The ink on President Donald J Trump’s executive order to withdraw from the Trans-Pacific Partnership (TPP) was barely dry when speculations began to swirl whether the new administration was about to cede Asia-Pacific — the world’s most dynamic economic region — to China. Republican Sen. John McCain, a staunch supporter of the 11-nation trade deal, warned that the U.S. would “consign the Asia-Pacific region to China.”
McCain has ample reason to worry that China, the world’s second-largest economy and merchandise trader, could take advantage of America’s exit. Almost immediately after Trump signed his executive order, the Australian government announced that it would lead an effort to establish the TPP without the U.S. Australia’s trade minister, Steven Ciobo, even fueled whispers that China could become a member.
If this happened, it would be one of the most delicious geopolitical ironies. The proposed free-trade zone was originally set up, under American leadership, to exclude China and prevent Beijing from gaining economic dominance in the Asia-Pacific.
Of course, the hurdles for China to join are formidable and unlikely to happen. Opposition from a single member can sink Beijing’s application. Of the eleven remaining members, including Australia, Canada, Mexico, Singapore and Vietnam,Japan is the most likely to block China’s entry because Tokyo harbors mortal fears of Beijing’s regional hegemony.
Vietnam would be Japan’s potential ally. Mexico and Singapore would be ambivalent since Mexico is China’s competitor in manufacturing and Singapore might not benefit much from China’s membership. The other members of the TPP, however, would likely support China’s entry because, as commodity exporters, they are poised to reap significant gains from the inclusion of China, already their biggest market.
An even more difficult obstacle to China’s TPP membership is Beijing’s will to undertake the reforms to meet the stringent membership requirements. The TPP is not a garden-variety free trade agreement. It has high environmental and labor standards and provides effective protection of intellectual property rights. The TPP also severely limits subsidies to state-owned enterprises (SOEs).
However attractive the TPP membership may seem, Beijing would find the price of admission too high. China would have to dramatically improve its labor and environmental practices, protect intellectual property rights, and cut down subsidies to its vast state-owned sector (which accounts for between 35% to 40% of the GDP). Of course, these reforms will greatly improve China’s economic efficiency and sustain its growth. But it will also fundamentally weaken the ruling Chinese Communist Party (CCP), which relies on its control of the economy to maintain power.
It is thus safe to rule out the prospect of China’s entry into the TPP in the foreseeable future.
Nevertheless, even without a seat inside the TPP, China could wield its enormous economic clout to weaken America’s influence in East Asia. In all likelihood, Beijing will adopt a two-pronged strategy to drive a permanent wedge between the U.S. and its traditional allies and friends in East Asia in a post-TPP world.
The first prong is to underscore the unreliability of Washington as a long-term strategic partner. Of course, Trump’s declaration of “America first” will doubtlessly make Beijing’s job a lot easier. And one of his first acts after assuming office – taking the U.S. out of the TPP (before even formally ratifying the agreement) – has already undercut American credibility in the region. We should expect a flurry of Chinese diplomatic initiatives in the coming months as part of a new charm offensive to woo Southeast Asian countries (China will likely snub Japan since Prime Minister Shinzo Abe is seen in Beijing as too hostile to be a partner).
The second prong will be a set of policy adjustments designed to offer tangible trade benefits to Southeast Asian countries, Australia, and New Zealand. In the short term, Beijing may announce new investment or trade deals with these countries to create an impression that China is stepping up to the plate when America is turning inward.
Tactically, China could also tone down its maritime disputes with Southeast Asia to improve its image. Most of Beijing’s energy will be devoted to pushing the Regional Comprehensive Economic Partnership (RCEP), China’s version of a free-trade zone that excludes the U.S. Even though the RCEP has no serious provisions regarding environmental and labor standards, intellectual property rights, or subsidies to SOEs, this agreement, when finalized, will lower tariffs and further strengthen China’s economic influence in East Asia.
Of course, since its economy is roughly 60 percent that of the U.S. in dollar terms, China cannot really replace the U.S. as the end consumer of the products made by countries in East Asia. Protectionist measures under a Trump administration will almost certainly hurt China’s growth and lessen its demand for commodities that are the main products of many prospective members of the RCEP.
Nevertheless, for most members of the TPP disappointed by Trump’s withdrawal from the trade agreement, a bit of something courtesy of China is still better than nothing.
Minxin Pei is a professor of government at Claremont McKenna College and the author of China’s Crony Capitalism (2016).