The Trump effect permeates every discussion here in Lima, where the leaders of 21 nations with more than half of the world’s wealth between them have gathered.
The two nations most targeted by president-elect Donald Trump’s election rhetoric — Mexico and China — appear to be taking very different approaches.
Mexico seeks mainly to minimize the damage, while China, feeling its position to be much stronger, is not only defiant but sees the rise of Trump as an opportunity.
President Xi Jinping seemed anxious to position himself as the anti-Trump on Saturday as he gave a full-throated paean to the idea of free trade.
“We are going to give greater access to foreign investment and we are going to continue establishing high standards, pilot zones for free trade in China. We are going to create an environment in line with international standards. We are going to guarantee the existence of an equal playing field for all businesses in China, both domestic and foreign ones,” he said.
The TPP was sold by the Obama administration as a counterweight to China’s growing dominance in the Asia-Pacific region.
China sees Trump’s scrapping of the accord as an opportunity to rope TPP signatory nations into a new trade zone with China at its centre.
“We ought to continue deepening and expanding the cooperation in our region. We ought to build a common platform, establish common rules and share the results of our development. Any attempt to exclude any of us ought to be rejected,” he told his fellow leaders.
Some may be tempted to listen.
Mexico: Partner or liability?
Mexico’s Enrique Pena Nieto is less worried about losing a TPP that existed only on paper, than about losing a NAFTA that has become the bedrock of Mexico’s economy.
He seemed anxious to stress that Mexican prosperity does not come at the expense of jobs in the American Rust Belt, arguing that inputs imported from its NAFTA partners account for 40 cents of every dollar’s worth of goods that Mexico exports.
And once again, he made clear his willingness to negotiate.
“I think we have learned that NAFTA may be modernized. We may incorporate elements that, when we signed this agreement, were not considered at that time,” Pena Nieto said.
How will Canada play it?
So far Trump has not turned his rhetorical guns on Canada, and few Americans see free trade with Canada as a threat to their jobs.
So Justin Trudeau, who met with Enrique Pena Nieto on the sidelines of the conference, faces a difficult decision. Should he work with Pena Nieto to make a case for North American trade, or could it hurt Canada to link itself too closely in the American mind with the country that Trump voters love to hate?
Put more crudely, should Canada make common cause with Mexico, or should it throw Mexico under the bus?
PMO officials in Lima seemed keen to debunk a Bloomberg report that Canada was writing off Trump’s America and going all in on trade with Mexico. Absolutely false, they say.
Carlo Dade, of the Canada West Foundation, points out that Canada is in a far stronger position vis-a-vis the United States than Mexico.
“We haven’t seen the same level of engagement and seriousness from the Mexicans that Canada has put forward,” Dade said.
“Provinces have been reaching out to states: We are deeply, deeply integrated with our counterparts at the state level in the U.S. in a way that no other country is, including Mexico. So given that disparity of our outreach, I don’t know that we could have a unified policy in dealing with the Trump administration.”
Where can trade grow?
One question that the Trudeau government would like to answer is: Should a trading nation such as Canada make trade pacts piecemeal, like the deal Jean Chrétien signed with Chile, or the one Stephen Harper negotiated with South Korea? Or should it hold out for the big multilateral deals where a whole bloc of countries come together in a free-trade zone?
Although Canada did recently conclude a free trade agreement with the European Union, a last-minute delay by a region of Belgium was a reminder that when you try to negotiate with lots of countries at once, sometimes one of them (or even a bit of one of them) can be enough to derail the whole deal.
The Walloons’ last-minute objections were also a reminder of the strong headwinds faced by free-traders as they seek to lower barriers that many people — sometimes with good reason — see as protecting industries they depend on for a living.
Bilateral trade deals are a whole lot simpler, and it is typically easier to carve out exemptions for sensitive sectors, such as Canada’s dairy industry, than in vast complicated multilateral negotiations where someone or other is almost bound to object.
But Canada has yet to see if its Asian partners are willing to go the bilateral route.
Still opportunities out there
In South America, Canada has free trade with Chile since 1997, and with Peru since 2009. That leaves 88 per cent of South America’s population and 89 per cent of its gross domestic product still to be tapped.
In Asia, Canada has only one agreement, with South Korea.
It was counting on the Trans Pacific Partnership to give it free access to five more Asian countries, including Japan, as well as Australia and New Zealand.
That now appears increasingly unlikely to happen, since the terms of TPP effectively give president-elect Donald Trump a veto over the deal for the moment.
In Lima, New Zealand Prime Minister John Key laid out three options to try to save the TPP after Donald Trump pulls the U.S, out, the first being for the other 11 nations to find a way to “hold hands without the Americans,” and go ahead with the deal as it stands.
“The second option is that there is some cosmetic change to the TPP that allows Donald Trump to say ‘look, it was a horrible deal before, but now it’s changed and it’s a good deal and I’ll sign up to it’. Maybe a name change, it could be the ‘Trump-Pacific Agreement,” he said to laughs.
“The third option is complete renegotiation,” said Key, making it clear that was his least favourite. “We’ve modelled TPP without the Americans and we still get two-thirds of the benefits.”
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