The United States and Japan were driving the bus during the Trans-Pacific Partnership negotiations.
The two largest economies in the 12-country Pacific Rim trade agreement had the economic muscle to get what they wanted from the smaller countries in the deal, Canada included.
Now president-elect Donald Trump has stopped that bus with his announcement Monday he will pull out of the TPP his first day in office.
The TPP won’t take effect if either the U.S. or Japan fails to ratify it. What other partners do no longer matters.
Although International Trade Minister Chrystia Freeland added Canada’s name to the TPP signing ceremony in Auckland, New Zealand last winter, Prime Minister Justin Trudeau has never been full-throated in his endorsement, even when it could have been politically useful to more obviously support Barack Obama’s legacy project.
“TPP was negotiated in the midst of our election campaign and we made a commitment to talk to Canadians about it,” Freeland said last weekend, pointing to all the consultations the government held without committing to ratification.
Those conversations are why Canadians are able to support trade deals, she said, noting other countries at the Asia-Pacific Economic Co-operation (APEC) summit in Peru congratulated Canada for signing its trade deal with Europe in the face of serious challenges.
Because Liberals never invested their own political capital in the TPP, they look less like a rejected partner now.
The Japanese leaders who met with Trump last week may not feel the same. A ratification vote in Japan had appeared imminent, bolstering Obama’s faint hope of getting Congress to ratify the TPP during its lame-duck session.
Never mind all that now.
What next with Japan?
Three of Canada’s Top 5 trading partners would have been inside the TPP, had it moved ahead.
But while the U.S. and Mexico already have a privileged trading relationship with Canada under the North American Free Trade Agreement (NAFTA) — setting aside whatever renegotiations may be afoot — TPP’s demise means Canada loses its lift into the world’s third-largest economy: Japan.
Canada doesn’t have a bilateral trade deal there.
Export-oriented agriculture commodities, including grains and oilseeds like canola, stood to gain big — billion-dollar big — if Japanese tariffs came down.
Livestock producers, always keen to boost trade with Asia as its middle-class appetite for meat keeps rising, also scored a significant win, although TPP’s phase-out period for beef tariffs, for example, was very gradual by trade deal standards.
Meanwhile, competitors like Australia already have tariff-free access to Japan.
The TPP was a negotiation full of multi-country tradeoffs. It can’t apply to Canada and Japan only.
“If the Trump administration really turns its back on TPP, then Canada has an opportunity to lead like-minded countries on a new approach,” wrote Claire Citeau, a spokeswoman for the Canadian Agri-Food Trade Alliance. “Why not take the fruit from seven years of negotiations and make it work for the other 11 countries?”
Other farm commodities may breathe easier. Canada’s supply-managed agriculture sector, including poultry, eggs and dairy, gave up a significant domestic market share in the final negotiations.
Now those previously anticipated imports won’t be a threat.
Bulwark against China
Beyond Japan, Canada’s opportunity lost may be small.
A economic impact study made public this fall by Global Affairs Canada found that Canada was better off inside the TPP than out.
But the projected economic benefit was small relative to the deal’s scope, adding $4.3 billion annually to Canada’s gross domestic product, or just over 0.1 per cent.
Canada had to join forces with Mexico to push back against automotive changes that could have threatened the privileged trading relationship it enjoys with the U.S. under NAFTA.
On the other hand, the TPP could have brought new foreign investment into parts of southwestern Ontario desperate for a manufacturing boost, particularly if Japan saw supply-chain opportunities to block other auto parts competitors, like China.
China remains the elephant in the room.
The 12 TPP countries represent 40 per cent of the world’s GDP. China and India weren’t involved, but could have joined later.
To do so, they’d have to play by the new rules — beyond tariff reductions, the agreement had standards for issues like intellectual property and environmental and labour protection.
Who calls the shots?
Strategically, the TPP sought to run the table before China called all the shots.
“Remember when Obama said you want the United States to be making the rules in this region or otherwise it is China making the rules in this region? Well, that is actually what is going to happen,” Laura Dawson from the Wilson Center told host Rosemary Barton on CBC News Network’s Power Politics.
Trump’s operational preference seems to be bilateral, she said. “He wants to do that one-on-one, mano-y-mano.”
But Japan prefers regional or multilateral negotiations, she said.
Rem Korteweg, a senior research fellow at the Centre for European Reform, told EU Trade Insights that Trump’s strategy resembles the Chinese playbook.
Expect the U.S. to engage less with the EU, Japan and South Korea, which have a trade surplus with the U.S., he said.
Unlike Obama, Trump won’t make trade deals a foreign policy tool, Korteweg told the online trade publication. Instead, he will take a “narrow, transactional approach to FTAs like China used to do.”
Opponents of the TPP won’t cry over its grave.
“The demise of TPP is an opportunity,” Jim Balsillie said. The tech entrepreneur, no fan of the deal’s intellectual property clauses, actively campaigned against it as chair of the Council of Canadian Innovators.
“We need to grow our high-margin IP exports because intellectual property is the most valuable asset in 21st century global trade,” he said.
Trade minister Freeland tried to spin positively last weekend, even as bilateral meetings with Mexico, Japan, New Zealand and Australia may have felt like a wake for their hard-fought TPP.
“We are emerging today as one of the champions,” she told reporters. “Our voice is increasingly recognized … Canadians should take pride and comfort from that.”
Freeland met countries in other trade blocs like the Pacific Alliance (Latin America), Mercosur (South America) and the Association of Southeast Asian Nations (ASEAN). All want to trade more with Canada, she said.
A bilateral trade push with China (and Hong Kong) continues.
But Canada has missed this bus with Japan. It’s unclear when the next one comes along.