Donald Trump has formally withdrawn the US from Barack Obama’s Trans Pacific Partnership (TPP) prompting concern amongst investors. While Trump had previously flagged his intention to withdraw from the TPP, like many of his campaign promises there were hopes that he would dilute this threat or change his mind. However, the official withdrawal from the TPP has left something of a power vacuum in Asia.
TPP never approved by Congress
Despite talk of the TPP being a vital element of the US economic revival the partnership was never formally approved by Congress. As a consequence Donald Trump was able to withdraw from the partnership scheme with relative ease with a formal executive order signed today in the Oval Office. The arrangement involved the likes of Australia, New Zealand and a whole host of countries in the Asia region. Initially it was hoped the partnership will allow the US to control trading arrangements across Asia beating China to the punch.
What next for the US?
While at this moment in time there is obvious concern about the short, medium and long-term direction of US trade deals, this move has let the country loose to make one-on-one trade deals with various partners. Many believe that the likes of Japan, Taiwan and Vietnam will be amongst the first approached by Donald Trump to negotiate one-on-one trade deals. Despite disappointment at the collapse of the TPP (assuming it does collapse without the US) this does not mean that the US authorities are downgrading their trading plans for Asia.
Taking back control
Historically Republicans in the US have long been in favour of free trade deals seeing them as a major element of future US economic expansion. Over the last couple of years support for free trade deals has been waning amid concerns that they could potentially push US companies and US employees to foreign lands. While nobody benefits from skyhigh tariffs there is no doubt that Donald Trump believes that the US has been dealt a bad hand with past trade deals.
There is growing momentum for the US government to become more pro-US as a means of protecting US companies and US employment. This has been reflected in other areas of Donald Trump’s administration including the US’s NATO contributions which he believes are away too high compared to other members. There is even talk of Donald Trump looking to renegotiate the North American Free Trade Agreement (NAFTA) which involves trade between the US, Mexico and Canada.
Good to his word or playing to the crowds?
Stock markets have weakened of late due to concerns about Donald Trump and his determination to renegotiate important trade deals with overseas partners. It will be interesting to see how this game of poker players out but in the meantime uncertainty is feeding the concern of investors and we may see further weakness in the US, and indeed worldwide, stock markets.
Time will tell whether Donald Trump is good to his word on all policies or indeed just playing to the crowds during his honeymoon period?