Absent the U.S. Others Gain in CPTPP

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Posted by Philip Thompson on Friday, August 28th, 2020, 1:19 PM PERMALINK

When the U.S. left the Trans-Pacific Partnership the remaining members rebranded it to the Comprehensive and Progressive TPP by suspending tough investor and intellectual property protections.

 
When it finally went into force in December 2018 businesses and entrepreneurs in initial batch of implementers: Canada, Australia, Japan, Mexico, New Zealand, and Singapore began enjoying preferential access to each other’s markets while their U.S. competitors have had to sit on the sidelines. 
 
The U.S. left behind a large gap of expected exports to Japan that largely Mexican and Canadian producers have surged to fill.
 
Greater access to Japan’s market was the huge economic and political win for the U.S., but not enough for Trump or Clinton to endorse in 2016. Japan is the largest economy in the trade bloc after the U.S., a top U.S. trade partner, and always a chief source of FDI fueling nearly a million jobs, $8 billion in R&D, and $95 billion in exports. Not only was this relationship expected to grow, analysts expected it would make the bloc large enough to achieve other foreign policy aims.
 

As the richest economy on a per capita basis in the region and the 3rd largest GDP in the world, Japan made the group “pivotal,”  capable of attracting the rest of Asia from China’s political and economic gravity into a rules-based,  market oriented system.  

Trump has managed to make up for some of the economic loss to Japan’s market by negotiating and implementing a phase 1 trade agreement with Japan, the USJTA went into effect January 1, 2020. Yet it doesn’t cover everything that was in TPP.

In fact, Canada estimated, quite explicitly that “in the absence of U.S. competition” its “GDP gains would improve to $3.4 billion under the CPTPP, compared to $2.8 billion under the TPP.” It seems to be the case for Mexico as well.

For instance, under CPTPP Japan imports tomatoes, helmets, and coats duty-free, and fish at a reduced 2.5 percent tariff rate. These aren’t covered by the USJTA forcing American exporters to pay Japan’s MFN rate of 5 percent for tomatoes, 5% for helmets, up to 16% for coats, and 5% for fish.  Thus, since implementing the CPTPP in 2018, U.S. exports of fish to Japan have declined by 21%, the industry has no hope of competing with their Mexican competitors which export 5 times as many, by value, to Japan.  
 
In other areas, such as pharmaceutical goods and pork products Japan still imports more from the U.S., but that gap is closing. For instance, before CPTPP the U.S. exported $1.2 billion of pork to Japan, 16% more than our chief competitor Canada. In 2019, after CPTPP took effect and before the USJTA which secured the same preferential tariff rate, U.S. pork exports to Japan declined by 4%, while Canadian exports rose 6% reducing the US-CAN export gap to 7%.
 
Generally, because Mexico has more preferential trade agreements than the U.S., American companies export more cars and car parts from Mexico to the CPTPP region and the rest of the world than they do from the U.S. ports. That trend has increased. At the same time, Japan, competing with the U.S., Canada, and Mexico exports double the value of autos and auto parts they send to the CPTPP region than North America. At the same time U.S. exports of electric machinery, and other industrial goods, has declined or stagnated while new players have Vietnam have increased their exports of electrical machinery to the region by 37%.
 
The Recent executive order to buy American pharmaceuticals from domestic producers and to raise steel tariffs only increase the price Americans have to pay for them and make it harder for these industries to compete abroad.
 

In 2018, 25 Republican senators signed a letter urging the Trump administration to get back into the TPP, not only for the economic benefit, but also to “counter the influence of the People’s Republic of China.” Rejoining TPP, the senators stated, would “increase pressure on the PRC to adopt substantive and positive economic reforms.”

Clearly, not going ahead with the TPP has ceded U.S. competitiveness in a region of 500 million people. Now that the USMCA has been implemented and phase 1 agreements with Japan and China have been signed, re-engaging with the trade bloc should be seen as a next step in confronting China and boosting America’s economic potential.

Photo Credit: Tom Fisk

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