Free trade in the Pacific
A small reason to be cheerful
An inspiring idea to liberalise transpacific trade hinges on the courage of America and, especially, Japan
WITH thunderclouds looming over the trans-Atlantic economy, it was easy to miss a bright piece of news last weekend from the other crucible of world trade, the Pacific Rim. In Honolulu, where Barack Obama hosted a summit of Asia-Pacific leaders, Canada, Japan and Mexico expressed interest in joining nine countries (America, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam) in discussing a free-trade pact. Altogether, the possible members of the Trans-Pacific Partnership (TPP) produce 40% of world GDP—far more than the European Union.
Regional trade deals are not always a good idea. If they distract policymakers from global trade liberalisation, they are to be discouraged. But with the Doha round of global trade talks showing no flicker of life, there is little danger that the TPP will derail a broader agreement; and by cutting barriers, strengthening intellectual-property protections and going beyond a web of existing trade deals, it should boost world trade.
The creation of a wider TPP is still some way off. For it to come into being its architects—Mr Obama, who faces a tough election battle next year, and Japan's Yoshihiko Noda, who faces crony politics laced with passionate protectionism—need to show more leadership.
The Noda showdown
Mr Noda's announcement on November 11th that Japan was interested in joining the TPP negotiations was an exceedingly bold move. Signing up would mean dramatic changes in Japan, a country which has 800% tariffs on rice and exports 65 vehicles to America for every one that is sent to Japan. Mr Noda's move could also transform the prospects of the TPP, most obviously by uniting two of the world's leading three economies but also by galvanising others. Until he expressed an interest, Canada and Mexico had also remained on the sidelines. Unwittingly or not, Mr Noda has thrust mercantilist Japan into a central position on a trade treaty in which free movement of everything except labour is on the table.
Immense obstacles loom for Mr Noda. He came into office in September casting himself as a conciliator of Japan's warring political factions. Many of those groups are opposed to the TPP. Farm co-operatives, which feather many a politician's nest, argue that it would rob Japan of its rice heritage. Doctors warn of the risks to Japan's cherished health system. Socialists see the TPP as a Washington-led sideswipe at China, which had hoped to build an East Asian trade orbit including Japan. Mr Noda will have to contend not just with opposition from rival parties but also with a split on the issue inside his Democratic Party of Japan.
Since Honolulu, Mr Noda has already pandered to protectionists by watering down his message. Having beamed next to Mr Obama in a summit photo, he then protested that the White House had overstated his intention to put all goods and services up for negotiation. Polls, however, suggest the Japanese are crying out for leadership on the issue, not pusillanimity. More support the idea of entering TPP negotiations than oppose it. On their behalf Mr Noda should lead Japan forthrightly into the discussions, confident that the country can bargain well enough to give its sacred industries such as farming and health care time to adjust.
It is also a test for Mr Obama's new strategy of coping with China's rise by “pivoting” American foreign policy more towards Asia (see article). He must stand up to the unions in the car industry which have long bellyached about the imbalance of trade with Japan. He should energetically promote the potential gains for jobs of his pro-Asia strategy—both at home and abroad. America should also stress that the TPP is meant to engage and incorporate China, rather than constrain it.
Such steps would help win support in Japan, while costing America little. And in joining the TPP, Japan would be forced to reform hidebound parts of its economy, such as services, which would stimulate growth. A revitalised Japan would add to the dynamism of a more liberalised Asia-Pacific region. That is surely something worth fighting for.