22 September 2016
by Jennifer Hewett

The great retreat on free trade

Theresa May with Malcolm Turnbull

During his trip to the US Malcolm Turnbull has been trying to sound politely optimistic about the prospects of the Trans-Pacific Partnership getting through Congress in the last days of the Obama presidency. No one really believes it will happen.

Instead, Andrew Robb's strenuous efforts on this deal as Australia's former trade minister have been overwhelmed by the rising tide of global protectionism. Such resistance to acknowledging the benefits of free – or at least freer – trade is certainly not confined to the perverse mood of current US politics.

In most advanced economies, there's no longer widespread political acceptance of the boost to global growth that comes from a reduction in trade and investment barriers. Instead, local community scepticism about the impact on jobs and incomes is now the dominant driver of political behaviour.

In Australia, despite the government's rhetoric, there's no doubt the political momentum on free trade has veered off course even if it has not reversed. This goes well beyond the decision to build submarines in South Australia or further restrict companies buying farm land and agricultural businesses or strengthen what are conveniently known as "anti-dumping" laws.

The new power of crossbench Senators such as Nick Xenophon and Pauline Hanson, combined with Labor's parliamentary blocking tactics bolstered by union opposition, will de-rail any further progress on more trade deals.

In retrospect, it's even more remarkable that Robb was able to manage signing off on the trifecta of Japan, South Korea and Japan within a couple of years even if they will still take time to pay off for most businesses. The timing now looks increasingly fortuitous. Potential agreements with countries such as India, Indonesia or the European Union are likely to remain in limbo indefinitely.

It's true that a post-Brexit UK government re-emerging from the regulatory shackles of the European Union may rediscover the advantages of driving free trade deals for its vulnerable economy, including with Australia.

But that only makes Britain more of an exception and, even so, new British Prime Minister Theresa May, is likely to move cautiously in assessing the reaction from a community that is certainly not immune to the new nationalist, anti-globalist mindset.

In Europe, last rites are being read for the proposed Trans-Atlantic and Investment Partnership with the US, for example. It's not so surprising that it's a French foreign trade minister, Matthias Fekll, saying there is no political support for it in his country. He is planning to ask other European trade ministers this week to end negotiations, suggesting the need to restart them on better terms for Europe. Again, no one believes this will occur either.

Yet in Germany, Sigmar Gabriel, the Trade Minister from the Social Democratic party, is, if anything, even more antagonistic to further negotiations. He says the talks have "failed" no matter what his coalition partner and German Chancellor, Angela Merkel, may say about their hopes for continuing progress. Thousands of people rallied in major German cities last week arguing any deal would weaken European environmental standards and the rights of consumers.

In the US, it's impossible to know what would happen to Donald Trump's promises on trade if he were to win the election. US consumers may prefer to "buy American", but not at any cost, and Trump is hardly consistent in his policy prescriptions according to his audience or his mood on the day.

Yet for now, he is effectively committing to starting a trade war with China by imposing massive new tariffs on Chinese imports while overturning or renegotiating the North American Free Trade Agreement between the US, Mexico and Canada.

The years of negotiations led to an agreement finally ratified under the last Clinton presidency. Over more than two decades, trade between Mexico and the US has gone from $US300 billion to more than $US1.1 trillion last year. Trump's ability to link this with the loss of American manufacturing jobs and rise of illegal immigrants is one of his most potent political appeals to his supporters as protectionist sentiment swirls around the country.

Even with the political pressure on trade from Trump and her former Democratic rival, Bernie Sanders, Hillary Clinton is not willing to suddenly backtrack on the idea of NAFTA. She has still been happy to dump the TPP without so much as a glimmer of regret. In part this is just a matter of survival in presidential politics as well as the reality of dealing with a reluctant Congress and policy confusion about what traditional extremes of left and right mean in politics these days.

But in international terms, it clearly demonstrates a far more isolationist urge in all areas of policy with the focus on "fixing" the US while keeping out the security and economic threats presented by much of the rest of the world. The notion of a building "wall" on the Mexican border is part of that national psychology.

In that context, Turnbull correctly says the TPP is as much a political statement as a free trade agreement, arguing it's the economic aspect of the "pivot" to Asia that Obama launched several years ago.

"It is a statement of American's commitment to the rules-based order which has underpinned the prosperity of billions of people and lifted billions out of poverty."

Implicitly, it was also supposed to be a statement of reassurance to US allies about American determination to remain a stabilising force in the Asia Pacific region countering the rise of a newly assertive and aggressive China.

That assumption no longer feels quite so reassuring. And not just because of what it says about free trade.