Getting the Band Back Together: A Revitalized Shinzo Abe Emerges a Larger Global Figure as Mega-Trade Deal Shows Vital Signs

Konner Fung Kee Fung

October, 2017

Negotiators of the newly-named ‘Comprehensive and Progressive agreement for Trans-Pacific Partnership’ (CPTPP) concluded the APEC summit in Vietnam last week with a renewed sense of optimism. After a dramatic few days filled with controversy, misinformation, and allegations of ‘snubbing,’ the eleven Pacific Rim countries have agreed to the ‘core elements’ of a new trade deal.

While the talks have attracted much attention, what is lost in the popular discussion is how unlikely the deal’s revival seemed just a few months ago, and how significant it is that an understanding has now been reached.  

In its original form, the Trans-Pacific Partnership (TPP) included twelve countries and encompassed nearly forty percent of the global economy. As one of the cornerstones of the Obama administration’s ‘Pivot to Asia,’ the pact was notable for its size, and its modern stipulations concerning intellectual property, labour rights, migrants, environmental protections, and digital commerce.

More importantly, the deal was considered monumental for its geopolitical considerations.

For the United States, much of the value of the original TPP lay in its deliberate exclusion of China. This would have allowed the US to impose its influence on smaller economies in the region and lure them away from the growing pull of an export juggernaut. Similarly, it would have set precedents and supported a Western-friendly, rules-based order for the future of global trade.

For the participating ASEAN countries, the TPP was an essential part of a broader hedging strategy, where counterweighting to balance American and Chinese regional influence has become standard diplomatic practice. For proponents of the deal, China’s simultaneous promotion of a competing agreement, the Regional Comprehensive Economic Partnership (RCEP), heightened the urgency to ratify.

In what was defined as a trade-skeptical election cycle in the United States, the future of the TPP remained uncertain for most of last year. In January, an executive order was signed in the White House formally abandoning the TPP —a move that has been characterized as “the greatest self-inflicted wound on American regional influence since the Vietnam war.” At the time, representatives of many signatories labeled the pact “meaningless” without the participation of the United States. A former South Korean trade representative even referred to the TPP as “a dead deal.” Despite this early outlook, leaders quietly worked to revive the agreement.

While there were reports that ‘TPP minus the US’ or ‘TPP-11’ talks were ongoing, few observers believed a new agreement to be possible. Certainly, reaching this point has not been easy. The removal of the world’s largest economy left an impossible gap to fill, and sharp disagreements also had to be resolved between the remaining countries. For example, earlier this month it was feared that New Zealand’s ban on foreign home buyers would upend negotiations until newly-elected Prime Minister Ardern indicated a workaround could be reached.

The unexpected developments in Vietnam last week are an especially important win for Prime Minister Shinzo Abe and Japanese negotiators, who have led much of the TPP’s revival efforts since the beginning of the year. Abe has enjoyed a string of successes lately, having also won a convincing re-election in October; a result that seems to validate the Prime Minister’s once-ridiculed economic prescription for his country.

Japan’s economy has been relatively stagnant for almost three decades: suffering from chronic deflation, ballooning public debt, and deeply-rooted structural challenges like an aging population and weak labour force participation. ‘Abenomics’ has offered three arrows to resolve these problems aggressively: i) monetary easing, ii) fiscal stimulus, and iii) structural reform.

Lately, growth in Japan has improved, unemployment has dwindled, and labour force participation is stronger, although much more work remains. Of Abe's three arrows, structural reform has proven to be the most difficult area to see meaningful progress. The Prime Minister’s determination to secure a functional TPP comes in large part out of a desire to force further structural reforms that cannot be achieved with domestic levers. Exposure to international competition, he hopes, will force uncompetitive and historically protected domestic industries, like agriculture, to modernize and trim waste.

Japanese perseverance on TPP also comes from its support for the geopolitical aims of the original agreement. "Even though the prospects of the deal coming into effect have become unclear, we are sending a message to the world about the significance of creating a fair economic zone," Abe remarked last December.

“Fair economic zone” refers to trade rules set by Japan and the West—not set by China. Without the TPP, he fears, Japan and other Asia Pacific economies will have no counterbalance to China, and will inevitably succumb to the magnetic pull of its growing economic might.

The global activism that has advanced CPTPP talks to this point is new for Abe and uncharacteristic of post-1945 Japanese leadership. This change in independence and assertiveness is also demonstrated in Japan’s new trade agreement with the EU and Abe’s busy international travel schedule. It also seems to align with a shift in the way many Middle Powers are responding to an erratic and insular United States.

The agreement last week is significant, not only because it demonstrates Abe’s newly-minted global leadership, but because it revives hope that a monumentally disruptive decision for the region could one day be reversed. For many of the CPTPP countries, there is optimism that if an agreement is reached between them, the United States could perhaps rejoin under different leadership. In fact, the revamped deal is designed with re-entry in mind, should that day ever come.

It is far too early for proponents to celebrate, and significant challenges remain. Ongoing NAFTA talks are a looming complication, and there are concerns that suspended provisions in the CPTPP leave it a “shadow of its former self." Since January, however, negotiators have defied popular expectations. Observers would be smart to soften their skepticism.