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How China, CPTPP May Reshape Global Trade

By December 5, 2018 No Comments
How China, CPTPP May Reshape Global Trade

The Trans-Pacific Partnership, otherwise known as the TPP, was a trade agreement proposed between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. The country that is notably missing from that list is China, which is in large part directly tied into what the TPP aimed to do in the first place.

As a trade agreement, the TPP was meant to act as a way to balance China’s growing influence on the global stage. The agreement was signed by all of the aforementioned parties on February 4, 2016—however, it was not ratified and, as a result, never went into effect.

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What Happened to the Original TPP?

When Donald Trump took office in January of 2017, the U.S. quickly withdrew its signature, meaning that the agreement was destined to never enter into full force. President Trump said that he preferred to instead negotiate bilateral trade deals. Other countries—most notably Japan—worked hard to keep the spirit of the TPP alive in any way that it could. The timeline of the TPP (and its eventual dissolution) has left a significant power vacuum. Many pundits now argue that China is stepping in to fill that void as quickly as possible.

China, the CPTPP, and the Future of Global Trade

The most important thing to understand about the failure of the TPP is that if the United States doesn’t control the larger trade narrative, and if it refuses to engage with its new successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), many participating countries will be forced to supplement to China.

The CPTPP is a new trade agreement that was negotiated by each country on that list except the United States. It incorporates the majority of the provisions outlined by the original Trans-Pacific Partnership and will, according to New Zealand’s Trade Minister, David Parker, enter into force on December 30, 2018. But again, neither the United States nor China is involved. The participating countries see this as a viable opportunity for medium-sized economies to reduce reliance on the world’s two largest economies.

Public and Political Response to the CPTPP

Pundits on cable news and on the Internet aren’t the only ones warning of the future implications of these actions, either; a Japanese official plainly stated in an interview that China may very well be in a position to set its own rules for global trade and investment if the United States doesn’t return to the original Trans-Pacific Partnership. He added that the U.S. in particular would likely be unable to accept those rules as the global standard.

For many, the major issue of supplementing to China has to do with the fact that it just doesn’t have the business-friendly framework that most were expecting. Subjects like trademark protection and human rights violations are controversial topics in China and, at least right now, will remain so for the foreseeable future.

China Poised to Continue as the Next Major Player in Global Trade

Another issue is that some countries are pivoting to China and away from the United States. This has the potential to significantly impact the U.S. economy moving forward, though the full extent of those implications remains to be seen. Reliance on China also has a potential to slow growth elsewhere, such as in SEA.

Equally important is the fact that the current round of tariffs and the larger trade war between the United States and China plays a significant role in how countries (and companies) evaluate the markets in which they operate. Even with a “trade war truce” between the United States and China—the details of which are still unclear—tariffs can massively impact factors like downstream supply chain management. And, if costs get too high in one area of the world, organizations are left no choice but to search for an alternative location.

It’s key to remember that much of the specifics of the CPTPP are still very much in flux and the future of global trade has yet to be written. On tariffs and trade wars between the United States and China, for example, the former’s perspective on the rules and outlook of those actions changes frequently.

Going Global? Go with an Experienced Partner

One thing is for sure: whether your organization has already established a presence in certain markets or is in the process of expanding globally, the CPTTP is a topic that businesses eyeing Asia should keep in mind. It also serves to underline the importance of working with the right partner to help you expand confidently into new regions.

Velocity Global has helped hundreds of organizations achieve their global expansion goals. Through our International PEO (Professional Employer Organization) solution, we help businesses begin operating in new international markets in as few as 48 hours—all without establishing an entity. Ready to take the first step in expanding your global footprint? Let’s make it happen.

It’s time to go global.

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