One of New Zealand’s most experienced trade negotiators last night set out a bold plan to revamp and expand the TPP as a way to deal with President Donald Trump’s “America First” policies.
Before an Institute of International Affairs audience in Wellington which included current and former MFAT trade negotiators and foreign diplomats, Crawford Falconer said the need to start taking action to deal with Trump’s American protectionist policies was urgent.
Falconer is a former Ambassador to the World Trade organisation and has chaired numerous WTO, and OECD trade bodies before becoming in 2012 the Sir Graeme Harrison Professor of Trade at Lincoln University.
He is regarded as one of the country’s leading gurus on trade policy.
And what he is proposing is a sort of super TPP — without the US but with South America and Europe.
Crawford said Trump’s aim was simple; to import less and sell more so that unemployed workers in the mid-Western states could get back to work.
“The United States has gone rogue on trade,” he said.
“They are not going to be in a position to be leaders on world trade policy for the next five years, possibly for ten.
“The politics are there for all to see.
“It’s not just Trump.
“If it hadn’t been Trump this time it would have been somebody else next time.”
Falconer said that the UInited States could not do trade deals with developing countries or even China for political reasons because those countries could produce goods cheaper than the US.
He said this meant the trade agenda had changed.
“Does it mean things can go backwards and I think the answer is ‘maybe’.
“I think the choice is whether it’s slightly bloody or very bloody.”
Falconer said that the Trump administration was obsessed with the trade deficit and that it would address this by trade policy rather than through orthodox economics.
That meant they would find protectionist measures they could use, particularly against China.
“I think that might happen; I think it’s basically survivable, but I think the Chinese may retaliate.
“And one would hope that things stop there and that they don’t escalate.”
Falconer argued that the best strategy to deal with the US would be what he called “FOMO – “fear of missing out”.
He argued that the rest of the world should get on with new trade agreements which would increase prosperity while the US stagnated behind its protectionist walls.
“The only thing that will change this mindset in the US will be if they manifestly see that it is not sensible.”
And that meant showing the US that trade liberalisation was leading to gains in other economies which the US was missing out on.
But he was sceptical that the China-backed trade agreement, the Regional Co-operation and Economic Partnership (RCEP) would achieve that goal.
“It won’t be a big deal if it ever gets done.”
“So, do you do TPP minus the US?
“But TPP minus the US isn’t going to do it either.
“It gets you closer, but it’s still not enough.
“You need to have add-ons; you need to have the Pacific Alliance (Chile, Colombia, Mexico, Pero trade agreement).
“And I think they are up for it.
“You would need to have some other Asian economies.
“If you could get all those members together I think you would be making progress.”
But Falconer warned that “all roads lead to Tokyo” — if Japan abandoned the TPP in favour of a Free Trade Agreement with the US, then the larger grouping would be “nobbled at birth”.
“And that’s exactly what the US is trying to do.
He said the US would try and link its security relationship to a Free Trade Agreement with Japan on which Japan would be forced to accept US terms because it needed the security relationship.
“This is absolutely at the core of what will happen in the next 12 months.”
If Japan chose to go with the US, then that would leave the rest of the Asian region to deal with things as best they could.
He said this would be a diplomatic challenge for Australia and New Zealand who should be trying to persuade Japan to join Asia rather than going with the US.
Then the region ought to bring the EU in but its member states would need enormous encouragement.
“And the group would need to be that big before it would change the judgement of the US.”
However, Falconer said that then raised the question of China.
“I think an economy like New Zealand ought to be looking for every available opportunity to engage with China and make the Chinese feel comfortable.
“They are going to need friends.
“And I think New Zweaklabnd Australia could be disproportionately influential because China doesn’t have that man y friends.”
He said the Japanese were ambivalent, the US and the EU opposed the World Trade Organisation regarding China as a market economy.
“The Chinese are looking for intermediaries, they are looking for friends, and I think there is quite a lot Australia and New Zealand could do, while there is an opportunity, to engage further.
“Then some years out, you could get the opportunity for the United States and the rest of the world that would be too big to miss.”
To some extent, the Government has already started down the path proposed by Falconer with its new policy of engaging on trade agreements whenever and wherever it can.
Thus currently there are talks going on negotiations being conducted with the Gulf Co-operation Council, the TPP partners, the RCEP group, the Pacific Alliance and with the EU. But what New Zealand has not done is set out any way of connecting some of these pieces together.
Falconer’s speech last night will be reported back to Trade Minister Todd McClay (a staff member was there) and there were senior MFAT trade staff there too.
As Trump’s term as President progresses, it is becoming abundantly clear that (as Reserve Bank Governor Graeme Wheeler has already warned) business as usual with the US will not work.
Falconer’s proposal may well set off a deeper debate in Wellington about where trade policy goes next.
It has to go somewhere because everything has changed.