The U.S. withdrawal from TPP and TTIP leaves the EU as the main advocate of high regulatory standards in international trade agreements. The Trump administration’s anti-trade rhetoric may have created an opening for Brussels to get concessions from Beijing and to bolster its position through agreements with other Asian countries.
The newly elected U.S. President Donald Trump used his first executive order to withdraw from negotiations for the Trans-Pacific Partnership (TPP) free trade agreement on January 23 – dismantling the centerpiece of President Barack Obama’s ‘pivot to Asia,’ undermining American influence in the region and ceding a lot of space to China. Lacking support in Congress and Hillary Clinton’s change of position on the issue during the election campaign had made the treaty’s demise appear inevitable, but Trump’s definitive and abrupt change of course nonetheless marks a watershed in U.S. trade and Asia policy.
This shift will impact European trade policy as well. For now, there are three important takeaways:
1. Europe is left to fight alone for higher regulatory standards
EU Trade Commissioner Malmström rightly emphasized that Europe has a wealth of high regulatory standards that are worth spreading to other parts of the world. But Europe loses a crucial ally in moving Asia, and especially China, closer to desired norms, standards and market access provisions. Both European and US trade negotiators set out several years ago to write the trade rules for the coming decades by pushing for the inclusion of social and environmental standards, consumer protection and other regulatory matters into modern trade agreements.
The transatlantic partners wanted to preempt China from shaping the field, and indirectly pressure it to ascribe to their visions, while they still saw the opportunity to do so. But with both TPP and the Transatlantic Trade and Investment Partnership (TTIP) in shambles, and Trump’s commitment to new bilateral negotiations in doubt, the EU’s bilateral free trade agreements are all that is left of this effort.
2. U.S. withdrawal creates opening to move China closer to EU agenda
European governments can and should take China up on its recent free trade rhetoric to move the Chinese side closer to European positions. President Xi Jinping set the bar high in his pro-globalization speech in Davos. Prime Minister Li Keqiang described China and Germany as two pillars for free trade and stability in a phone call with Chancellor Angela Merkel last week.
The positive agenda for economic relations with China, which EU Trade Commissioner Malmström laid out last year, can serve as a blueprint for closer cooperation with China. The Bilateral Investment Treaty between the EU and China has the potential to move to the top of Beijing’s priority list after the souring of US-China relations. Under the banner of reciprocity, China should be reminded of its promises to remove obstacles to bilateral trade and investment. Meanwhile, joint investment projects in third countries along the European-Chinese economic corridor in Eurasia should not only serve to open up new economic spaces, but can be used by the European side to spread the EU’s regulatory standards.
3. Europe should seek cooperation with other Asian countries
Europe could use the opening created by the U.S. retreat to bolster its position in Asia through agreements with like-minded countries. The former German Economics Minister and newly appointed Foreign Minister Sigmar Gabriel underlined the opportunities for Europe in Asia following America’s retrenchment. The European Commission notes growing interest in Europe as a partner. Especially Asian TPP states intent on balancing their increasing economic dependence on China are now more likely to look to Europe. Fittingly, negotiations over a treaty with Tokyo are set to conclude in March, while the agreement with Vietnam awaits ratification, and further deals with Australia and New Zealand are in the works for the coming years. At the same time, the EU is also in talks with non-TPP states like Indonesia and the Philippines. Potentially even long-dormant talks with New Delhi can be revived.
Many unknowns about the Trump administration’s China policy complicate European planning, on trade, but also on security issues from the Korean Peninsula to Taiwan to the South China Sea. In line with last week’s call to action by Eurogroup chairman Jeroen Dijsselbloem, European decision-makers “must not sit back and blindly wait for what happens in the United States.” Rather they should seize opportunities to work with China (and other Asian partners) on issues where they see common ground. Supporting the WTO and the global trade system could be one such issue.