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US leaving TPP is a win for China

Washington needs allies in the region if it is not to cede western Pacific to Beijing

Eleven American allies and friends met on the sidelines of the Asia-Pacific Economic Cooperation meeting in Hanoi recently in an effort to keep alive the Trans-Pacific Partnership (TPP), the trade agreement they thought they had locked up with the United States last year.

All the countries trade with China - not a TPP member - but none wanted to be sucked into the China-centric future Beijing is trying to will to life through TPP-ish substitutes like the Regional Comprehensive Economic Programme and One Belt, One Road initiative.

So, calling themselves the TPP-11, they're trying to salvage what they can from the pact, which is technically dead in its current form without the US.

The odds of US President Donald Trump reversing course on the TPP are zero, but he'd be wise not to rule out too many other options in a region as precarious as the Asia Pacific is.

Listening to his campaign promises last year had to be confusing for the 11. He promised voters he would both jettison the TPP, which he said would have taken jobs out of the US, and get tough with China.

But since the two don't square - a dead TPP is a good thing for Beijing, some believe, because it would have diminished China's trade clout - he was bound to break one of them.

And since he withdrew the US from the TPP on his first day in office, it looks like he is on track to break his promise to get tough on China. That is the wrong promise to break, a "read my lips, no new taxes" kind of broken promise.

The other 11 members would be happy to have the US back to resurrect the TPP, even if they are bickering at the moment.

The TPP was as much about security around the Pacific as it was about trade. If one accepts that capital will inevitably flow toward low-cost labour, the US secures no benefit by walking away; that flow will continue without it.

"Protecting" America from low-cost labour markets by slapping tariffs on imports from them shields US business from competition, and competition has always been what makes the US, well, competitive. Penalising Beijing for dumping steel and aluminium in US markets is one thing; walking away from friends because their labour costs are lower is another.

Mr Trump talked with gusto about bringing jobs back from China. I'd never bet against American business - with the right tax and trade policies in place, US businessmen can do anything - but even if jobs leave China, they are as likely to go to Vietnam or Indonesia as they are to go to Ohio.

Companies that picked up and moved to China to lower labour costs or be closer to Asian markets are unlikely to come home.

Thoughtful domestic economic and tax policies that stimulate business formation and investment will likely have a bigger impact on new job creation than browbeating US companies overseas to return.

No one knows how to exploit low-cost labour advantages in developing countries better than those countries' businessmen, and they're not going to stop no matter how much noise US politicians make.

So, from a strategic viewpoint - Beijing has grown increasingly assertive regionally as China has grown economically - the issue may be more about not directing new jobs to China than actually repatriating them. TPP members like Vietnam and Malaysia, or Chile and Peru, would be logical, friendly alternative destinations.

The TPP was never going to be another Nafta (North American Free Trade Agreement), causing, as billionaire presidential candidate Ross Perot anticipated in 1992, "a giant sucking sound" of American jobs out of the country.

That has already happened. The TPP is designed to reduce trade barriers among members, which would open new markets for US exports.

Trade isn't the major challenge the West has with Beijing, anyway. The strategic issues of the nuclearisation of North Korea and the militarisation of the South China Sea are.

Unless the US is prepared to cede the western Pacific to Beijing, it is going to need all the allies it has in the region as it negotiates these issues. It is hard to find a better group than the 11 TPP countries.

So if an opportunity arises to draft a new agreement with the TPP-11, Mr Trump should consider it closely.

Explaining to Americans why that's a good idea would be more complex than the tweets and sound bites he used to kill the TPP, but simpler than explaining in years to come why the US left its friends behind in a region Beijing came to dominate.

- REUTERS

The writer is director of Opera Advisors, a 
management consulting firm based in Kuala Lumpur

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