Global Free Trade: The fundamental lynchpin of economics is questioned by some, and highly desired by others

Free trade, as a method of economic development and as an ideal, is in a state of flux in 2017. The anti-globalization feeling among many was sufficient to allow one of the largest members of the European Union to leave. The USA has pulled out of a major free trade treaty and all but killed off another. Free trade deals are enormously complex mechanisms and have been blamed for animosity around the world; however, they can also be very useful methods of reducing trade barriers which previously hampered commerce. More could be done to make sure free trade deals are serve the interests of the people who are governed by them.

Key Highlights

– Following the departure of the United States from TPP negotiations, the way was left open for the Chinese inspired RCEP (Regional Comprehensive Economic Partnership) free trade deal. Few, if any, expect RCEP to decline as TPP did, but there are challenges ahead and the final shape of the agreement is by no means certain.

– The future of free trade in the European Union is under pressure. The United Kingdom is about to leave, several anti-EU parties have achieved substantial electoral success and there is discontent from some of the newest members. The EU must change to meet developing challenges.

– Statements from US President Trump that NAFTA is taking away US jobs are unfounded, yet there are legitimate concerns about how the trade treaty works for ordinary people amid accusations NAFTA only helps large companies.

Scope

– Examines how the US withdrawal from TPP has impacted negotiations regarding future trade treaties.

– Analyzes the challenges faced by the EU in the face of populism and the leaving of a major member.

– Looks at how trade talks in Asia will now progress without the influence of the US.

– Assesses the establishment of a new free-trade block in Africa and the likely impact on African economies it could have.

– Examines how a Chinese led free-trade deal will develop as negotiations continue to take place.

Reasons to buy

- How will the Trump version of trade impact NAFTA and the future of free trade in North America?

- Can the EU survive a major member leaving and the rise of anti-EU sentiment?

- What form will free trade take in Asia now the US has withdrawn from trade negotiations?

- Can a Chinese led free-trade deal achieve a genuine Asia wide deal?

- How will free-trade react to US retreat from TTIP and TPP?

Table of Contents

Table of Contents

Executive Summary 2

NAFTA: Trump wants rid of NAFTA, but NAFTA’s legacy is highly complex 2

European free trade under more pressure than ever 2

RCEP replaces the United States pivot to Asia, but China will not dominate 2

CFTA: The establishment of a mega-regional agreement that could help Africa 2

US withdrawal from TPP marks step backwards for free trade 3

Largest Free Trade deal in history flounders after political backlash 3

NAFTA: Trump wants rid of NAFTA, but NAFTA’s legacy is highly complex 8

Globalism is an unstoppable trend that is not NAFTA's doing 8

NAFTA has helped to enhance certain economic areas 9

Free trade agreements of this kind both give and take away 9

Mexico can encourage companies to move, but its own products suffer heavily 10

Auto manufacturers move to Mexico from all over the world not just the US 11

The Trumpian argument that NAFTA hurts the US is incorrect 11

Looking beyond GDP, NAFTA could be viewed as a failure 12

Whilst GDP and trade improves, worker wages have been entirely stagnant 13

Investor-State court cases cost regional governments millions 13

Workers’ rights have also been heavily diminished in favor of company profits 14

European free trade under more pressure than ever 15

UK economic success outside of EU would ignite existential crisis 15

Vast German trade surplus does Europe no favors, aiding problems with the Euro and economic recovery 16

New Eastern European EU entrants have gained from the single market trade but face problems too 17

The Euro was intended to erode trade barriers, but the currency is increasingly blamed for economic stagnation 19

High unemployment and low wage growth initiated populist ideas which aim to undermine free trade in the EU 20

RCEP replaces the United States pivot to Asia, but China will not dominate 22

The shape of free trade less ambitious now the US pivot to Asia is over 22

Beijing is not capable of controlling RCEP - Japan and others will see to that 23

Whilst not in control, China still commands influence over other involved countries 24

Reticence from India to break down trade barriers constrains RCEP and the impact the deal could have 25

Unlike TPP, RCEP will be completed because involved countries have a strong need to liberalize commerce 27

CFTA: The establishment of a mega-regional AGREEMENT that could help Africa 29

THE CFTA may create the world’s biggest free-trade area 29

Setup of CFTA is delicate because of the continent's problems 30

South Africa is significantly wealthier than other members 31

A deal like this is needed, Africa is notoriously bureaucratic 32

One of the key goals is improving Inter-African trade 33

Brexit and Trump do not diminish the need for the CFTA 34

CFTA has to be careful not to fall into the same trap as NAFTA 35

US withdrawal from TPP marks step backwards for free trade 36

US withdrawal from the Trans-Pacific Partnership has wide-ranging ramifications for liberalized trade 36

International efforts to reconstitute TPP in another form shows appetite for trade liberalization remains strong if problematic 37

The end of TPP provides impetus to the Chinese promoted alternative - RCEP 38

Largest Free Trade deal in history flounders after political backlash 39

After a protracted struggle, TTIP increasingly looks as though it cannot survive current political environment 39

In the absence of TTIP, the specter of US protectionism encourages alternative opportunities for Europe 40

After TTIP, free trade deals are unpopular and future efforts will cause problems for governments 41

Points of interest 43

Appendix 44

Definitions 44

Sources 44

Further Reading 45

Ask the analyst 46

About MarketLine 46

Disclaimer 46

List of Tables

List of Tables

Table 1: Top 10 countries Japan from which Japan imports ($bn) 37

Table 2: Trade Balance of Original 12 TPP Countries ($bn) 38

List of Figures

List of Figures

Figure 1: Trump signing bill into law 8

Figure 2: Intermediate goods imports as a share of total imports 2015 9

Figure 3: Exports within NAFTA, $bn 10

Figure 4: Exports within NAFTA of vehicles and automotive accessories, $bn 11

Figure 5: Average salary and consumer price growth 2000-2015 US dollars, 2000=100 12

Figure 6: Annual average salary data, US dollar constant prices PPPs 13

Figure 7: Letter being delivered to Donald Tusk announcing the UK’s departure from the EU 15

Figure 8: German Balance of Trade ($bn) 17

Figure 9: Value ($bn) of Polish exports to EU (28 nations) 18

Figure 10: Estonian Balance of Trade ($bn) with EU (28 nations) 19

Figure 11: Debt to GDP Ratio 20

Figure 12: Unemployment rate in Italy and Spain 21

Figure 13: Countries involved with TPP and RCEP 22

Figure 14: Japanese Prime Minister Shinzo Abe 24

Figure 15: Philippines President Duterte 25

Figure 16: Indian Balance of Trade ($bn), 2001-2016 26

Figure 17: Indian Imports ($bn), 2001-2016 27

Figure 18: Vietnamese exports ($m) of impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use 28

Figure 19: CFTA Organization flag 29

Figure 20: Number of fatalities from state and non-state conflict 2015 30

Figure 21: Sample of Africa state exports 2007-2016 $m 31

Figure 22: Share of total exports from Africa $ millions 32

Figure 23: Tripartite free trade area 33

Figure 24: GDP growth rates of some potential CFTA members (%) 34

Figure 25: Current account balances ($m) 35

Figure 26: US Trade Deficit ($bn) 36

Figure 27: EU (28) exports to the United States ($bn) 39

Figure 28: EU (28) Exports to Japan ($bn) 41

Figure 29: TTIP Protest in Berlin, Germany 42

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