The U.S. withdrawal from TPP and TTIP leaves the Europe Union 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 rulesfor 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.