The emergence of such a formidable trading block as the Trans-Pacific Partnership will likely foster the creation of competing trade alliances.
The world map of international trade blocks and alliances has just been transmogrified in an unprecedented way - a transcontinental trade block, the largest to date, is emerging across the expanses of the Pacific, bringing together some of the heavy-weights in the world economy such as the US, Japan, Australia as well as strategic players of the dynamic Pacific basin. Overall, according to US President Barak Obama, after nearly 5 years of negotiations, 12 states are set to create a Free Trade Area (FTA) within the framework of the Trans-Pacific Partnership that is to account for nearly 40% of world trade.
The emergence of the Trans-Pacific Partnership takes regionalism to a whole new, higher level – after hundreds of preferential trade agreements spanned the globe throughout the past decades, the new trans-Pacific alliance is set to become the first trans-continental block that is to impart a major impact on the trade flows and patterns across the globe. It is situated at the heart of the most dynamic part of the global economy that accounts for the bulk of the trade and growth impulses driving global economic expansion. Perhaps the new initiative to promote trade liberalization in the Pacific region could be precisely the boost to global growth that it desperately needs in the midst of the slowdown of the past 6-7 years?
Alas, as is the case with all regional trade arrangements, the effects of such agreements are a double-edged sword for the global economy – while the members of such arrangements tend to benefit from the effects of trade liberalization, those that are left out may experience a diversion of trade and investment flows. Most importantly, however, the propagation of regional trade arrangements deals a blow to the multilateral framework of trade liberalization – indeed the paralysis of the WTO as a global institution, its inability to launch new liberalization initiatives is largely due to the fact that its role has been taken over by the forces of preferential regional integration.
The creation of the Trans-Pacific Partnership is a further extension of the “competitive liberalization” trade policy pursued by the US throughout the past decade, according to which the use of regional alliances as well as bilateral trade treaties is to stoke mounting competition to forge trade deals with the US. The greater the economic weight of the country, the greater its set of alliances the more attractive it is for potential trade deals – apart from the benefits of gaining access to the large US market potential allies in trade pacts also stand to gain from access to a wide network of trade alliances and regional blocks.
All this means that the US will likely continue to actively pursue other trade alliances that are to render it increasingly more competitive in international trade. Indeed, the sweeping changes in trade liberalization patterns due to the emergence of the Trans-Pacific Partnership may soon be followed by Trans-Atlantic integration between the US and EU economies. This trade integration across the Pacific (linking Asia and America) and the Atlantic (linking Europe and America) regions will leave one void in the trans-continental alliance chains that embrace the global economy, namely Eurasia (linking Europe and Asia). As other mega-alliances forge ahead with economic integration, Eurasia, this “missing link” in global trade integration, may experience mounting losses in trade and investment flows.
More generally, the emergence of such a formidable trading block as the Trans-Pacific Partnership will likely foster the creation of competing trade alliances that will seek to limit the loss in trade/investment flows and that will vie for greater regional and global influence in economic integration. One such counterweight could be China’s alliances in the Pacific region as well as its greater integration with Eurasia. Another possibility is closer trade and investment links among the BRICS economies to promote a path to trade integration that is predicated on the observance of the multilateral norms and principles of the WTO.
Scenarios of intensifying competition between regional trade blocks do not bode well for global economic and political stability. Ultimately, the only solution is to bring regional trade blocks under one umbrella of multilateralism – i.e. to have all regional alliances comply with multilateral norms of the WTO. At this stage, however, many economists will worry that it may be too late to fret about multilateralism in global trade as the prevalence and the dominance of regional trade arrangements (RTAs) could now be well beyond any scope of regulation.
