What Trump's dumping of trade agreements means for developing countries

Donald Trump’s successful election platform called for a greater focus on economic interests on the home front. His emphasis on local jobs and businesses was a strong selling point to U.S. voters, who may now be looking to the president-elect to follow through on his promises to renegotiate or scrap key international trade agreements.

“It’s absolutely clear across the United States that struggling, working class people elected Trump, and one of the issues that was absolutely critical for the voting population was how trade is impacting jobs in the United States,” Eric LeCompte, executive director of Jubilee USA, told Devex. “It’s something that was a force in putting Trump into office.”

For now, discussions of the impact of a Trump administration are speculation, based on what he has said during the election campaign. But if he follows through on promises, the new president-elect could throw out or reopen trade agreements including the Trans-Pacific Partnership, North American Free Trade Agreement and agreements with China. Tariffs on international imports could rise to protect U.S.-based industries.

For developing countries that were expected to grow under trade agreements, this would be a savage blow.

The TPP, for example, was expected to boost economic growth among participating countries in the Asia-Pacific through 2030. Vietnam’s gross domestic product was projected to grow 10 percent faster by 2030 while Malaysia’s growth was predicted at 8 percent faster, according to a World Bank analysis.

All of the 12 signees, including the U.S., Australia, Canada, China and New Zealand, were expected to see an average 1.1 percent growth rate rise in their GDPs by 2030 under the TPP, with overall trade increasing by 11 percent, according to the World Bank projections.

The TPP has not been without critics; concerns have been raised about higher pharmaceutical costs, reduced access to health care, reduced worker rights and negative impacts to women in developing countries. But analysts told Devex it would do the important work of harmonizing trade, worker rights and economic and social responsibilities. The agreement also offered hope for growth in the slowing Asia-Pacific economy.

Impact on developing countries in the Asia-Pacific

Developing countries in the Asia-Pacific are facing a range of environmental and social challenges as they grow into middle-income countries. Analysts see trade as a key element of their economic growth in the coming years, particularly as they receive less international aid.

“Trade agreements are important to keep developing countries moving,” Professor Christopher Findlay, executive dean for the Faculty of the Professions at the University of Adelaide, told Devex.

Trade agreements can open new markets and opportunities, including professionalizing some sectors of the economy that are suddenly open to international competition. Findlay said that trade agreements are important in developing the service sector, for example.

“The service sector in development is important to people’s lives and enhancing the economy.” Findlay said. “A well-performing service sector has benefits households directly but also businesses.”

Instead, Trump’s rhetoric alone could spell economic instability for developing countries, warns Keith Wilson, senior international trade law counselor with the Institute for International Trade.

“The language of protectionism from Trump during the campaign was not good, both for the U.S. and its trading partners,” Wilson told Devex. “Particularly impacted will be the more vulnerable countries.”

Calls for punitive tariffs on China, for example, could have a knock-on effect to smaller countries by ratcheting up prices for goods and services, Wilson predicted. “Because of the degree of integration in regional value chains in the Asia-Pacific region and Southeast Asia, anything directed at China will impact those other countries,” he said.

Trade and tariff changes in the Asia-Pacific region could also affect growth through budget cuts. Some TPP signators, including Australia, already assume the benefits of the agreement in their budget projections. If the United States reduces trade or pulls out entirely in the region, economies will not grow as predicted, and countries would need to urgently address gaps in their expected resources.

Often, that will mean budget cuts. In Australia, the aid program is always an easy target for trimming in tougher times.

A changing political landscape

The news of Trump’s election victory sent the U.S.’s 11 TPP partner countries back to work. A press conference on the TPP between Australia, Japan, New Zealand and Singapore was cancelled and the focus has shifted to moving forward with an alternative deal, the Regional Comprehensive Economic Partnership. The next round of talks is scheduled for Dec. 2.

The RCEP would join Association of Southeast Asian Nations member countries Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam, as well as Australia, China, India, Japan, South Korea and New Zealand in a free trade agreement.

If this agreement were finalized or prioritized over TPP, regional politics could shift dramatically. Compared with TPP, RCEP excludes the U.S. but includes India, Indonesia and Thailand.

“Essentially Trump is a disrupter, but he could be forcing us to look at new opportunities,” Wilson said. “We just don’t what Trump’s foreign policy objective for the region is yet.”

Questions marks also hang over whether a withdrawn U.S. trade stance would be followed by a reduced aid footprint in the region — a role that would likely be filled by China. The RCEP would codify Beijing’s leadership on trade and financial support for development in the region.

“The Chinese are already working very hard on a whole bunch of projects in the region around their one road idea,” Findlay said, referencing China’s “One Road, One Belt” economic and strategic agenda for stronger ties with Eurasia, Africa and Oceania. “They’ll be there supporting along with multilateral institutions.”

Findlay believes focusing on China and the RCEP may be the better option for developing countries. He told Devex the agreement is more amenable to the various stages of economic development, providing a framework to shift the economy over time.

“There is a huge set of possibilities for developing countries with RCEP,” Findlay said. “It has more opportunities for sequencing of commitments and from a developing country point of view it is more joinable. As far as I know, agreements are making good progress and hopes are quite high. It is where developing countries should now focus.”

Still, many would prefer that the U.S. not pull out entirely, Findlay said. “Many developing countries in the region would prefer a much more balanced and cooperative environment,” he explained. “This cooperation could be between the US, China, Japan and Korea and include a wider set of working agreements. If all we are left with is RCEP, the downside is the U.S. in not in the conversation.”

Including both China and the U.S. as trade partners provides a better balance in security, politics economic stability. It would give developing countries more choices as to who they want to partner with on a given issue as well as greater support to recover from natural disasters.

“It is the economies that are not exposed to the international investment that disasters are likely to be more profound,” Ken Walker, director of the Australian APEC Study Centre, told Devex. “They simply do not have the resources to manage their own affairs.”

Will Trump negotiate?

Wilson predicts that if agreements are renegotiated, the U.S. will include stronger language around protectionism and create more barriers to trade and development.

LeCompte, however, told Devex he is confident the Trump administration will be open to discussions.

“We are going to engage with his administration and we have every reason to believe we can see some positive action from his administration on these issues,” he said. “In terms of our work and the weeks and months to come, there’s going to be a pretty important education component in engaging his new administration, but we think we will have a really good basis to start on.”

Advocates will argue for keeping trade agreements in place, but with better protections for developing countries.

“Regardless of what happens with Trump, the reality is that we are in a world where trade is moving forward,” LeCompte said. “But trade agreements should not make poverty worse. We need protections for alleviating poverty.”

Stay tuned to Devex for more news and analysis of what the Trump administration will mean for global development. Read more coverage here and subscribe to The Development Newswire.