U.S. President Donald Trump did not waste any time keeping his promise to kill the Trans-Pacific Trade Partnership (TPP), an agreement that would have strengthened U.S. economic ties to 11 Pacific Rim nations. However, the common assumption that his decision amounted to handing China an unqualified victory, with the United States’ pulling back from global trade leadership and leaving China to take the helm, is an oversimplification.
TPP’s demise has doubtless provided China an opportunity to build greater influence in Asia. And Beijing has been quick to seize this opportunity. In his speech to the Davos World Economic Forum this month, Chinese President Xi Jinping presented his country as a reliable supporter, perhaps even the leader, of open markets and globalization. By contrast, Trump’s election has brought with it a good deal of global anxiety about Washington’s future commitment to a liberal economic order.
After Xi’s remarks, observers were quick to point out that China’s support for open markets has much more to do with economic self-interest. However, Beijing’s defense of free trade goes much deeper than that. China now has the opportunity to reassure partner countries that it can be counted on to promote regional stability.
But any celebrations in Beijing may be premature. By turning away from TPP and by threatening a new tariff regime—most recently by floating the idea of a 45 percent surcharge on all imports—Trump laid the groundwork for greater market instability. Formal agreements on trade don’t just promote market liberalization. They also represent a broader commitment to play by certain rules—in other words, to behave predictably. Trade deals constrain governments from making the kinds of surprise policy changes that Trump appears to favor. Their benefit is twofold: greater reliability in trade policies and, in turn, less volatility in trade flows.