Monday, November 14, 2016

You might not like the TPP. You are going to like the alternative less.

The Trans-Pacific Partnership - the mega-trade treaty - is dead.

I am not going to opine on the merits of various provisions in that trade treaty. (There were several I did not like...)

However lets take the thirty year helicopter view.

Thirty years of an aggressive trade and investment treaty (like the TPP) results in your economy becoming intertwined with your partners' economies.

And with the TPP there is a dominant party - the United States.

Your economy becoming intertwined with a dominant economy has a name: hegemony.

The TPP would have eventually meant sustained US hegemony.


But that is dead.

The TPP did not die in a vacuum. A bunch of countries north of Australia want to have guaranteed open access to big markets and they will wind up signing a trade treaty. This time they will sign with the economy that will honour their commitments: China.

And in thirty years time there will for the countries of Australia's north be a hegemony: a Chinese hegemony.


At the moment the Chinese border is ten hours flying time north of Australia.

Look forward thirty years and we have a border of Chinese hegemony at Indonesia.

I would prefer a democracy having hegemony. I think most of my readers would too. But we have that choice no longer.


PS. This thought is not original. The US Defence Secretary stated that the TPP is as important as another aircraft carrier. He is not wrong.


Kien said...

Let's give China a chance. It seems to be the only hemegon that has a long term plan to invest in developing countries. I hope China succeeds in creating a world that is less dependant on Western economies for growth.

CrocodileChuck said...


Mike Gilmore said...

So, re-write the TPP, but this time, leave out all the non-trade 'stuff' (which is ultimately what torpedoed the deal). 'Stuff' such as the investor-state dispute resolution, the extension of patents, etc. Also, make the negotiation process open to the public. If you are going to legally bind me, my children and their children to a trade deal...shouldn't we at least be able to see what's in it and who's writing it--before it's ratified?

Anonymous said...

Thirty years is a long time - either China continues to grow by 7% each year (at which point it will be the entire world economy) or it will collapse. I doubt they can "muddle through".

As this will happen TPP or not, there is really no need to hitch ourselves to either wagon.

rjs said...

Trump has said he'd be negotiating bi-lateral agreements.

Conscience of a Conservative said...

Well said!

Anonymous said...

To be fair, I think the calculus on free trade deals has changed since the end of the Cold War. The U.S. had big incentives to open up trade markets with countries that manage their currencies (and, therefore, manipulate their terms of trade) during the Cold War because the positive externalities (screwing the USSR) outweighed the cost of higher trade deficits (and, therefore, lower manufacturing employment).

Today, the U.S.'s biggest global competitor is China, a big current account surplus country that manages its currency. The best way to screw China is to tighten terms of trade. Yeah, TPP didn't include China, but the U.S. overall no longer has an incentive to run current account deficits with the world. It's not prima facie apparent that the positive externalities outweigh the cost of higher unemployment.

China does not yet offer the same opportunity to trade partners as the U.S. does. First, China is unwilling to run a current account deficit overall, and, to protect its surplus, will offer exporters subsidies, manager the value of the RMB., etc. Second, China doesn't allow trade partners to freely accumulate assets in the mainland. Remember, the flip side of a current account surplus is a capital account deficit -- China would, like the U.S. - have to allow trade partners the ability to accumulate mainland assets in order to make its trade market more attractive.

dearieme said...

If you live in SE Asia you know that China will always be nearby. The US might or might not be. After all, it wasn't there for South Vietnam in the end, was it?

fadewid said...

Unfortunately for the free traders in the US, who firmly believe TPP was good for America, at least 50% of the electorate did not.
What's good for "America" may not be good for Americans. When people have experienced 30+ years of job loss directly, abstract arguments like those made by the defense secretary fall on deaf ears.

jed said...

Good analysis and one I have not seen before. Interesting that this wasn't one of the themes in arguments for TPP, in the US at least.

However it seems to me that the primary architects of TPP and previous trade deals did not think the US was functionally a democracy. Maybe the price of keeping democratic hegemony is more attention to people who are upset about the effects of current hegemonic policy, even if that somewhat mutes the interests of the policy makers.

Putting these two together, my sense is that policies exploiting our hegemonic position for short-term gain have been given enough weight that they may keep us from maintaining that position in the longer term.

On the other hand, it is hard to believe that our current situation guarantees Chinese hegemony decades from now. A lot can happen. Personally I'm not optimistic about correcting our structural bias against sharing the wealth equitably, but if we could do that in the near future, we could easily pass strong trade agreements that were significantly more attractive to our SE Asian partners than TPP. I venture to guess those partnerships would actually happen.

Unfortunately I have no reason to believe that this structural bias will change absent far more catastrophic events than our recent US election. So I am even more pessimistic than your analysis would imply, though not for the same reasons.

I greatly respect your acumen and knowledge of business in many parts of the world, and would be deeply appreciative if you chose to analyze these issues further.

Anonymous said...

The world is going to hell in a handbasket.

The political environment today, with right wing strongmen and populists ascendant across much of the developed world, and much of the developing work (Duterte! Erdogan! Putin!) reminds me of the 1930s. Let's hope the world heads in a different direction soon. As Oppenheimer said, though we don't know what weapons will be used in WWIII, WWIV will be fought with sticks and stones.

Anonymous said...


I think you might be overstating the impact the TPP would have for the countries north of Australia. The US has, in trade terms, a rather small impact on trade for those countries as it stands. And I don't think a TPP would alter matters significantly.

Taking 3 countries as an example:


Imports – China 20.25% (1st), US 6.89% (3rd) (East Asia & Pacific 62.8%, North America 7.35%)
Exports – China 11.05% (2nd), US 11.25% (1st) (EA&P 58.97%, NA 11.88%)


Imports – China 14.19% (1st), US 11.23% (2nd) (EA&P 50.48%, NA 11.6%)
Exports – China+HK 25.2% (1st+2nd), US 6.69% (5th) (EA&P 68.2%, NA 6.95%)


Imports – China 17.19% (1st), US 4.6% (7th) (EA&P 66.68%, NA 5.64%)
Exports – China 10% (2nd), US 9.41% (4th) (EA&P 56.66%, NA 9.84%)


China is the more important trading partner for each of the three countries, although from a security point of view the US is needed as a counterbalance to a rather aggressive militaristic policy.

Taking it up one level - for the ASEAN countries the trade within region is far far more important than trade with North America.

So I think China already has economic hegemony in SE Asia, or if not, is moving into that position, TPP or not (barring an economic collapse.)

And yes, democracy far better than dictatorship.


GrueBleen said...

Now apparently hegemony means "leadership or dominance, especially by one state or social group over others". But we already completely surrendered to American leadership and domination when we signed on the AusFTA - what more can we do ?

fadewid said...

Mr Hempton,

Do you believe that China, without the rule of law or the recognition of intellectual property rights can sustain itself
a global power in the the 21st century?

A better argument would be that Silicon Valley will become so disgusted with the "Deplorables" that they would align themselves and jeopardize their fortunes with a group of communists.

I wish you would write more about how to actually make money, even if it is in the long run. I greatly admire most of your insights.

Cheers from Trumplandia.


shb600 said...

China is going to be a trade partner solely because of proximity and cost, but trusting and relying on China and thinking they live up to deals is misguided. China honors no deals with the outside world whether they are stealing the businesses of Uber, forcing Apple to buy into companies,making copycat Iphones, stealing intellectual property, piracy... the list is too long.

Anonymous said...

And over the past ~45 years of hegemony, white male median income has been flat. So what exactly does another 30 years buy?

CrocodileChuck said...

1) TPP is more about extending copyright on IP and establishing extra judicial 'courts' to sue sovereign nations over 'unrealised profits' than 'free trade'; all tariffs < 5% anyway NB wouldn't it be great if BC could be made whole over failed trades?
2) TPP not about USA per se, but rather USA domiciled global corporates-who can pull up stakes and move HQ's to Eire anytime [Pfizer, anyone?]
3) We already belong to the ANZUS Treaty-what's with the defence paranoia?
4) Re: ANZUS-by the time we need protection, the USA will be in no condition or willing to leap to the aid of a tiny 25M country at the very end of the Earth. Re-read Kennedy's
5) & about that QLD cane sugar…. ;)

UPSHOT: Like Malcom Fraser foretold, we'd be better off standing on our own two feet in the region* & conducting ourselves like an 'honest broker' to the USA. Frankly, any country that is fighting in five [six?] separate wars would seem to have some fundamental problems in comprehending its own limits, and being able to say the most important word in diplomacy:


* like addressing CHI money laundering in SYD & MELB resi r/e [promised to be implemented by the Federal gov't in 2009]

Anonymous said...

Suck it up John, times are a changing and you elite money changers are going to be steamrolled by a guy your brothers never treated too well or took seriously and he has a big chip on his shoulder.

CrocodileChuck said...

Verrender on AUS dodging the bullet:


SidFinster said...

Since when was the United States a democracy?

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