failure of the U.S. to move forward on trade with our friends in East Asia and the Pacific. It's not that China signed RCEP. 

Katherine Tai received a rare unanimous approval by the Senate to be U.S. Trade Representative.    © Reuters

Q: What happens to U.S. tariffs on Chinese goods from here?

Scissors: I don't see a timeline for the tariffs to be removed, at least this year. It would require the U.S. and China to agree about something, and as we saw from the Alaska meeting, they don't seem to be agreeing about much now.

The other reason is that the U.S. economy will probably expand fairly strongly this year, and that means more imports. Even with tariffs and even with COVID, the bilateral merchandise trade deficit the United States runs with China was barely smaller in 2020 than it was in 2016. With the U.S. coming out of COVID, it's probably going to go back up at some point this year. And if you take off tariffs, it will be that much worse.

I don't think there's any political support in the United States for taking tariffs off.

Q: Beijing seems eager for the tariffs to come off. Is China's economy feeling the hurt of the levies?

Scissors: Not very much. President Trump's goal for the tariffs was to close the bilateral merchandise trade deficit. It barely closed, and it mostly closed because of COVID. The Chinese would be shipping more to the U.S. without the tariffs, but that's more of, "It could be better," rather than "It's hurting us right now."

What China fears is if a 25% tariff on about three-quarters of Chinese exports to the U.S. becomes normal, then it's possible other countries will copy that tariff or the U.S. will say, "Well, how about 50% tariffs?"

They don't like it as this new status quo, because if this is the new situation, then the next step could be quite damaging.

Q: What about U.S. export controls? How much are they hurting both sides?

Scissors: Again, we haven't really done anything. We passed export control legislation in summer 2018, but it hasn't been implemented properly because [the Department of] Commerce still hasn't written the regulations. We've targeted Huawei Technologies with a lot of export controls that hardly matter to the U.S.-China economic relationship. This is a tiny amount of goods. I suppose at some point the U.S. could become serious about export controls.

Q: How much impact do you expect from China's own effort to tighten export controls?

Scissors: The way the Chinese would make their export restrictions matter would be to tie them into U.S. supply chains, because the U.S. doesn't get technology from China in any meaningful way. If they were able to say, "Well, we don't want to participate in the supply chain that ultimately serves the United States," that would matter.

But, of course, China makes money off those supply chains. They would have to make the same decision the U.S. makes: "Well, we have long-term strategic goals, and we'll sacrifice income." And they usually just talk about that rather than doing it.

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