Former Economics Editor of the NZ Herald

Brian Fallow: The TPP is dead - long live what?

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President Donald Trump has not killed the Trans-Pacific Partnership. He has merely signed its death certificate.

The agreement has been on a mortuary slab for some time, evident in the Obama Administration's inability to persuade Congress to ratify it, and in the fact that both Trump and Hillary Clinton ran for office opposing it.

As it stands, the agreement can only come into force if the original 12 signatory countries ratify it or if, after two years from signing, at least six of them representing at least 85 per cent of the combined gross domestic product of the original 12 do so. Neither of those conditions can be met without the United States.

The question now is how big a deal this is. Does it mark the end of an era, the death of the Washington Consensus about the liberating power of markets, multilateralism and open economies?

Or is it, as Prime Minister Bill English evidently believes, a disappointing setback, an aberrant blip?

It is a seismic event, but should we liken it to the slips that have closed State Highway 1 in the upper South Island, or a more fundamental and enduring change to the landscape, like the emergence of the isthmus upon which Wellington airport now sits?

Deciding between those views depends on how you view the Brexit vote and the election of Trump.

They could be seen as evidence that we are in the degenerate terminal phase of a particular economic paradigm or doctrine - neoliberalism or market fundamentalism - which has prevailed since the mid-1980s.

There is a life cycle to these things. But just as the post-war model (which delivered faster and more inclusive economic growth than we have seen since) had by the late 1970s decayed into stagflation and over-regulation, the current regime is now delivering intolerable levels of inequality, poverty and financial insecurity.

It is patronising to dismiss the millions who voted Leave or Trump as the dupes of mendacious politicians who don't know what is good for them, but will be set straight by the bitter disappointment ahead.

Rather, they should be seen as evidence that for too many people the status quo is not a rising tide that lifts all boats, but an ebb tide leaving them and their communities stranded.

So the electoral Mandate of Heaven has been withdrawn and we need to decide what the next model or paradigm will look like.

The alternative, conservative view would be that there is nothing irreparable about the current regime.

Policymakers just need to focus more on equity issues and taking care of the casualties of globalisation and technological change.

A retreat into beggar-thy-neighbour protectionism will be counterproductive, and a historical dead end. Globalisation is an epoch-making and irreversible change. We just have to get better at managing its downside.

The Government is in the latter camp.

Regardless, like the rest of the world it now has to deal with a US President whose fixed idea is that the United States has been on the sucker's end of horrible deals, in both trade and defence relationships, for decades and he is going to reverse that.

The fact that pulling out of TPP was one of the first things he did indicates that the equity markets' reaction to his election - that Washington will now do the things they want like cut taxes, deregulate and spend up large, and don't worry about the silly stuff like protectionism and trade hostilities, no one wants that - is deluded.

The appointments Trump has made in the trade area and the ad hoc cyber-bullying of individual companies do not augur well.

And the speed with which Speaker Paul Ryan, previously a supporter of TPP, endorsed the pullout indicates Congressional Republicans are ready to swallow some dead rats to get the rest of their agenda through.

But as Barack Obama wryly noted, reality has a way of biting back.

The alternative, conservative view would be that there is nothing irreparable about the current regime. Policymakers just need to focus more on equity issues and taking care of the casualties of globalisation and technological change.

Maybe as the Trump Administration grapples with renegotiating the Nafta agreement it has with its immediate neighbours, given the complexities of international commerce in an era of value chains that cross multiple borders, a less primitive view will emerge.

HSBC's trade economists point out that US manufacturing output has increased by nearly 50 per cent over the past 20 years even as employment in the sector has fallen by some 29 per cent. The widening gap between those two trend lines reflects technological advances and productivity gains.

Meanwhile, the current account deficits that enrage Trump reflect, as in New Zealand, a persistent structural gap between investment and saving for which protectionism is no answer.

Will such arguments cut any ice with Trump? Don't hold your breath.

So where to now for New Zealand trade policy, at least in the Asia Pacific?

English is wise to downplay the prospects of a bilateral agreement with the United States.

It has never been interested in the past. New Zealand as a small and open economy has little or no negotiating coin to bring to the table.

And it would be dealing with a US administration that, as English put it on Tuesday, "has made it clear they expect the US to come out of the deal ahead of the other party."

As for the multilateral options: one is to park TPP as is, hoping that at some point the US will relent. Unlikely in the foreseeable future.

Another is to seek some sort of sub-TPP deal covering a subset of the TPP partners.

But that fundamentally alters the calculus of cost and benefit for all concerned. Would the Government commission a fresh cost-benefit analysis, and if so would it be a less tendentious exercise than last time?

Japanese Prime Minister Shinzo Abe was clearly right to call TPP minus the United States meaningless. So good luck with that.

Then there is the Sino-centric multilateral option, the Regional Comprehensive Economic Partnership (RCEP), linking China, the southeast Asian countries, India, Australia and New Zealand. Negotiating that would make TPP look like child's play.

- NZ Herald

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Former Economics Editor of the NZ Herald

Brian Fallow is a former economics editor for the New Zealand Herald. A Southlander happily transplanted to Wellington, he has been a journalist since 1984 and has covered the economy and related areas of public policy for the Herald since 1995. Why the economy? Because it is where we all live and because the forces at work in it can really mess up people's lives if we are not careful.

Read more by Brian Fallow

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