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Withdrawing from the TPP may not affect trade all that much

- January 25, 2017

On its face, President Trump’s move appears to mark a significant shift in U.S. trade policy. And to some extent it is. The previous three presidents, for all their differences, oversaw the steady expansion of America’s trade agreement portfolio.

But viewed in light of global trends, Trump’s behavior isn’t so unusual.

In a recent study, we looked at whether leaders honored their predecessors’ trade commitments. Striking a trade deal is one thing, but how do these agreements fare once new leaders enter into office?

We showed that agreement implementation declined when new leaders take office, especially if there was a change in the ruling party. When new parties come into power, previous agreements slide down the incoming government’s priority list. It’s not common, therefore, for new leaders to put the international commitments they inherit on the back burner.

A new coalition on the right?

What’s interesting about Trump’s announcement is that trade deals usually suffer greater setbacks when left-leaning governments take over. On average, left-leaning parties represent voters traditionally opposed to trade — e.g. labor union and interest groups concerned about trade’s effect on rights, health and the environment. Right-leaning governments, including recent Republican presidents, represent sectors that typically favor free trade such as business.

But Trump doesn’t look like past Republicans. And his party, once steadfast supporters of free trade, now contains significant protectionist elements. At least in terms of trade policy, Republicans no longer fit neatly onto the traditional left-to-right spectrum.

Consider that Trump’s campaign thrived on a populist, anti-globalization rhetoric. He called the North American Free Trade Agreement “the worst trade deal in history” and said that the Trans-Pacific Partnership was a “disaster.” He promised to boost growth in U.S. jobs and restore the deteriorating manufacturing sector.

This message resonated with voters still struggling to recover from the Great Recession. Hence, what we saw on Trump’s first day: a sharp break from decades of liberalization.

Leaders elsewhere don’t always make such big pronouncements, and they rarely abandon trade agreements entirely. It is more common for new leaders simply to ignore past commitments or to undermine them through policies in other areas.

But Trump’s actions fit the broader pattern. New leaders come into office after making specific promises to their own constituents. This means that they tend to neglect their predecessor’s commitments.

How will this affect trade?

Trump’s actions left some wondering how much U.S. trade flows will suffer. The answer could be “not much.” Trump has been vague about which parts of NAFTA he wants to renegotiate. The agreement covers a wide variety of topics, and it’s entirely possible that any reforms will be cosmetic.

As for the TPP, the United States already has trade deals with many Pacific Rim nations, either through the World Trade Organization or other areas of existing U.S. trade policy. Here again, pulling out of the TPP may not do much direct damage to trade flows.

However, this all assumes that Trump will not spark a trade war with key partners, something the Chinese president cautioned strongly against last week in Davos, Switzerland. Trump has already promised steep tariffs against China and threatened actions against German car companies — announcements met with stiff rebukes abroad.

If Trump carries through with his plans, and U.S. trade partners retaliate, then U.S. firms will be hurt.

TPP withdrawal is symbolic, but symbols matter

Lost trade revenue is only part of the cost the United States may incur. The larger issue at play is the symbolic nature of Trump’s actions.

The TPP was ultimately less about trade than it was about foreign policy broadly defined. It was an attempt to expand U.S. soft power in the Pacific and to protect its influence (and market share) vis-à-vis China. It did so by putting the United States center stage in drafting the rules of economic relations within the region.

Removing the United States from this process sends important signals to other countries.

Research shows that agreements transmit important information about the type of company a country keeps. When countries join — or, in this case, abandon — trade agreements, governments send signals about the “clubs” they want to be a part of.

These symbols matter because investors and other private actors take notice. Immediately after Trump’s announcement, global stock markets reacted negatively and the value of the dollar dropped.

These market responses, though temporary, were driven by the uncertainty caused by Trump’s orders. If the United States is indeed turning inward after decades at the forefront of free trade, then more uncertainty is sure to come.

Julia Gray is an associate professor of political science at the University of Pennsylvania.

Jeffrey Kucik is an assistant professor of political science in the Colin Powell School at the City College of New York.