GDP and trade are the two key components to economic health according to modern conventional wisdom. A rapidly rising Gross Domestic Product, after all, ensures the growing needs of a nation can be met while trade is the easiest way to increase demand for the goods and services of a country. As Asia has the largest population, i.e. consumer base, and greatest potential for economic growth, expanded trade between Asia’s neighbors and the Trump Administration’s abandonment of free trade agreements continue to alarm trade advocates. With Trump’s five-nation Asia tour placing the President in the role of diplomat and trade representative, these advocates are likely hoping the Trump Administration will be inspired to join the free trade movement. There is, however, a far more constructive public policy trade initiative that would better align with the President’s views on trade.
The Trump Administration has rejected the Obama Administration-brokered TPP agreement and sought to renegotiate NAFTA. Meanwhile, the Regional Comprehensive Economic Partnership (RCEP), which is built on the trade agreements between members of the Association of Southeast Asian Nations (ASEAN), is allowing Asian to expand trade among themselves. Where TPP offered the benefit of establishing equalizing standards in labor and trade practices across Asia, RCEP is seen as a means to replace the US with China as the dominant trade partner. The US appears to be forsaking opportunity while losing influence. Vietnam’s expanded exports to the US and trade with its neighbors showcase an alternative path to success, especially when compared to a growing labor trends across the region.
Like NAFTA and CAFTA, the problem with TPP was the untargeted free trade component of the agreement. Free trade deleverages domestic businesses, workers, and governments by forcing them to compete against foreign competitors with much lower financial needs. For smaller nations, this is not a problem, because their economies can meet the needs of their workers and consumers by specializing in the production of certain goods. In other words, there is more need for labor than there is need for jobs. For larger nations, there is often more need for jobs than there is need for labor, thus outsourcing means people will not have jobs in countries like the US and China. This, in turn, means workers cannot demand higher wages as their financial burdens naturally rise with economic growth, inflation, advances in technology, and rising productivity.
By rejecting TPP, the Trump Administration has forsaken the trade benefits of the agreement, but it also avoided the costs associated with it. China, however, is witnessing a shift in its good fortune as its economy grows and its People’s costs of living rise. The problem with free trade is that it creates a lowest bidder economy where the world’s population must compete by lowering their wages and living standards. To remain competitive, China must tap into the cheap labor of its poorer countries. China’s supply chain must extend into Southeast Asia, South Asia, Africa, and South America. Beijing will maintain influence over global commerce like a mega trade conglomerate for some time, but China’s People will see the outsourcing of their jobs, which will fuel civil discontent and unrest against Beijing.
With that in mind, the Trump Administration has not condemned trade. In fact, Mr. Trump’s visit to China served as backdrop for several major deals between US companies and China. It would seem the President wants trade, but prefers bilateral trade negotiations over permanent multilateral trade pacts. Instead of worrying about the Trump Administration’s resistance to free trade, Trump’s attempt to shrink America’s diplomatic infrastructure, including the US State Department and contributions to the UN, should be the focus of efforts to shift the President’s priority. If trade advocates hope to see trade growth under the Trump Administration, it will require the President to expand America’s diplomatic and trade infrastructure to accommodate his preferred approach to trade.
The economic interests of trade partners shift very rapidly with the changing nature of the economy, especially in an era defined by democratic uprisings and a pull back from rapid globalization to a more localized focus. Because a stable global economy depends on healthy national economies, national economies must be built on industries that serve the local needs of a people with locally plentiful resources that are as local as possible with excess production being used to participate in the global economy. As such, trade agreements must be recalibrated regularly to reflect shifting economic interests. In terms of economic policies, this means addressing the economic interests of a nation’s majority and building a diplomatic infrastructure to periodically address shifts in trade relations.
It is, of course, important to remember that bilateral trade relations can also share the same shortcomings as multilateral trade pacts or introduce new ones. The success of this approach depends upon the preconceived notions of the representatives and whose interests they actually represent. If trade representatives simply seek bilateral free trade across all industries, there will be no benefit. If the US government taps business leaders whose preconceived notions and ulterior motives compel them to seek deals that favor the interests of their industries and businesses, the process will be detrimental to the US and the American People. If America’s trade representatives promote healthy trade policies, which focus on securing America’s manufacturing sector and trading America’s extracted goods, bilateral trade relations will be more beneficial.
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