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Trading Lessons

Eclipse of US Free-Trade Legacy in Americas and Asia Pacific

Economics / Protectionism Dec 20, 2017 - 10:47 AM GMT

By: Dan_Steinbock

Economics Recently, all major US free trade deals in North America, Latin America and Asia Pacific have fallen under fire. As American legacy in free trade is dimming, there is a new opportunity for real free trade in Asia Pacific.

Recently, Canadian Prime Minister Justin Trudeau concluded a visit to China. The joint talks about a free trade pact began over a year ago. As Trudeau left Beijing, Western media headlined “Trudeau leaves China empty-handed,” while Chinese Foreign Ministry said that “both China and Canada showed willingness to negotiate and sign a free trade agreement.”


In reality, the world of free trade is now in the kind of flux that has not been since the post-1945 era.

If the US withdraws from the North American Free Trade Agreement (NAFTA), that would start a six-month legal process before official termination. While President Trump may see this as a negotiating tool to force Canada and Mexico to accept its demands, the latter may use the time to complete trade talks with Brazil and the European Union (EU).

After the fifth round of NAFTA talks ended amid simmering tensions, Canada and Mexico are hedging their bets against a potential NAFTA collapse by pushing for deals with new partners, particularly with China and other Asian countries.

The rise and fall of NAFTA

NAFTA is not just another free-trade agreement. It is America's post-Cold War blueprint for other free traded agreements (FTAs). It came into force in 1994, amid the globalization boom. Despite fanfares, the key leaders faced a brutal aftermath.

President Bill Clinton’s alleged abuses of public power led to a special counsel in the 1990s. After Prime Minister Brian Mulroney was blamed for fraud by the Canadian Justice Department, he won an out-of-court settlement but reportedly neglected to inform the courts about payments that could have affected the settlement. Mexico’s President Carlos Salinas was appointed WTO’s Director-General and left Mexico as his brothers were prosecuted in a multimillion dollar fraud case; his older brother, a figure in cocaine cartel trade, was convicted for murder; the younger brother was found dead with a plastic bag strapped around his head.

In public, NAFTA was promoted as a receipt for regional success in the US, Canada, and Mexico. Yet, its record has proved mixed. While the agreement has benefited consumers in three countries, it has also contributed to investment outflows, unemployment and offshoring.

Recently, US officials have sought to subdue NAFTA tensions by extending the timetable for renegotiations but that has just poured oil on the simmering fire. In Mexico, tight elections in mid-2018 will complicate the NAFTA talks; in Canada, conservatives are positioning for 2019 elections. 

The rise and fall of FTAA

Yet, in the 1990s, Washington’s trade bureaucrats embraced the NAFTA as a blueprint that could be expanded and extended elsewhere. The proposed Free Trade Agreement of the Americas (FTAA) was the first case in point.

Venezuela’s Hugo Chavez condemned the FTAA as a “tool of imperialism.” However, Latin America’s leaders, including then presidents of Brazil, Luiz Inácio Lula da Silva, and Argentina, Néstor Kirchner, did not oppose the FTAA but demanded the pact to eliminate US agriculture subsidies, effective access to foreign (read: US) markets and consideration towards their member states’ needs.

In contrast, Washington sought to extend NAFTA with non-trade-related concessions through the FTAA. Instead of opening South America to free trade, the FTAA split the region into two blocs, as President Lula had predicted.

Historically, the TPP was déjà vu all over again. Not only did it split Asia Pacific; it also divided the United States from within.

The rise and fall of TPP

As he had pledged in the campaign trail, Trump killed the Trans-Pacific Partnership (TPP), President Obama’s legacy deal, during his first day in office. But the move did not come out of the blue.

Through the Cold War, most Americans still believed in international engagements, which had bipartisan support in Washington. After the Cold War, Americans have grown more skeptical, even hostile to international commitments.

Historically, the TPP originated from a 2005 free trade deal among Brunei, Chile, New Zealand and Singapore. Its original version had more economic, transparent and inclusive foundations. After 2010, Washington began to lead talks for a significantly expanded FTA, which reflected US interests in Asia and Americas. So the talks were assigned to the new US Trade Representative Michael Froman, a former security and Soviet Union expert.

The new TPP was an integral part of Obama’s “pivot to Asia.” That’s why these negotiations were more geopolitical, secretive and exclusive by nature and China was excluded from the pact.

After the US 2016 election, some TPP partners began to push a revised TPP without the US. In the process, many of them – including Japan – began to hedge between a revised TPP, a bilateral free trade deal with the US, and China-led talks at a Regional Comprehensive Economic Partnership (RCEP).

In November, 11 countries announced their commitment to resurrecting the TPP, without the US. But a new deal would have to be signed and ratified by each country.

Toward real free trade in Asia Pacific

In fact, the idea of free trade in Asia Pacific has been around since at least 1966 when Japanese economist Kiyoshi Kojima advocated a Pacific Free Trade agreement. Practical measures ensued during the 1994 meeting in Indonesia, when APEC leaders opted for free and open trade and investment in Asia Pacific.

In 2006, C. Fred Bergsten, then chief of the influential US think-tank Peterson Institute for International Economics, made a forceful statement in favor of the Free Trade Area of the Asia Pacific (FTAAP). If the agreement could be achieved, he argued, it would represent the largest single liberalization in history.

Oddly enough, the Obama Administration set the FTAAP aside to focus on the geopolitical TPP talks.

What Asia Pacific really needs is an inclusive free trade agreement. No sustainable free trade pact in the region can ignore either China or the United States, or both. Perhaps that's why China now seeks to couple its One Road One Belt initiative with a renewed effort at the FTAAP that would be broader and more inclusive than all past efforts.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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