President Trump declined to join the Trans-Pacific Trade Partnership but many of China’s neighbors (with others) joined that trade agreement. Would U.S. accession now encourage Asian nations to resist Chinese expansionism? Can the agreement be renegotiated to satisfy U.S. objections? Can the Biden administration find supportive majorities in Congress to approve U.S. participation in a big new trade deal? An Asian affairs specialist (Michael Auslin, Hoover Institution), a trade law specialist (Jeffrey Gerrish, Skadden Arps) and nd a close observer of China policy and congressional currents (Nova Daly, Wiley Rein) will discuss the prospects, moderated by Jeremy Rabkin (George Mason University).
Dr. Michael R. Auslin, Payson J. Treat Distinguished Research Fellow in Contemporary Asia, Hoover Institution
Jeffrey Gerrish, Partner, CFIUS and Foreign Investment Reviews; National Security; International Trade, Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates
Nova J. Daly, Senior Public Policy Advisor, Wiley Rein LLP
Moderator: Prof. Jeremy A. Rabkin, Professor of Law, Antonin Scalia Law School, George Mason University
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Evelyn Hildebrand: Welcome to The Federalist Society's Teleforum conference call. This afternoon, June 22nd, we discuss "China Policy and the Pacific Trade Pact." My name is Evelyn Hildebrand, and I'm an Associate Director of Practice Groups at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today's call.
Today, we are fortunate to have with us a very distinguished panel, and we're very pleased to welcome them to The Federalist Society. I'll introduce our moderator, who will then introduce our speakers. Our moderator this afternoon is Professor Jeremy Rabkin. He's a Professor of Law at Antonin Scalia Law School and George Mason University. He also serves on the Board of Directors at the U.S. Institute of Peace, and he also serves on the Board of Academic Advisors at the American Enterprise Institute and on the Board of Directors for the Center for Individual Rights, which is a public interest law firm based in Washington, D.C.
As I said, Professor Rabkin will introduce our speakers. After our speakers give their opening remarks, we will turn to you, the audience, for questions, so be thinking of those as we go along and have them in mind for that portion of the call. With that, thank you for being with us today. Professor Rabkin, the floor is yours.
Prof. Jeremy A. Rabkin: Okay, thank you. We are going to be discussing the prospects for American participation in a new Pacific Trade Agreement, or maybe in the existing Pacific Trade Agreement. We have three panelists with very relevant expertise. I'll give just a very quick sketch of the background for each one. They're all on the internet if you'd like to know more about them.
Michael Auslin, Distinguished Fellow at the Hoover Institution, he was previously Professor of History at Yale. His latest book is Asia's New Geopolitics, which is the subject we're going to start with today.
Jeffrey Gerrish, Partner in the law firm Skadden, Arps, he was, in the previous administration, Deputy U.S. Trade Representative for Asia, and he led the U.S. delegation in negotiations of the U.S.-China Trade Agreement, which I guess we didn't really get to, but he was involved in the initial negotiating efforts there.
Finally, Nova Daly who is a Senior Public Policy Advisor at Wiley Rein. He served in the Treasury Department and the Commerce Department and on the National Security Council at the White House. But most relevant, perhaps, for our purposes, he was International Trade Advisor for the Senate Finance Committee.
I want to start with Michael Auslin. It seems to me -- I mean, my recollection of the Obama era was there was a lot of talk we needed to pivot to Asia because the coming threat was from China. One of the things that was highlighted was the Obama administration was going to gather all of China's neighbors, and other countries on both sides of the Pacific, into a new trade agreement, which would be the good guys, with China on the outside. That made a lot of progress, that negotiation, and then at the very beginning of the new administration, President Trump said no, we're withdrawing from this. We don't care what happens. We're not joining.
The other participants went ahead with this thing, which we have been calling the Trans-Pacific Partnership, and they agreed to something which they called the Comprehensive Progressive Trans-Pacific Partnership but didn't include China. But now, China has just, in the last few months -- I guess six months ago, they announced they had completed negotiations, at least with most of the Asian members of that grouping, for a separate kind of trade agreement.
So my first question is, does this matter anymore as a matter of geostrategy? It seems people in Washington are much more concerned about China than they were even in the Obama era when we first started talking about this. But maybe the whole diplomatic context has changed so much that this is no longer urgent. What do you think about that?
Dr. Michael R. Auslin: Well, first, thank you to The Federalist Society for hosting this Teleconference. I think it remains an important topic, though, in many ways, just overtaken by the events of, certainly, the past year, but even the past four years. If we think back to the trade war between China and the U.S, the tariffs that the Trump administration put on Chinese goods, first of all, we've forgotten about those. And then, even more so, we've forgotten about, as you note, what is now called the CPTPP.
To go back just for a second and to look at the larger geopolitical argument, first, we should remember that the TPP, the original Trans-Pacific Partnership, was not an American initiative. It was an initiative of four countries in the region. It was designed, unlike many of the regional agreements, to actually the Pacific and Trans-Pacific, meaning it would be South America, North America, as well as the nations of Asia. Whereas usually, when we talk about these types of Asian or Pacific gatherings, we're really talking about the Pacific area, the Indo -- or the Asian area, the what we now call the Indo-Pacific.
The United States came late to this game. The Obama administration was actually not particularly focused on the TPP. Once they got into it — because they really had no other trade agreements that were going — they did commit to it, but it was actually their fault that it did not get ratified. The Obama administration was not able to ratify it before leaving office, even though it had all ready been completed and signed. And then, of course, if it had been ratified, it would have been a lot harder for the United States to get out of it, or it would have been more of a diplomatic issue.
So it was easy because both Donald Trump and Hillary Clinton, in the election of 2016, said that they were going to take the U.S. out of TPP since it had not been renegotiated. Japan picked up -- or, I'm sorry, since it had not been ratified, Japan picked up the baton. And surprisingly, for a country that had always been seen as actually not very open to free trade, it negotiated with the remaining countries. So there were a total of 11 countries that signed this new comprehensive and progressive Trans-Pacific Partnership.
The geopolitical argument that was made repeatedly by the Obama administration was that what you were going to have with this TPP was a grouping of liberal nations with largely free-market economies, not entirely, but largely free-market economies. And that this would then translate into a greater sense of community for non-economic issues such as maritime security, transnational issues related to piracy, to smuggling, to all of these different things that would ultimately lead, somehow, in the prevailing idea that you would get really, sort of, a liberal block -- a liberal community throughout the Pacific region that was going to grow from the germ of the TPP. And that's how it was sold over and over.
When you looked at the specifics of the TPP, it did not -- it was not a huge economic game-changer. It did not raise projected GDP rates by significant amounts for Japan or the United States, but it was significant because you had Japan and the United States in it, meaning the world's first and third-largest economies. Once you took the United States out, it really became much more of a regional trade pact, and it hasn't had that much impact.
Not all of the nations have fully signed on board. Significantly, but also potentially for the United States in a welcome manner, the CPTPP wound up postponing -- or putting into abeyance, postponing a bunch of different articles that were essentially related to intellectual property rights. There were something around 600 provisions in TPP and something like 20 of them that had really been pushed by the United States related to intellectual property rights, related to things like Pharma to give companies more protection for developing new drugs. These were all suspended. They were put into abeyance.
So if the United States wanted to come back in, TPP would not actually -- or the CPTPP would not actually have to be renegotiated. What you would have to do is get the nations that originally agreed to these provisions to agree to unsuspend them, to have them come into force. So there's an opportunity for the United States to get into the CPTPP. The big question is whether it is still seen as the geopolitical advantage that it was.
Prof. Jeremy A. Rabkin: Yes -- yes.
Dr. Michael R. Auslin: And as you noted -- yeah --
Prof. Jeremy A. Rabkin: I just want to put -- just move you one step along in this.
Dr. Michael R. Auslin: Sure.
Prof. Jeremy A. Rabkin: So there's now talk that maybe China would, itself, join the TPP -- or the, what do you call it, Comprehensive and Progressive --
Dr. Michael R. Auslin: Right.
Prof. Jeremy A. Rabkin: -- TPP. Will that change all of these considerations if China is part of it? So it no longer looks like it's a trade agreement but rallies the other countries against China or outside of China. Or would we be just as interested, do you think?
Dr. Michael R. Auslin: Well, I think we would be very concerned about China getting into it because of China's repeated successes in watering down international agreements that it is part of. China is the world's worst abuser of intellectual property rights. It does not meet the standards on labor. It does not meet the environmental standards, all of which were sold into the original TPP as being the gold standard. This is why you need a TPP because you're going to have high intellectual property right standards, labor standards, environmental standards, so on and so forth, that really only we, and most of our European trading partners hitherto, had agreed.
So China coming in, they would always say that they would want to go in, but what they successfully do in almost all cases is achieve very significant carve-outs because, of course, they'll claim that they're still a developing nation. Therefore, they can't live up to the polluting provisions, for example, or the labor provisions. I mean, before you know it, you really have a dual two-track system. You have China playing by one set of rules and everyone else playing by another set of rules.
Prof. Jeremy A. Rabkin: Yeah --
Dr. Michael R. Auslin: So I think the U.S. would not want that. China would like to be a part of it, not because it thinks CPTPP is so great, but because it doesn't want any broad-based multilateral agreements in the region that it is not part of.
Prof. Jeremy A. Rabkin: I was really asking does this affect our hopes to have -- to reassure Malaysia and Vietnam and Thailand and other countries in the region, you don't have to be intimidated by China. You've got reliable friends in this trade group. Does that look different if China is one of the so-called friends in that grouping?
Dr. Michael R. Auslin: I think so. Look, the argument for putting China in as the world's second-largest economy -- or, depending on how you want to measure it, the largest economy -- and therefore, the trade agreement would be that much more a part of the global -- of total global economic output. With the United States, it's something around 40 percent. Without the United States, it's in the 20s, so putting China in, on the one hand, sends a signal that you're going to have this uniform set of rules, but the reality is that China very rarely lives up to those uniform sets of rules.
And so, the smaller nations, I think, for now, have been very happy to get what they can out of their relations with China without having to open themselves up to the type of fully free-market competition. Most of these nations in Asia have some levels, of course, of protectionism. Vietnam, of course, has state-owned enterprises, that was a big issue. Indonesia has a great deal of protectionism. So the real question is, are they -- first of all, how committed can you get the nations of Asia, that are not the initial members, to buy into this. And then secondly, do they really believe that it's in their benefit? Or is it better for them to simply be making these bilateral deals, as they have, with China and/or join a China-dominated organization?
So far, the United States, by pulling out, has shown that it's really not a trusted partner. And I know my colleagues on the call will talk about the domestic politics of whether or not it could even be passed in the United States, but they don't feel that the U.S. is fully committed to this type of economic integration, even though they see China being committed to it, but of course, on Beijing's own terms.
Prof. Jeremy A. Rabkin: Yeah. All right. Good. Let's get a, let's say, a more Washington perspective on this, or at least a trade perspective. I want to start with Jeffrey Gerrish. Could you say a little bit about why you think the view of this turned so negative in 2016 — it seems to me both parties — and what you think would likely be the priorities of the current U.S. Trade Representative if we're negotiating to rejoin this?
Jeffrey Gerrish: Well, yes, I'd be happy to you. And as you mentioned, in 2016, the view towards the then TPP did turn very negative, and there was substantial bipartisan opposition to TPP in Congress. And, as was mentioned earlier, both of the major party candidates in the 2016 presidential election opposed it, including Hillary Clinton. And I think there were a number of reasons for that opposition to the agreement at that time.
I think there were significant concerns about weaknesses in areas like the rules of origin, which only required that 40 to 45 percent of a good be made in the region to qualify for preferential tariff treatment under the agreement. There were also concerns about weaknesses in the labor chapter, as well as in the disciplines on state-owned enterprises, which are a concern with respect to a number of the countries involved in the agreement. And there were even loopholes in the digital trade provisions with respect to their application to financial services providers, and the provisions on currency — currency manipulation, currency undervaluation — were not even part of the agreement, so, therefore, they were not enforceable in any way.
So there were a number of concerns in those areas and other areas as well, and the unions in the United States were very much opposed to the agreement. And there was also opposition in key states -- key industrial states like Michigan, among others, so there was a lot of concern that it would lead to the loss of jobs in the United States. And so as a result, the political opposition was such that it was not able to move forward in the United States, and certainly, President Trump coming into office decided to pull the United States out of the agreement. But even if Hillary Clinton had been elected, she likely would not have gone forward with the agreement in its current form.
Dr. Michael R. Auslin: Yeah. At least she said that as a candidate.
Jeffrey Gerrish: Correct. That's right, even though she had supported it as Secretary of State [Laughter].
Dr. Michael R. Auslin: Yep. But then, a few years into the Trump administration, President Trump said, oh well, we might rejoin, but there would need to be some changes made. So I want to ask you a two-fold question. First, highlights of what he had in mind, if you know, when he was saying like, "Oh, if you made these changes, then we could join." And second, whether you think the main things that he had in mind would still be the main things for a Biden Trade Representative to work on.
Jeffrey Gerrish: When he said that, he said that if it were significantly improved that he would consider getting back into it. He didn't specify at the time what he would have wanted to see significantly improved in the agreement, but many of the things that I was mentioning earlier. I think that the U.S. would have sought enhanced disciplines on state-owned enterprises. And you saw that in the U.S.-Mexico-Canada Agreement that was, of course, renegotiated during the Trump administration.
There were significantly enhanced disciplines on state-owned enterprises there, where there were greater protections against subsidies being provided to state-owned enterprises, as well as an expansion of what constitutes a state-owned enterprise, including entities in which the government holds a minority stake, but they nevertheless have the power to control those entities.
There were significantly enhanced protections in the USMCA on labor with a number of different -- additional protections put in place, certainly targeted towards Mexico, I think, primarily, but just in general in the agreement. A new mechanism that was added in the Rapid Response Mechanism that now has been used twice all ready against Mexico, which allows for greater enforcement of labor obligations in a more expeditious fashion. I think they also would have sought to include currency provisions in the agreement and made them enforceable.
So there are a number of, I think, additional protections that would have been sought by the Trump administration. And I think, particularly on the labor front, that's something that the current administration would certainly look to prioritize. Katherine Tai, the new U.S. Trade Representative, was on the Hill during the time when the USMCA was being negotiated on the Hill and insisted on additional protections on the labor side. And the Biden administration has been very clear that they're going to seek to prioritize enforcement of labor provisions in trade agreements, and the recent use of the Rapid Response Mechanism in the USMCA is one example of that. So I think that's certainly something that the Biden administration's really --
Prof. Jeremy A. Rabkin: Do we have indications that the Biden administration is giving some priority to this? Is this something they might like to develop in the next year or two?
Jeffrey Gerrish: I think it's highly unlikely that they will pursue getting back into what is now the CPTPP in the near term. I think -- and I do not see it happening before the midterm elections in 2022. I think given laborer's opposition to TPP, I don't think that the Biden administration is going to want to get back into the agreement and risk having labor get upset about that and there being negative repercussions in the 2022 midterms.
It may even be difficult even later in the first term. And in fact, President Biden has said that he's not going to look to enter into any new trade agreements, which I think that this would certainly be included in that group, in the near term, that he's going to prioritize domestic issues first. So I would not expect to see anything in the next year, and maybe not even later in the term.
Prof. Jeremy A. Rabkin: Okay. Well, you are not raising expectations. Let's say that [Laughter]. Let me ask Nova Daly if you have a different view. And I'll just start with last week — you probably saw this — the Washington Post carried an op-ed piece by Senators Carper and Cornyn — it's the Chair of the Senate Finance Committee and the ranking Republican — and there was cosigned, and they had just this one article, and they both said we should get back into this because it's dangerous. It's creating a vacuum.
We would have a lot of influence in Asia if we were participating. Even if we were participating in the negotiations, countries there will be more receptive to concerns that we want to raise with them regarding trade and other things. You've got two leading figures in the Senate. Does that suggest there is broader support in Congress, perhaps than the Biden team — at least according to Jeffrey Gerrish — has in mind?
Nova J. Daly: Thanks so much, and I want to thank The Federalist Society for having this segment and having me on as well. So yeah, piggybacking onto what Ambassador Gerrish had said, yeah, I'm sort of more -- it gets darker with what -- the way I see it up on the Hill [Laughter]. While Senator Cornyn, he's been a good champion of trade agreements, and Carper had written that. And harking back to 2018 when you had a letter from 25 Senators asking the Trump administration to reengage on the TPP, I think you always have an element -- a strong element within Congress, and within the Republican Party, that do want to see America continue to reach out and make trade agreements that expand economic possibilities in trade. But also, as is now the primary unifying issue between the two parties, to address the threat of China, economically and otherwise.
So to encapsulate it, I think there's going to be interest, and I think discussions. I mean, they're having a hearing on it today at the Senate Finance Committee on this very topic. So I think there will continue to be discussions on how to address China, both not only domestically here in the United States but globally and regionally within the Asia Pacific area. Certainly, as the United States develops military strategies, geopolitical strategies -- I mean, it will have to develop economic strategies within the region to address China and its expansion and one belt, one road policies.
So I think it'll be a continued item broadly addressing China economically, whether that's trade agreements or otherwise, up in Congress. But it'll be really interesting to see where things go on the TPP and re-engaging the TPP. Happy to sort of elaborate, but I see five key reasons why it's going to be real tough. But happy to talk about it.
Prof. Jeremy A. Rabkin: Yeah. Let me just start with a slightly different aspect of this. The latest news is that the United Kingdom wants to join --
Nova J. Daly: Yeah.
Prof. Jeremy A. Rabkin: -- which in a way makes sense. They're out of the EU. They're looking for new trade partnerships. They can finally negotiate them on their own. They don't need approval from Brussels. You've got Canada in it all ready. So maybe a grouping that is Britain and Canada and Japan -- looks, actually, not like a bunch of poor countries that are trying to dump products of state-run factories into the American market. It looks more like a major global trade relationship which happens to include some relatively poor countries in Asia. Do you think that makes it a little more palatable in Congress?
Nova J. Daly: Yeah, it definitely could. The United Kingdom formally applied to join the CPTPP on the 1st of February. And you have other countries that are starting to reach out and make an interest -- South Korea.
Prof. Jeremy A. Rabkin: Right.
Nova J. Daly: And Taiwan, way back when, has indicated its interest. So I do think that will play an interesting factor in terms of how Congress perceives this. But if I could sort of just touch on five key points that sort of wrap around this issue: one is Republicans, the second, elections cycle and the focus on domestic priorities, the third being political capital, and then the fourth being labor, and then the fifth being China.
So these five factors, I think, are sort of the key points in terms of what the Hill looks at. First, there's many who think Republicans have shifted their view on trade. Their words in the past, they supported free trade agreements. With the Trump administration, they've taken a different view and no longer support it. But I don't think it -- I talk to people on the Hill -- that necessarily bears itself out, and in USMCA, there was only one Republican in the Senate that didn't support it -- that was Toomey. And then two House members that didn't support USMCA.
That said, we have election cycles that are very important. The 2022 election cycle in the House -- I think the Democrat majority is very worried about losing their majority. It's only the third slimmest majority since World War II. And there's a lot of factors to say -- of reasons why you could see it flipping given new Census districts coming online that will give advantages to the Republican party.
And then you also have the hard part of the -- you have to put a lot of capital into passing these agreements, and they'll have to pass the Trade Promotion Authority to reengage on TPP, and TPA is a very big list. And the Republicans and Democrats may say they want to pass a Trade Promotion Authority, but I think what they want in a new trade promotional authority is very different ends of the spectrum, so that is hard enough. And then there's the diplomatic capital --
Prof. Jeremy A. Rabkin: Yes. Wait -- yes, I just want to pause to make sure that I understand this and the people listening.
Nova J. Daly: Sure.
Prof. Jeremy A. Rabkin: So, at the present moment, President Biden is not authorized to undertake a negotiation. Of course, he can negotiate whatever he wants, but Congress is not committed to pass it on the fast track. Right?
Nova J. Daly: That's right.
Prof. Jeremy A. Rabkin: And then --
Nova J. Daly: Well, I think that expires on the 1st of July [Laughter].
Prof. Jeremy A. Rabkin: Well, so if he doesn't finish it in a week [Laughter].
Nova J. Daly: He has about eight days or so [Laughter].
Prof. Jeremy A. Rabkin: And presumably, that makes other countries -- I mean, they understand this -- it makes them reluctant to negotiate with us because --
Nova J. Daly: Certainly.
Prof. Jeremy A. Rabkin: -- after all this back and forth, there's no assurance that Congress will approve it. And there's no assurance --
Prof. Jeremy A. Rabkin: -- even if they'll vote quickly. So you really need to authorize the president by committing the Congress to vote within a limited time period up or down, right, on the whole package.
Nova J. Daly: That's right -- that's right. Even though past experience has demonstrated that Congress wants to, even under TPA, go in and seek changes in the agreement and have USTR go renegotiate. It's possible, but it does make it much more difficult to do so. It creates a structure more so for the Senate than the House because the House can form its own rules in terms of passage. And it does gives assurances to these other nations that the United States is committed to it.
Prof. Jeremy A. Rabkin: Yeah. And so the first hurdle here, the first challenge, is you get Congress to say okay, go ahead and negotiate, and we agree to follow this procedure in accepting or rejecting it. Any chance that they will do that in the next few months?
Nova J. Daly: With TPA? No [Laughter].
Prof. Jeremy A. Rabkin: No. You're saying not this year and not next year?
Nova J. Daly: Zero -- zero. I mean, they're too far apart in the things they want, and I think TPA just brings up the trade issue, and the Biden administration has given no indication that it wants to pass TPA or see it passed again. So it's definitely going to lapse, and it's just -- once you enter into a discussion in fighting for TPA passage, then all of the other trade issues come to fore. And this Biden administration's been clear that it wants to focus on domestic growth, rebuilding after the Corona experience that we're still under, and Katherine Tai -- there are discussions that said she wants inclusive trade. So this is not --
Prof. Jeremy A. Rabkin: So just thinking about the politics of this, what could happen in, let's say, the next year and a half that would make Congress more sympathetic to this?
Nova J. Daly: For TPA?
Prof. Jeremy A. Rabkin: Yeah.
Nova J. Daly: And TPP? I think if you really did have a situation where the other nations that are current signatories and members in the CPTPP open up the door -- it's China. I think that is the factor. That is the scare factor, as Cornyn and Carper had put down, that it's going to make them have to stand up and say we've got to take leadership ranks.
Prof. Jeremy A. Rabkin: Okay, fine. And that's not farfetched, right? That's not very unlikely. That's quite possible.
Nova J. Daly: Yeah. Interestingly, and this is something I sort of -- probably have to talk to Jeff to dig in deeper on or just agree to it a little bit more, but in the contours of the USMCA agreement, one of the provisions — it was a cell provision — was that Canada and Mexico could enter into a trade agreement with a non-market economy country. In other words, it was a way of forestalling their ability to enter into an agreement with China's non-market economy.
So I'm sort of wondering how it all works with the CPTPP and Vietnam being in there as a non-market economy as a grandfather element to it, but the center of that provision is one in which the United States has the right to walk away from the USMCA if either one of those countries, which are members of the CPTPP, do enter in an agreement with China. So we have a passive veto but with the threat of pulling out of the USMCA.
Prof. Jeremy A. Rabkin: Yeah. I think that could make a big difference. Okay. So I want to just get reactions to what's been said, and then we can see if callers want to raise some questions. Let me work backward in the order that we came with. So I'll just ask Jeffrey Gerrish first. Anything in what's been said that makes you want to say no wait, there's more of a chance of this thing will be revived in the next year or so?
Jeffrey Gerrish: Not really. And I hate to be Debbie Downer about this, but I do say I don't think there's a real likelihood that this is going to be something that either the Biden administration or certain members of Congress -- now certainly there are supporters of getting back into TPP, and as you mentioned Senators Cornyn and Carper, in particular, are big supports of getting back into TPP. But I just don't see the Biden team wanting to revisit that. I think they would view it as just too dangerous and too potentially risky for them, and it would be counter to what they've said is going to be their focus, which is on the domestic issues and get back from COVID at this point.
Prof. Jeremy A. Rabkin: Even if you start seeing Asian countries saying okay, we need to deepen our trade relations with China because we've given up on America. You don't think that would be enough of an inducement for congressional leaders to say no, wait, this is important and signal that to the Biden team?
Jeffrey Gerrish: I think there's going to be a continuing revisiting of this issue because I do think that that is going to be -- there are going to be concerns about that. There are current concerns about it with the Chinese indicating that they are potentially interested in getting into CPTPP. Had President Xi, at the APAC meeting in the fall, saying that they would favorably consider getting to it, and there's been some indication that they've been exploring that.
So I think we're going to continue to revisit this issue. There was also, of course, a lot of focus on it when the agreement was reached among the 15 Asian nations, including China — the Regional Comprehensive Economic Partnership Agreement — back in I think it was November of last year.
Prof. Jeremy A. Rabkin: November -- yes. Right.
Jeffrey Gerrish: Yeah. So I think we're going to continue to see this being revisited, but I don't know that it's going to tip the balance enough, certainly in the near term anyway. Now again, maybe as time goes on, this becomes more possible to get back into it. I also think it's unlikely that you're going to see countries like Japan and Australia, and even Canada, want to bring China into this agreement.
I mean, we've seen all the problems that Australia's had with China on the trade front. And then they're going to view that if they do anything with China that they're going to run into issues with the United States, which they, I think, view as a closer ally and certainly a closer ally than they would China. So I think that's going to keep them from wanting to move forward. And then you also have the Japanese -- I mean, with the RCEP Agreement — the Regional Comprehensive Economic Partnership Agreement — I think they're going to see how China --
Prof. Jeremy A. Rabkin: Time out agreement --
Jeffrey Gerrish: Yeah, exactly -- exactly. And they're going to want to see how China implements its commitments even under that agreement, which by all accounts is a lower standard agreement than the CPTPP. So I think they want to see how the Chinese do under that, and as we were discussing earlier, the Chinese do not have a good track record of implementing their trade commitments. So I think there's going to be real concern among the other members on how China would do. And right now their certainly not ready to implement the commitments that would be required under the CPTPP.
Prof. Jeremy A. Rabkin: All right. Michael Auslin, are you a little more optimistic? And let me just set you up as a possible ground for optimism. Before we talk about the UK -- this is Canada, Australia, and New Zealand. If you add in the UK, it's an Anglosphere Trade Agreement with a lot of Asian countries, a lot of which used to be British colonies. It's kind of important to the United States whether those countries do regard the United States as their main -- not just their main ally but their main trade partner.
Australia, as Jeffrey Gerrish was just mentioning, has been in some heated confrontations with China. We might feel it's important to encourage Australia rather than leave it to contend with China on its own. Can you imagine a diplomatic atmosphere that makes the Biden administration think, okay, this is important, and it's worth some political capital to revive this -- that is the idea of American participation?
Dr. Michael R. Auslin: Well, you set me up well, but unfortunately, I'm not taking the bait [Laughter]. I don't see it, unfortunately. I think everything you said is -- it has a lot of good reasons behind it to pursue. I think the fact that Britain does want to get in, that this becomes an Anglosphere trade pact with Japan. That's important. I think getting Britain in and the United States in means you have the first, third, and fifth largest economies in the world tied in a free trade agreement.
On the other hand, the U.S. has all ready -- during the Trump years, the U.S. negotiated a basic agreement in goods and services with Japan, it's doing so with Britain. What President Trump said he wanted to do, of course, was have more transparent, more bilateral, easily understandable trade agreements for fair trade, as opposed to these massive WTO-like, GATT-like, TPP-like arrangements. What the truth is is that the United States all ready is not the major trading partner for most of these nations. China is.
Prof. Jeremy A. Rabkin: Right.
Dr. Michael R. Auslin: And so, for a long time, it is the largest trade partner. Its largest trade partners are also in Asia, so its focus is on Asia. The Asian countries all ready know how dependent they are on China. So I don't think we can credibly make the case that, well, if you sign this agreement, suddenly we're going to become a major trading partner. I --
Prof. Jeremy A. Rabkin: No -- no -- no. But it somewhat butts the other way, doesn't it? I mean, at least in strategy. I'm not sure about the politics. But strategically, you want to reassure these countries that even though you're now very dependent on China, there's a future for you in which you can be less dependent. So you don't have to be quite so intimidated by them as you might be if you were left alone just to deal with China as your neighbor.
Dr. Michael R. Auslin: Right. Look, I agree with you, and I've argued that as well. I just think it is not as compelling an argument. What these countries want is infrastructure investment. They want cheap loans with no strings tied -- or no strings attached. They want to have the ability to build their roads, and their power plants, and their ports without being hectored about what type of civil society they need to build. We don't do that. What we do is the latter. We hector them about what type of civil society they need to build, and we don't build for them the things that they really want.
Japan's much better at it than we are, and I think we should be supporting Japan and there is an initiative called the Blue Dot Network that is supposedly attempting to try. Although, I would say it has a long way to go in offering an alternative to the one belt and one road. Don't forget we focus on trade because we're a developed economy. What these countries want is a lot of different types of support that we don't do nearly as well. What they want above all is that investment, so China is providing that. It's providing it through the one belt, one road. However poorly it does so, it is doing so. They all ready are the major trading partner.
And because we frame it in a way -- precisely how you said it, which is this is beyond trade, it's geopolitical, and it's strategic, and it offers you alternatives. Ideally, we would think they would respond to that, but in reality, what they think is no, we're just playing a geopolitical game, and they're actually not that important to us. We're sort of counting beans or putting notches on our belt as opposed to really giving them the stuff that they want. So, unfortunately, I think no. Now, just very quickly, on one thing you mentioned, would something like this help a country like Australia, which is facing economic warfare by Beijing?
Prof. Jeremy A. Rabkin: Yes.
Dr. Michael R. Auslin: I think there are other things that we can do that would be more helpful, such as an Economic Article 5 Agreement where we basically say if you are under economic attack by any country, we will step in, hopefully, with partners to make up the shortfall. So $100 million in beef exports disappear to China, we and our partners will buy $100 million worth of beef. I think that is a much more flexible arrangement. If you think about it those types of Article 5 Agreements -- which, by the way, thankfully we've never had to actually live up to, let's recognize that. But in the security sphere, they've been extraordinarily successful over the past seven decades in giving --
Prof. Jeremy A. Rabkin: You're saying our --
Dr. Michael R. Auslin: -- us an alliance relationship.
Prof. Jeremy A. Rabkin: You're saying Article 5 of NATO transposed to an economic agreement?
Dr. Michael R. Auslin: Well, also -- it's basically Article 5 in any defense agreement.
Prof. Jeremy A. Rabkin: Yeah -- yeah -- yeah. But it's five in NATO.
Dr. Michael R. Auslin: Whatever reason -- yeah.
Prof. Jeremy A. Rabkin: That's the --
Dr. Michael R. Auslin: Yeah, and it's five with Japan, and it's five with the Philippines --
Prof. Jeremy A. Rabkin: Ah, okay. Very good.
Dr. Michael R. Auslin: -- and I'm pretty sure it's five with Korea. It's five across the board. For whatever reason, it's five. But anyway, we should be thinking of that in relation to these nations. So let me give one other example of that. A few weeks ago, China said that they would -- did not say it, threatened Bangladesh that if it got involved in any Quad activity, including vaccine diplomacy or anything else, it would face consequences. So again, they're not interested in some sort of big idealistic free trade agreement. Bangladesh needs to know that we've got their back immediately on not being punished by China if, for example, they took Quad support on vaccines.
So I think instead of TPP or CPTPP, we should be thinking about the Quad, and we should be thinking about Quad Plus. The British want to get involved with The Quad. That, I think, would be better. Now, don't get me wrong, I'm not against CPTPP. I just think politically you have a different Republican party. You have a pretty much same Democratic party. There's other things we can do which provide aid and also send that message that we are looking out for your interests in a way that I think CPTPP is much more limited.
Prof. Jeremy A. Rabkin: So that --
Jeffrey Gerrish: If I could interject, as well. I think there's also smaller-scale trade agreements we can do in the form of digital trade agreements, which we don't have with a number of countries in the region. We have free trade agreements with 6 of the current 11 CPTPP members, but we don't have digital trade agreements with a number of them, and we could do them with Australia, which we have an FTA with. We could do them with New Zealand, Singapore, Chile, and others potentially. And I think as -- with the COVID-19 pandemic, digital trade has become even more important. That's something smaller scale but something we could do with like-minded countries in the region.
Prof. Jeremy A. Rabkin: Just a quick question about the mechanics. If we do this Article 5 commitment, as Michael Auslin is calling it, that sounds like a treaty. That means a two-thirds vote in the Senate. That seems awfully hard. If we do these bilateral agreements, particularly these new ones, still there could be complexities, so it's a real negotiation, so you probably need Trade Promotion Authority, right? I mean, either way, the politics is kind of messy in the next year, isn't it?
Jeffrey Gerrish: For digital trade agreements, we would likely not need Trade Promotion Authority. It's something, particularly, where we have a free trade agreement all ready with the country. Because that's not going to be something that's going to require legislative change, it's likely to be done by the Executive Branch, by USTR, and without congressional approval.
Prof. Jeremy A. Rabkin: Well, that's smart.
Nova J. Daly: Yeah, the Phase 1 China Deal. But -- this is Nova -- so I will say, though, one of the things that the TPP had, even though it was lacking and we've improved on it in the USMCA, and even more so in the draft provisions in the U.S.-UK agreement, is disciplines on state-owned enterprises. We have to -- in that region, we have to put in place not only economic incentives to our partners, but we also have to put in disincentives to China in terms of what it's doing in one belt and one road, transnational subsidies that it's doing through one belt and one road.
So I think disciplines on state-owned enterprises and other -- as part of TPP is, as you have said -- there are reasons why TPP, and where we've been very sanguine on, it's the capability of its passage, but I don't think it should not be talked about. It has to be -- we have to reengage --
Prof. Jeremy A. Rabkin: Yes -- yeah.
Nova J. Daly: -- on the discussions with this region. We have to show them that we care and that it's not just a military exercise. Or otherwise, this is an economic exercise that the United States wants to be part of their growth. We were the country that singularly inspired and helped -- that laid the platform for their growth through our military and the peace we provided in the seas and trade and global nature of our trade. We ought to reap the benefits here and find a way to also address China. So I think a discussion and real engagement in terms of an examination of what to -- whether that's through the CPTPP or other mechanism, is a must.
Prof. Jeremy A. Rabkin: Yes. I think just keeping the discussion going probably makes it a little bit easier. Politically it creates a little more space to undertake negotiations or at least to talk about negotiations. But speaking of reengagement and discussion, do we have callers who want to raise questions?
Evelyn Hildebrand: Fantastic. Thank you for that excellent discussion. With that, I'll turn the floor over to our first caller.
Caller 1: Great event. My question is on foreign VAT and the BRI. With this massive COVID spending, it's about to create some kind of sovereign debt restructuring. But my understanding is the Chinese refuse to join the Paris Club, and sovereign debt financing might be done secretly and so forth. I was wondering if a series of sovereign defaults post-COVID might trigger a reevaluation from the Biden administration and if the panel has any insights on how to think about some kind of stand-up crisis that could create emergency that might -- yeah, thanks.
Prof. Jeremy A. Rabkin: Okay. Crisis -- do we let it go to waste, or do we harness it to this longer-term project? Anybody have a view of that? Okay. I'll just call on a student if no one volunteers [Laughter]. Ambassador, you used to do this for a living.
Jeffrey Gerrish: Not so much on these issues, I will say [Laughter].
Prof. Jeremy A. Rabkin: No, but I mean, is the caller right that defaults would change the landscape? I mean, for the USTR, would they suddenly say, oh, we really now have to rethink our priorities. This becomes more urgent.
Jeffrey Gerrish: It may. That's sort of -- at the risk of overstating -- but this sort of catastrophic result might -- that might prompt in a change in thinking and a change in approach. That may be the type of thing that could shake things up in a way that reorients thinking. Where we do really see the need to take this sort of step in helping out our allies in the region, and so it could very well make a difference if that were to come to pass. So I think that is the sort of thing that -- short of some sort of major event occurring, I think we're all on the view that this is unlikely that this is going to move forward in the near term. But that's the sort of thing that could change things.
Prof. Jeremy A. Rabkin: Right. And there may well be a major event.
Jeffrey Gerrish: Correct -- correct.
Prof. Jeremy A. Rabkin: Okay. Good. So either a lot of defaults or maybe like a meteor strike or something [Laughter]. All right. Let's --
Nova J. Daly: Certainly, Treasury would be very involved in that.
Prof. Jeremy A. Rabkin: Yes. Okay. Do we have other callers?
Evelyn Hildebrand: Not at this time, no. So if anyone else is interested --
Prof. Jeremy A. Rabkin: Okay, fine.
Evelyn Hildebrand: -- in -- yes, go ahead. I'll hand the floor back over for some continued conversation.
Prof. Jeremy A. Rabkin: Okay. So you can alert us. I'm going to just pose -- put aside the meteor strikes. We could have a new bout of inflation. A lot of people are worried about that. We could have a lot of people refusing to go back to work because they're being subsidized not to. We could have all kinds of blockages in the economy. A lot of people are worried about this -- difficulties with shipping. There's just not enough shipping available.
So supposing that, which seems to me very possible and maybe even more likely than not or as likely as not, a year from now, the economy is doing poorly, or it's perceived to be doing poorly, and the Democrats do lose seats in the 2020 elections, what are the odds that the Biden administration responds to that by saying okay, we need a fresh start? We need to open the economy by having a dramatic new trade agreement, and this one is all ready on the boards.
Nova J. Daly: Yeah.
Prof. Jeremy A. Rabkin: Wildly optimistic [Laughter]?
Nova J. Daly: No, I mean -- look, I mean, anything can sort of happen on the trade front. I think, as everyone on the call agrees, I think addressing China is a singular issue that unites Democrats and Republicans. And if you add that issue to an economic dislocation here in the United States, that's an additive factor that could lead to further talks in terms of trade agreements.
But usually, domestic economic issues aren't -- usually don't turn the trade agreement side of things. Usually what does -- but what is interesting -- what'll be interesting is there used to be -- and I experienced this definitely at the NFC, and we dealt with trade there. We did a lot of free trade agreements under Ambassador Zoellick there. It was not just the economic impact. It was the geopolitical position in the United States. So I tend to see -- even though that argument is faded and people look at the economic impact of these trade agreements, I think the geopolitical diplomatic importance of this is a pretty -- is a much stronger factor in terms of reviving this or reviving some kind of movement on an agreement with the country.
Jeffrey Gerrish: And I actually think that an economic downturn could make it less likely that the Biden administration wants to move forward with CPTPP because public opinion has changed over the last several years where I think there's much less support for -- and maybe, to put it differently, a lot more opposition to trade deals because of the impact that they are believed to have had in a number of communities.
Prof. Jeremy A. Rabkin: It's true that there's been that current of opinion. But there also is this anxiety about we're stagnating. We're not competitive. And you don't make yourself competitive by walling yourself off.
Jeffrey Gerrish: Although, I think that the concern has been that the trade agreements open us up too much in a way that results in unfair trade and harmful --
Prof. Jeremy A. Rabkin: Well, okay --
Jeffrey Gerrish: -- impacts on communities, particularly, manufacturer -- but not only manufacturing, other industries as well.
Prof. Jeremy A. Rabkin: So it was -- I mean, I just want to say this, I don't know, two years ago -- I've lost track -- something about two or three years ago I did one of these, and it was about renegotiating NAFTA. And I thought that was pretty hopeless because I thought Nancy Pelosi will not allow the Trump administration to have a victory in the House. And that turned out to be wrong because even the Democrats thought no, wait, this U.S.-Mexico-Canada Agreement's not perfect, but it's better than NAFTA, and we need to have an ongoing relationship with our immediate neighbors and major trade partners. That was at a time when there was just so much rancor between Democrats and the Trump administration, but they were able to set that aside and say, okay, this is really important.
I was struck just reading about this that Katherine Tai was approved 98-0. What other Biden nomination was approved by virtually unanimous vote in the Senate? I think there's a fair amount of willingness, at least, to think about these issues. So you guys all know very much more about this than I do, but I want to just end with expressing the possibility that slight changes in our circumstances, or more than slight -- some important changes in our circumstances, which could well happen in the next year or two, could change the outlook for this. And you all now have a chance to say, well, yes, that could happen.
Jeffrey Gerrish: I think you raise some good points. And I think the USMCA and the result there, I think, provides really a blueprint for bipartisan support of a trade agreement. You mentioned Katherine Tai being confirmed by that 98-0 vote, and I think that reflects the great respect that members have for her. But the USMCA passed, also by roughly a 90 percent vote, in both the House and the Senate.
Prof. Jeremy A. Rabkin: Yeah.
Jeffrey Gerrish: So I think if it's done in that way, in a bipartisan way -- and I think there was a really strong effort on the part of the Trump administration and members on the Hill to do that. Obviously, the result was very successful on that.
Prof. Jeremy A. Rabkin: Yeah. So good things can happen.
Nova J. Daly: And my thought is that -- yeah, things can happen. My thought is that if the TPP, or CPTPP, is renegotiated with a lot of the provisions that Jeff talked about and some strong SOA provisions, and things that make a guarantee that we're not going to lose manufacturing jobs and that it's a must to address China, then there's a window.
Prof. Jeremy A. Rabkin: Yeah.
Evelyn Hildebrand: We do have one final caller in the queue. If we can give it a very brief answer, then I'll hand the floor over to that caller, if that's okay with our panelists.
Prof. Jeremy A. Rabkin: Okay. And a very brief question.
Caller 2: It's very brief because it's speculative and no one has an obligation to answer it. I'm wondering whether what the United States Biden administration does on trade, one way or another, whether you think that will have much of an impact on China's other tendency that it's military aggressive moves around the world and that kind of thing in the seas and otherwise. Whether trade affects their attitude on how much they want to confront us militarily.
Prof. Jeremy A. Rabkin: That is a question for Michael Auslin -- tell him.
Dr. Michael R. Auslin: Well, it's a good question and long answer, so I'll just make it very brief. The dynamic we are locked into now is one of competition and confrontation. I would argue that was very largely chosen by Beijing, and they see all of this as interlinked. So they see trade agreements as inherently a way to -- for the U.S. to weaken China. They see it as a way for the U.S. to encircle China.
Regardless of what we do politically, economically, socially, and of course militarily, that the Chinese, after 40 years of integration into the world economy -- when I say the Chinese, I'm talking about the Chinese Communist Party -- have a conspiratorial Marxist-Leninist, Leninist-Maoist view of the world, that they are surrounded by enemies that want to destroy the Party and weaken them. So I think recognizing that we then need to discard it because we're not going to change that view on their part. We're not going to change their perception of us after 50 years of political and economic interaction. And we need to, instead, figure out what's in our interests as well as the interests of partners that we have around the region.
Prof. Jeremy A. Rabkin: Yeah. And I think that there is an emerging consensus in Washington that this is a very serious challenge and it's not going away. So that --
Dr. Michael R. Auslin: Thank you.
Prof. Jeremy A. Rabkin: Yeah [Laughter]. Okay. Well, I want to thank the panelists. This was a good discussion, and hopefully, we've contributed a bit to keeping interest in this alive. Thank you all and hopefully --
Evelyn Hildebrand: Great.
Prof. Jeremy A. Rabkin: -- we'll be able to start this discussion again next year when there have been positive developments on this front.
Evelyn Hildebrand: Great. Well, thank you, everyone. And on behalf of The Federalist Society, I want to thank our experts for the benefit of their valuable time and expertise today. And I want to thank our audience for calling in and participating. We welcome listener feedback by email at [email protected] Please keep an eye on your email for announcements about upcoming Teleforum calls and virtual events. Thank you all for joining us today. We are adjourned.
Dean Reuter: Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.