R.I.P. TPP: What's next for Asia?

By Al Gerard de la Cruz

Bernie Sanders reproached it, Hillary Clinton was ambivalent towards it, and Donald Trump vowed to exit the US from it throughout his ultimately successful bid for the presidency.

The Trans-Pacific Partnership (TPP), a sweeping trade pact that would have given 11 Pacific Rim nations greater market access to the US and vice-versa, is dead. Trump withdrew the US out of the deal only three days into his presidency.

In a US political climate where Trump’s promises to safeguard industries and lure back manufacturing jobs from overseas struck a huge chord with voters in the nation’s disgruntled heartlands, the TPP has taken on the status of a bogeyman.

Originally struck between Singapore, New Zealand, and Chile, the trade deal’s prospectus promised several benefits, albeit indirectly, to the housing markets of its members. It offered gains to industrial, office, and retail markets, conflating wealth creation with a greater demand for residential real estate. Its mooted benefits extended far beyond mere economics. It also promised to advance the defence and security interests of member nations embroiled in territorial disputes with China in the South China Sea.

Indeed, the collapse of the deal is set to leave a power vacuum that could see Beijing taking on a leadership role in trade liberalisation. Uninvited to the TPP, China is proposing an alternative, the Regional Comprehensive Economic Partnership (RCEP).

Experts say that the TPP would have boosted housing markets in Japan and the deal’s other Asian signatories: Vietnam, Singapore, Brunei and Malaysia.

“There would be an indirect impact on ASEAN residential markets because of increased investment in the region,” says Henry Gao, associate professor of law at Singapore Management University. “There would be an influx in foreign direct investment (FDI) from multi-national corporations and they would need residential property for their senior executives.”

While the TPP would have boosted service-oriented markets like Singapore and Japan, manufacturing economies like Vietnam were set to be its biggest winners.

“All the manufacturing sectors, especially textile and apparel, were going to be TPP’s biggest beneficiaries as there’s a lot of trade already with US companies,” says Stephen Wyatt, country head for Jones Lang LaSalle Vietnam. “We’ve already started to see an increase in US companies setting up business in Vietnam in the expectation that the TPP would go through. If more FDI comes into Vietnam there would be a knock-on effect for the real estate industry, from industrial to office to residential. One leads to another.”

In contrast, the RCEP may prove downright predatory to Southeast Asian countries, given China’s manufacturing clout. In identifying the deal’s possible downsides, Gao points to a 2010 free trade agreement with China where ASEAN nations hit a USD8.5 billion trade deficit in 2012, ending years of surpluses.

“If you are a resource-rich country like Indonesia, Malaysia, and the Philippines, you might benefit more from the RCEP because the duties for your exports to China, a big resource consumer, would be reduced,” he says. “If you’re a mainly manufacturing economy like Vietnam and Thailand, you will need to reduce tariffs on goods from China, which is more effective in manufacturing industrial products, so you might lose out.”

The RCEP appears to offer more superficial tariff concessions to goods and services than the TPP. The China-led RCEP would also set a weaker agenda in terms of intellectual property rights, labour standards, and other rules of trade than the TPP, which outlined “high quality standards” as a stipulation for member countries.

Still, many observers point out that trade barriers are better overcome than retained. “The deal would be a positive signal that trade liberalisation will continue,” says Richard Barkham, global chief economist at CBRE.

The RCEP could transmute eventually into a broader agreement: the Free Trade Area of the Asia Pacific (FTAAP). “Achieving FTAAP would be supportive of real estate markets and a positive signal for the development of Asia,” adds Barkham. “Anything that boosts gross domestic product also supports the housing market.”

Critics of the TPP have long bemoaned its flaws. They say it propagates labour rights abuses in countries like Vietnam and Malaysia and disproportionately benefits big corporations. Its weak rules of origin allegedly benefit China and other non-signatory countries.

Whatever its downsides, supporters of globalisation will hope an alternative to TPP manages to withstand the rising isolationist mood in the west.

This article originally appeared on Property Report.