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TPP: Help for shipping or another mirage?

TPP: Help for shipping or another mirage?

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The Trans-Pacific Partnership (TPP) would at first glance appear to increase trade and thereby be beneficial to shipping. However, a complete analysis of the position of the TPP within the entire Pivot to Asia policy of the Obama administration is important. In fact at the time of writing, little information has been released concerning the provisions of the TPP. It has been developed and agreed to in secret. The average citizen of participating countries knows nothing of the details. Large multinational corporations have been involved with its development, but few others.

First one needs to look at the US Pivot to Asia policy. It consists of several components: 1) the TPP, 2) an increased military contribution of US allies such as Japan and Australia, 3) opposition to the Chinese led Asian Infrastructure Investment Bank, and 4) a direct US military presence in the high seas around China.

The TPP is clearly an effort to contain China. Unfortunately it may result in an overall negative impact on the region if it causes discontent among Asian nations. China has signed several bilateral trade agreements; hence it does not need the TPP. Examples are with Singapore, Australia, New Zealand, Korea, and others.

As for the increased military contribution desired by the US, the recent controversial bills that change the Japanese defence laws are unpopular yet were pushed through by Prime Minister Abe. Clearly this action has the Obama administration’s fingerprints all over it. Also, 2,500 US Marines have been stationed in Darwin, Australia.

Then there was the opposition, which failed, to the Asian Infrastructure Bank. The US tried to persuade its allies not to join. But the allies clearly saw the writing on the wall as to the futility of such an attempt to counter China in the bank.

Finally the US is boosting patrols near the Chinese-built islands in the South China Sea.

Clearly, the entire US pivot to Asia policy is not about building up the Asia-Pacific area; rather, it is a competitive policy to contain China. The shipping industry needs to be quite aware that growth in this region can be negatively affected by TPP and the other components of the pivot to Asia as they are more competitive and less cooperative.

When examining the TPP in particular, it is important to review the current US role in economic leadership. Currently it has led the West down the road of very low interest rates. This began at the end of the Bush administration and the beginning of the Obama administration when the financial collapse was occurring. No significant stimulation of the economy was instigated. Instead, political bickering began and the government punted the problem to the Federal Reserve Board. At the time it was led by chairman Ben Bernanke, who was in love with his PhD thesis on the Great Depression of the 1930s.

While low rates at the beginning may have been a good idea, continuing rates near zero has only given cheap money to the large corporations, hedge funds, and private equity firms. Very little flowed down to the general population. After seven years the unemployment rate has decreased only because people are taking lower paying jobs, part-time work, or dropping out of the workforce. There has been no real recovery.

US leadership has now exported this failed policy to Europe and Japan. Politicians love it because they don’t have to spend anything yet they can crow about growth produced, albeit extremely mediocre growth. And look at the absolute disaster caused in dry bulk shipping to see a microcosm of the failed low-interest policy. The US economic policy beginning with the low interest rates, and continuing with the attempt to contain China with the TPP has and will be a disaster for shipping, especially dry bulk.

Although the major effect on the world economy, hence shipping, is the entire US Asia pivot policy, one aspect of the TPP that must be examined when details are known is the effect on developing countries, especially smaller ones. If the elimination of tariffs destroys small countries’ industries that provide significant growth, the small undeveloped countries will suffer under the TPP.

Finally, maritime shipping companies need to realise that the future will only be profitable if the current overcapacity is eliminated. The entire world economy is not robust and may be heading for recession. China has the advantage of having an authoritarian leadership. Its One Belt, One Road infrastructure projects are very important to the region’s development. In contrast, the Western democracies have stumbled in the dark and currently show no signs of pulling themselves together to provide robust economies. The politics in both the US and the EU indicate no possibility of abandoning austerity. What large projects is the West funding in the region? Scrapping and empty orderbooks are the only solutions. Shipowners must resist the temptation to lessen up on either. Only after several years of solid profitability should owners think about ordering.

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Katherine Harine

Several decades experience in geopolitical analysis related to strategic military systems.

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