US President-elect Donald Trump has indicated that he will withdraw the US from the Trans-Pacific Partnership as part of his first 100 days action plan.
Trump called the deal “a potential disaster” for America and vowed to bring jobs and industry back to the country.
Hours prior to the announcement, Japan’s Prime Minister Shinzo Abe warned that TPP would be “meaningless” without US participation.
So how could the potential collapse of this agreement play out for retailers and suppliers involved in the region?
The end of globalisation?
The US pulling back so abruptly from TPP represents the first sign that America intends to play a lesser role in globalisation – something from which China has benefited greatly in recent decades.
By implication, its economy, along with that of Japan, will experience short to medium-term pain from a more insular USA.
In Japan – where retail has been burdened by subdued consumer spending, faltering ‘Abenomics’ policies and a fluctuating currency – the administration has invested hope in international free trade deals, in particular TPP, to secure a domestic recovery.
Trump’s announcement will make this far more uncertain. Japan will now have to take a regional and domestic approach, rather than rely on internationalisation.
“The wider implications for US retailers or investors will perhaps be reduced interest in Asia, where the free flow of goods is less likely to be supported”
Likewise, when China declined to join TPP, it was a signal that it was pursuing isolation, not only politically, but also economically – hence its unwillingness to subscribe to a globalisation-style agenda.
This can be further seen in the state’s support for certain domestic retail businesses, such as China Resource Vanguard, which this year has broken into the top 10 Asian grocery retailers.
Going forward, such operators will prove a potential threat to many of the region’s international players.
The wider implications for US retailers or investors will perhaps be reduced interest in Asia, where the free flow of goods is less likely to be supported.
Out with TPP, in with RCEP?
Might this also be the end for integrated free trade economics?
In Asia, we believe economic communities are strengthening and gaining greater importance in pushing the retail sector forward.
Asian markets need inward investment to develop and cater to a growing middle-class consumer base.
Possibly already prepared for uncertainty, Abe has mooted the Regional Comprehensive Economic Partnership (RCEP) as a back-up plan, should TPP flounder.
RCEP is comprised of Japan, China and 12 other Asian countries, plus Australia and New Zealand.
China – by far the biggest entity involved in RCEP – sees huge potential in being able to lead on regional trade.
In any case, the mutual trade deal effectively agreed between ASEAN and China earlier this year will see both parties working closer together and would likely soften any impact of the US backing away from TPP, at least in the medium term.
RCEP will also be a huge help for the international dreams of many Chinese retailers, particularly Alibaba and JD.com, which are already targeting Southeast Asia.
These businesses will benefit from regional trading deals with emerging economies to assist development of their powerful non-store commerce models.
- Anna Hoang is associate analyst at Planet Retail