Even the Chinese Can Tell the TransPacific Partnership is Unlikely to Get Done

You know it’s bad when parties who aren’t at the negotiating table can tell a deal is going pear-shaped.

The Chinese have good cause for being interested in the toxic, inaccurately labeled trade treaty known as the TransPacific Partnership. The big reason is that it is designed to be an “anybody but China” deal, in order to crimp the growing power and influence of the Middle Kingdom over its neighbors.

China was sufficiently worried about the TPP that it tried throwing a spanner in the works last October. The critical bit to keep in mind is that Obama was supposed to come to a negotiating session in Bali, which happened to overlap with an Asia-Pacific Economic Cooperation (APEC) meeting, also in Bali. Obama cancelled so he could deal with budget talks in the US personally.

China used the APEC meeting and Obama’s absence from the TPP session to have a go at the TPP negotiations. As we wrote:

Now bruised official egos are likely not enough in and of themselves to derail a trade deal. But the Asian nations are also playing a careful balancing act between the current hegemon, the US, and its presumed successor, at least in the region, if not globally, China. Now remember, the whole point of the TPP is that it is an “everybody but China” deal. So what did China do at the APEC summit when Obama was detained in Washington? Step up its efforts to undermine the TPP. From Agence France-Presse:

The United States stepped up efforts to reinforce its economic might in the Asia-Pacific at a regional leaders’ summit in Indonesia on Tuesday, amid warnings from an increasingly bold China….

But China and even some developing nations included in the TPP have expressed concern that it will set down trade rules primarily benefiting the richest countries and most powerful firms.

“China will commit itself to building a trans-Pacific regional cooperation framework that benefits all parties,” Chinese President Xi Jinping said in a speech following Kerry at the Apec business forum….

“The Trans-Pacific Partnership, featuring confidential talks and the highest free trade standard beyond mere lower tariffs, is widely considered a new step for the US to dominate the economy in the Asia-Pacific region,” the China Daily newspaper said in a front-page report on Xi’s speech.

Indonesia also signalled its irritation at the huge focus on TPP at the Apec summit, shunting the planned meeting on Tuesday afternoon of the 12 nations involved to a hotel outside the official venue…

Meanwhile, China and Indonesia are involved in plans for a rival free trade pact involving 16 countries around the region and being spearheaded by the Association of Southeast Asian Nations.

Negotiations for that pact are expected to be discussed at an East Asia Summit in Brunei this week.

Back to the present post. We didn’t think the Chinese gambit would work. It seemed more like a poke in the eye than a serious effort. But we also thought the Administration was hurting its credibility by pushing in Bali (in October!) to get a deal done by year end when there were plenty of signs that a lot of issues remained unresolved. Mind you, this was before the Wikileaks disclosure of the chapters on intellectual property and the environment showed that the state of the negotiations was even worse than we suspected.

Late last week, the Nikkei reported, in With TPP stalled, China more confident in own free trade plans, that even China is not all that worried about the TPP getting done:

His [Commerce Minister Gao Hucheng’s] statements suggest that, with TPP negotiations stalled amid disagreements between the U.S. and Japan, Beijing senses more leeway to wait and see how things turn out. The tone is a step down from last summer, when President Xi Jinping suggested that China would consider participating in the TPP.

Beijing has been greatly concerned that U.S.-led free trade deals across the region would effectively amount to a containment policy against China. Japan’s decision to get on board with the TPP prompted Beijing to become the driving force behind a free trade agreement with Tokyo and Seoul. But at the same time, China left open the option of signing on to the TPP.

Yves here. As if the US would really have indulged that idea. Back to the article:

Gao emphasized ongoing efforts by China to establish its own free trade area, suggesting confidence in the strategy. As examples, he gave pending bilateral agreements with Australia and South Korea; a three-way pact between China, Japan, and South Korea; and the Regional Comprehensive Economic Partnership agreement, which includes 10 Southeast Asian countries as well as Japan, South Korea, and a handful of others.

Still, it would be unwise to assume that China will push forward in the three-way talks with Japan and South Korea as proactively as in the past. For starters, China’s willingness to partner with Japan in those negotiations came in reaction to the American decision to welcome Japan into the TPP. But now, Tokyo and Washington cannot see eye to eye, and Beijing has fewer reasons to hurry and include Japan in a deal.

The rest of the story makes clear that China regards trade deals with South Korea and its new raw materials colony, Australia, as higher priorities. And given China’s territorial dispute with Japan, a trade deal of any consequence seems like a stretch.

As Clive indicated in his translation and analysis of a story in the Asahi Shimbun on the TPP, the Japanese view the American posture as tantamount to dictating terms rather than negotiating, and they aren’t prepared to accept what the US is offering. The one sweetener that might get the Japanese to budge isn’t on the economic side of the ledger, but the military. Japan clearly wants stronger assurances from the US vis-a-vis China. But what might those be, exactly? The US is already bound to defend Japan if attacked (and that would include an attack on the disputed Senkaku/Diaoyu islands). The US has not taken any official position, but has repeatedly sent strong messages that it sees increasingly aggressive Chinese actions (such as asserting control over the related airspace) as unjustified and provocative.

So even though the Americans could in theory give the Japanese stronger commitments regarding the territorial dispute, it’s not clear we can afford to, particularly given that we have now allowed China to become a sole or critical provider of essential goods, ranging from ascorbic acid to rare earths to chips. In other words, it remains to be seen whether the US can come up with enough sweetners to get the Japanese on board with the TPP.

Print Friendly, PDF & Email


  1. YankeeFrank

    “… it’s not clear we can afford to, particularly given that we have now allowed China to become a sole or critical provider of essential goods, ranging from ascorbic acid to rare earths to chips.”

    This kind of thing is what I never understood about the full-bore US push for globalization. Aren’t these bigshots even remotely concerned with things like national security? How does shipping all of our manufacturing practice and expertise abroad help us if war ever breaks out with a real enemy like China? Is it that they are so over-confident of our military power and prowess? Or that they are just so untethered to reality? You’d think these types would be huge defense-mongers and would never risk US security for profit, but I think I’m confusing them with their parents.

    1. Yves Smith Post author

      I know, that has always shocked me. The assumption seemed to be that because we controlled the seas and China needs imported energy, we could treat them like some sort of independently governed production colony, a governance arrangement I would bet has never existed in world history. When US companies set up production in China, I thought they were being awfully cavalier about expropriation risk. That hasn’t happened, but instead we have economic dependence.

      I recall as a kid (in high school, doing debate research) stumbling across an article in a policy magazine where a US official worried about the fact that we depended on some sort of not well known raw material and the main source was a not terribly stable country in Africa. That sort of thinking went out the window decades ago.

      1. nowhere

        Isn’t it possible that they don’t really care what happens to the nations they’re supposed to be citizens of? Perhaps they figure that even if things do go to hell they’ll have pocketed so much money that they’re immune to anything bad that might happen. It certainly seems to be that way in the business world now. The directors and executives don’t care if their company goes down in flames because they’ve make out like bandits while it collapses. I don’t find it too much of a stretch to think the same thing could happen at the level of an entire nation.

        1. Ulysses

          I tend to agree with your assessment. The few thousand people in the world who make up our transnational overclass really don’t care a fig for the many billions of the rest of us who they exploit. War, famine, disease, economic collapse are only disasters for the “little people.” For psychopathic billionaires disaster capitalism is an easier way to make money than anything which involves concern for the long-term well being of most people on the planet.

        2. digi_owl

          Pretty much. I see the same attitude regarding EU. Certain people, in particular those that work in IT or similarly highly mobile sectors, have come to see themselves as “Europeans” more than citizens of whatever nation they hold a passport from.

          This because they can do their thing from just about anywhere that offers a high speed internet connection and takes payment in euros.

          End result, the passport becomes a flag of convenience more than anything else.

        3. steiner

          Nowhere has hit the nail on the head. Corporate CEOs and politicians have the same attitude today; that of the manufactured Harvard MBA. Long-term success or failure of the company/country is irrelevant, as long as they can squeeze some profit out of the next quarter that guarantees their golden parachute. In the case of the country, noone dealing with China since Richard Nixon opened relations believed the compete and utter collapse of the western world would happen on their watch, so why care? After all, undermining a few more pebbles won’t bring the whole mountain down. The problem is: it isn’t just a few pebbles here and there, every change in legislation, economic and military policy and the effects of manipulated capitalism (I will *NOT* call it ‘unfettered capitalism’ because it is nearly the opposite!) over the last 40 years has cumulatively created the slippery slope we are now in. Outsourcing not just our jobs but our technology to China for only short-term gains(talk to Hitachi, Bombardier, Nortel or Cisco about that) and trusting them to deal with us honestly is a fool’s errand.

          The Chinese leadership are fascists and nationalists- they will steal, cheat and lie at any opportunity to ensure they subjugate us and take revenge for 300+ years of Western superiority. Yet our leadership both in business and politics doesn’t give a damn farther than the end of their own wallets.

    2. Clive

      Yep, nowadays, whenever I see a news story with a geopolitical angle, the first place a look is http://en.wikipedia.org/wiki/Critical_Foreign_Dependencies_Initiative just to check on possible motivations.

      And definitely, the risks which countries run in blithely accepting that just because we have globalisation, it means that sources of supply for key materials and products is somehow magically guaranteed, seem very irresponsible.

      High voltage (100kv +) power transformers made the headlines following the very strange — and still unsolved — incident (http://earthfirstjournal.org/newswire/2014/02/09/snipers-attacked-a-silicon-valley-power-station-last-year-destroying-power-transformers/) in San Jose earlier this year. Details are, perhaps understandable, sketchy, but the more I think about this one the stranger it gets. My hunch is that it was some kind of attention grabbing attempt at a wake-up call from a part of the US security services — like they’d been warning about this key vulnerability both in terms of the need for infrastructure hardening and the very long and fragile supply chain risk for replacement transformers but had got nowhere due to a head-in-sand response based on “the free market can’t be interfered with” mantra that is seemingly everywhere these days. (NC covered this at http://www.nakedcapitalism.com/2014/03/j-d-alt-forget-1.html). Following the San Jose attack, I’m sure that this got the, erm, attention of the key opinion leaders in Washington that it needed to get. A little too tin foil hat-esque for my liking, but it is the most logical explanation that I can come up with.

      And I’ve always maintained that the auto company bailouts were due as much to the need to preserve manufacturing capacity for automotive parts for the military (military vehicles depend on a constant supply of consumables — belts, chains, filters, plugs and so on — for continued operation of existing vehicles, and new vehicles contain literally thousands of parts which require specialised fabrication) — at least on this one, the military “won” and, if I’m right, convinced the politicians that it was a catastrophic strategic error to let pretty much all significant automotive manufacturing capacity drift into overseas factories or at the very least overseas control.

      Wish I could offer “proof” of these theories, alas I can only offer my speculation.

    3. washunate

      The government does worry about that. But what is needed to protect our national security is such a small portion of our overall government today (perhaps only 10% of the discretionary budget) that the rest of the government can happily go their merry way. Just to give one specific example, the Pentagon has done some of the most detailed planning about environmentally-induced instability of any organization on the planet. So that leaves the rest of the government (including the political parts of the senior brass) free to rail against environmental protection when it threatens peace-time authoritarianism.

      In an actual war, we would see actual war policies, like the draft (the Selective Service System was never disbanded after WWII[!]), rationing (MMT pronouncements aside, in times of resource scarcity, printing dollars doesn’t create real wealth), restricted travel, limits on civilian rights (like worker strikes), demonization of a common foe, and so forth.

    4. different clue

      I personally believe that “us” was never the people they intended to help with Free Trade. “Themselves” was the only people they ever meant to help. Transfer all of “us’s” wealth to “themselves” and if they make America too poor and violently destabilized to continue living here despite their private armies and layers of protection, then they can simply retire to some other country where they have pre-positioned some of their wealth and money.

      Didn’t some Bush family members buy a 100,000 acre landholding in Paraguay a few years ago? Are the Bushes the only Overclass family to have a luxury bugout bolthole ready and waiting if America gets too dangerous for them to stay in? Don’t a lot of rich Chinese think America is their bugout bolthole if they make China too dangerous and destabilized for them to stay in? Their judgement may be wrong, but their instinct is the same. Free Trade is for all the “thems” of the world and none of the “us’s”.

  2. colin

    “raw materials colony, Australia”

    Aww come on, not only are you falling hook line and sinker for US/western propaganda on China, but preposterously extending it to Australia. China’s relationship with Africa, other developing nations and Australia is much more bilateral and equitable than colonizers, It has to be; China needs to overcome the demonization of it by the west by having to provide better deals. This idea that there are even parallels is ridiculous.

    I find it a bit of cognitive dissonance that you write about so many things alternative to the mainstream media, financial and government outlets, but buy into this China defamation so full heartedly. Granted, there’s very little of the truth in the English media, because practically every party has an interest in demonizing China, but there are slithers of truth out there.

    1. Yves Smith Post author

      You seem to forget I lived in Australia.

      I have seen how much the Australian government has sidled up to China since I was there (I left in 2004). Even from afar, it is obvious that the change in official priorities has been dramatic. This is not disinformation, this is reading between the lines of the Australian press and business sites I follow.

      And I bash the US government on a regular basis. Why shouldn’t the Australian government get its fair share?

      1. skippy

        Which makes this even more absurdly delirious – From the AFR:

        Tony Abbott is a conservative “hardliner” who Republicans in the United States can learn from to win elections, potential Presidential candidate Rick Santorum has told the party’s faithful.

        Mr Santorum, who has indicated he will probably run for President in 2016, invoked Mr Abbott’s name and embraced his leadership style as an example of how conservatives can gain support from undecided voters.

        “Australia is clearly to the left of us on most of these moral cultural issues, yet Tony Abbott is a conservative Catholic who didn’t change his positions one bit but was able to go out there and connect with average voters,” Mr Santorum said in an interview on the right-wing American news channel Fox News.

        H/T MacroBusiness

        skippy… bloody hell Malcolm Turnbull is starting to resemble a Greens canadate when juxtaposed with budgie smuggler.

        Something to visualize aid thingy:


        1. Yves Smith Post author

          Oh, I know, Turnbull looks like a godsend compared to the alternatives.

          Never in a million years did I think I would write that, but my impression from afar is he’s stayed in the same place politically as the rest of the country has been dragged to the right.

          1. OpenThePodBayDoorsHAL

            I don’t know which is worse, blatant, bold-face fascism (Tony Abbott, George Bush) or the Vichy Left variety dished out by Obomba, Susan Rice, Samantha Powers, Hilary. He gives a speech about how he’s going to reform the NSA then pushes as hard as he can to expand it. At least with Bush and Abbott you know exactly where you stand.

  3. allcoppedout

    The West generally has exported the heavy industry needed to make long term war. Some of this is obvious stuff like shipbuilding, but steel and big-casting capability have all gone too. In Britain even our army is now too small to be able to act as a training cadre to whip conscripts up to speed. I’d guess the same is true of France and Germany. I’m not sure we have enough manufacturing left in the UK to find the skilled managers (engineers) to set up new munitions factories.

    The Chinese long-game was technology and knowledge-how transfer. Expropriation would end that, but I think becomes a real chance again if their bubble is pricked as we did in Japanese markets before WW2. Nationalisations in the UK largely came when the private sector wasn’t working to national strategy and I could see China getting to such a point fast.

    Current war strategies are short-term, quickly over through shock and awe thingies. Everything is suppose to buckle under air supremacy and other massive technological superiority. Behind this is going nuclear if we come up against anyone with better than sharpened mangoes and we start to lose. The war bits in Iraq and Afghanistan were short. Occupation is a different matter.

    I think it may be dawning on our strategists that we have given up knowledge-how progress in the export of manufacturing and they want selective parts of this back. I guess on raw materials like lithium they think alternative supplies can be quickly brought on line for war. There will be plenty of plans we can’t see on all this. No doubt, when war comes, we will be sent out in such excellent camouflage as bright red pants like the superbly efficient Germans in WW1. The only strategy in relations with China concerns greed and the hope finance is the new China white.

  4. ToivoS

    TPP was part of he Hilary/Obama pivot to Asia. Now that looked like dreadful mistake when first announced and I am now glad to see it in its final death throws. Has anyone noticed but the US seems unable to make things happen in the world anymore — all we do is lurch from one crisis to another, many, but not all, of our own making. Pivot to Asia was definitely one of those policies that could have easily given rise to an unwanted crisis.

  5. Banger

    It will be so interesting to see how China plays this issue particularly in light of the belligerent trend of the U.S. State Department in particular and Washington in general. As Washington and the EU work to isolate Russia, what are Chinese leaders thinking? They know very well that full spectrum dominance (FSD) is the never-ending goal of the USG.

    This strange and bizarre trade agreement is clearly toxic and is doomed because it is part of FSD.

    1. susan the other

      Maybe it’s rope-a-dope. We can’t really lose because we know it’s (TPP) the equivalent of a unilateral demand so we’re just kidding but if anybody buys it we won’t be hurt. In the meantime we seem to be focused like a laser on pushing China/India and Russia together. Something Russia doesn’t seem to want. What is the rationale for this when what we claim to be doing is isolating China? Well… protecting the oil in the Middle East and the Americas for the Western powers. Let’s let Russia do it. Supply 3 bn people with desperately needed oil and gas supplies. A fatal step for all parties involved. After all, Russia has that long unprotected border and everything! So this could also explain China’s body slam to their own energy-intense factories. Pollution is awful, but the politix of oil is even worse. In fact, sinister people can carry this logic to the absurd to explain the illogic of not containing exploding populations in China and India. Feed them and they will grow and then just stop feeding them. Gee, could our State Department be that sadistic?

  6. cnchal

    Unbeleivable as one thinks it. China, by looking out for itself is inadvertently looking out for the 99% in a hall of mirrors way.

    China has let our strategists (if you can call them that) beleive that they were a production colony. The Chinese strategists (you can call them that) determined that manufacturing creates wealth, so they allowed their people to be exploited.

    Firing the $15 to $20 dollar per hour worker here, and replacing that worker with a $2 dollars per day (now it is a little higher ) worker, is such a brilliant, visionary, and strategic decision, that the CEO deserves and gets multimillion $ paychecks for their genius management acumen.

    Wall street goes along for the ride too, lots of times reaching over to grab the steering wheel, making sure their guidance gets them what they deserve.

    It is extremely extreme! When I point out to my wife that the Apple product in her hand was made in a factory with suicide nets around the building, she asks “where can I get a phone that is not made in China”? Indeed where?

  7. Oregoncharles

    What about the Trans-Atlantic deal? At this point, it’s hidden in the shadows, but is also a big problem.

    1. Yves Smith Post author

      It looked like it was going to get done but now there are two impediments:

      1. Congress refusing to give fast track authority. Obama may be able to get that done during the lame duck session at the end of the year

      2. The Germans are VERY VERY unhappy about the NSA spying and the US’s conduct is in clear violation of privacy rules. The intellectual property chapter would strengthen the hand of US equipment and content providers, which is something Europe is not too keen to promote right now. Whether that is enough to scupper the deal from their end is unclear.

  8. Synoia

    I do wonder if TPP isn’t a sop to big business to give Obama much money after office.

    “We tried, but those nasty (insert country of choice here) would not agree”

    It almost appears as if were designed to fail.

    1. different clue

      Various money-groups will only give Obama money for things he actually achieves for them.
      He will be rewarded for achieving Obamacare. He will be rewarded for making the Bush tax cuts permanent. He will be rewarded for either authorising the XLNorthern half pipeline or for permitting so many other workaroung-pipelines that XL isn’t even needed anyway.

      He wont’ be rewarded for TPP unless he gets it done. There will probably be huge after-office rewards offered to various Democratic officeholders for getting Fast Track passed in the lame duck session, if they get it passed.

Comments are closed.