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TPP is ‘meaningless’ after Trump pulls the plug

Chinese factory owners prepare for Trump

The biggest regional trade deal in history is in ruins. So what happens now?

President-elect Donald Trump said Monday that one of his first actions in office will be to withdraw the United States from the Trans-Pacific Partnership (TPP), an agreement he had slammed as a “disaster” during his campaign.

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The move shatters a key pillar of President Obama’s drive to strengthen U.S. influence in Asia and throws the Western world’s trade agenda into disarray. The TPP, which was aimed at tightly linking the U.S. economy with 11 others around the Pacific, took years to negotiate.

“The TPP without the United States is meaningless,” Japanese Prime Minister Shinzo Abe said Monday during a visit to Argentina.

Here are some of the possible scenarios:

Related: China preparing to take initiative in Pacific

China fills the gap

China didn’t take part in the TPP talks. And Beijing has been pushing its own trade deals with leaders from around the Pacific.

“The prospect of the U.S. turning inward in its economic strategy means that China has freer rein to become the focal point of regional integration efforts,” said Mireya Solis, a senior fellow at the Brookings Institution. “The U.S. appears as largely bereft of a constructive economic strategy towards the most dynamic region in the world.”

trade deal graphics tpp

The Beijing-backed plan, the Regional Comprehensive Economic Partnership (RCEP), covers 16 countries. If it succeeds, China would be in a strong position to lead a bigger, more ambitious free trade area in the future.

Since Trump won the U.S. election, Beijing has stepped up its efforts to promote its project, including at last weekend’s summit of leaders from Asia-Pacific nations in Lima, the Peruvian capital.

Unlike the TPP, China’s plan doesn’t currently include any countries in the Americas. But a senior Chinese official, Tan Jian, said at the Lima summit that more nations, including Peru and Chile, are now looking to join the RCEP, according to Reuters.

Related: What Trump means for world trade

A TPP without the U.S.

Encompassing around 40% of global GDP, the TPP was expected to provide a boost to exports from countries like Malaysia, Vietnam and Japan. Some experts have suggested that the other 11 member countries should continue to pursue the deal without the U.S.

“A relaunched TPP could be the best vehicle for these countries to adapt to the new — and harsher — reality of international trade in a world increasingly consumed by populism,” Solis wrote in a blog post after Trump’s election victory.

TPP explained

She argued that by continuing to pursue the TPP, Japan and other remaining countries would give themselves more leverage in bilateral negotiations with the U.S. and in regional talks with China.

But in the absence of the huge incentive of the U.S. market, the TPP loses much of its allure.

“While other TPP members could create a parallel agreement without the U.S. and move forward, the economic benefits will be significantly reduced without the U.S. participating,” said Rajiv Biswas, chief Asia-Pacific economist at IHS Global Insight. “Therefore some TPP member countries may prefer to refocus on the RCEP as an alternative.”

Related: Why starting a trade war with China is a bad idea

Wait for the U.S. to change its mind

Some Pacific nations appear to remain hopeful that Trump’s decision isn’t final.

“We’ve got to just give the Americans time,” Australian Trade Minister Steven Ciobo told reporters on Tuesday. “What it comes down to is the Americans, I think, need to have time to weigh up the pros and the cons further.”

But Trump, who spent much of his campaign blasting international trade deals, doesn’t sound like he needs more time. The Republican has promised to renegotiate or tear up NAFTA, the free trade deal between Mexico, Canada and the U.S. A separate planned deal between the U.S. and the 28 members of the EU — the TTIP — is also considered by most observers to be dead in the water.

America's complicated, critical trade relations with China

Monday’s TPP announcement “would tend to confirm that Trump is going to stick to the letter of his campaign promises on trade rather than search for plausible compromises,” said Edward Alden, a senior fellow at the Council on Foreign Relations.

Some experts suggest that if Japan and other countries can keep the TPP alive, the U.S. could return to the fold at a later date.

Related: Yes, China has won big from U.S. trade

Other U.S. presidents, including Obama and Bill Clinton, entered office skeptical about big trade deals before later changing their minds, according to Alden.

“What happens to every president is that they realize that trade is a very important tool in U.S. diplomacy,” he said.

— Rebecca Wright and Andreena Narayan contributed to this report.

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