TPP and OBOR: Complement or Conflict?

“Globalisation is good.” One would normally take that statement for granted—except that in some places, it is provocative, almost suicidal to make. That is a symptom of the divide between globalisation’s winners and losers, said Professor Kishore Mahbubani, Dean of LKYSPP, in his introduction to the panel discussion TPP? Or OBOR? Superpower Grand Strategy and International Economic Ambition, on 7 November 2016.

He was joined by The Honourable Kirk Wagar, the United States Ambassador to Singapore; and Prof Danny Quah, the Li Ka Shing Professor of Economics at LKYSPP, in a discussion of the Trans-Pacific Partnership (TPP) and China’s One Belt, One Road (OBOR) as instruments of superpower strategy in a globalised world.

How are the two strategies complementary, and how do they put the two superpowers in competition? Finally, what will be the impact on Southeast Asia over the coming decades?

Harmony, Not Competition

Ambassador Wagar introduced the session by outlining the scope and aims of TPP. It is a free trade agreement (FTA) between 12 Pacific Rim countries: Australia and New Zealand (in Oceania); the United States, Canada, Chile, Mexico and Peru (in the Americas); and Japan, Malaysia, Singapore and Vietnam (in East Asia).
By integrating trade and establishing common standards of wages, labour and environmental protection, it is hoped that TPP will benefit all who join through robust application of best practices and the latest technologies. If it is passed, and if every country interested in membership joins, it will benefit one-third of global trade.

However, TPP suffers from domestic unpopularity in the United States itself, with both presidential candidates distancing themselves from it—due to the potential loss of American jobs as businesses move their operations to cheaper places overseas.

On the other hand, OBOR is a partnership with China and taking up Chinese trade over-capacity, ultimately benefiting China’s domestic growth and trade flow. OBOR is an infrastructure strategy that builds trade and collaboration between the countries along the original Silk Road (through Central and West Asia, the Middle East and Eastern Europe) and the new maritime Silk Road—the South China Sea, South Pacific Ocean and Indian Ocean. In total, more than 40 countries are involved, and OBOR remains in a planning stage as its members negotiate the details.

The Ambassador added that the two arrangements should not be seen as a “US vs China” competition. TPP and OBOR are different things—the former is an FTA, while the latter is an infrastructure model. However, each model will complement each other, and together they will facilitate global trade and help economies around the world.

While the TPP excludes China, Ambassador Wagar noted it would be more than welcome—provided it is willing to meet the high standards required.

Will the US Congress act in everyone’s best interests and pass TPP? He is confident it will, so that stronger markets and labour and environmental protection become concrete realities. If TPP doesn’t pass, OBOR won’t fill the gap—indeed, it will also suffer through loss of trade integration.

When both systems are put in place, the new standards and norms can only help. This is a strong benefit of globalisation, and everyone in favour of it must spread the word, everywhere from dinner tables to podiums and boardrooms. “The other side,” he cautioned, “is winning an argument we’re not even engaged in.”

Tilting the Playing Field

Professor Danny Quah next took the stage to present another view—that the US and China are indeed in competition, with each seeking the other’s piece of the global economy in a zero-sum game. For one to win, the other must lose. In a more pessimistic view, TPP can easily be seen as tilting the playing field in favour of American businesses. The victor in this competition will get to write the rules of the future.

He pointed out that the superpowers themselves are incredibly divided. The US government is unsure how far to push the agreements in TPP, and in China, President Xi Jinping faces resistance on OBOR. Some in his government want to keep to the status quo, while others, feeling constrained by China’s lack of international decision-making power, want to simply open up trade by any means possible—even if it means sacrificing human rights, children and the environment.

If it works, OBOR will be set to expand trade by $2.5 trillion (the entire GDP of ASEAN) and connect the world’s three largest labour forces: China, India and ASEAN. However, it may be easier said than done, as China finds itself in diplomatic and military disputes over various issues, especially in the South China Sea.

Within the United States, the TPP might be seen as an instrument to ensure American supremacy, even as Asia becomes more prosperous and integrated. As President Barack Obama wrote in an op-ed in the Washington Post:

America should call the shots. Other countries should play by the rules that America and our partners set, and not the other way around. […]

The world has changed. The rules are changing with it. The United States, not countries like China, should write them. Let’s seize this opportunity, pass the Trans-Pacific Partnership and make sure America isn’t holding the bag, but holding the pen.

President Obama’s successors, likewise, have no wish to leave world domination to China. “One candidate has said, ‘I do not want my grandchildren to live in a world dominated by the Chinese,’” quoted Prof Quah. “The other has said far ruder things about China.”

TPP’s promise is ambitious—increasing trade openness through rules to protect workers and reduce tariffs, so that competition can take place, and the advantage that large state players enjoy over smaller ones is mitigated.

Prof Quah concluded by reminding the audience that Singapore has skin in the game, both in TPP and OBOR. It was involved in TPP from the beginning, but it also has a complex, nuanced relationship with China, and it needs to continue trade with both parties despite the differences and conflicts. This isn’t a dichotomous, either/or choice.

As pragmatists, we do not want to have to choose between them should they come into conflict. We simply want to the world order to work, like a computer needs both hardware and software to run.

Both OBOR and TPP are needed, and the sooner the superpowers sort things out, the better it will be for the rest of us.

Laws of  the Jungle

Prof Mahbubani next led a spirited discussion of the issues, asking Ambassador Wagar if he had any response. The Ambassador was in large agreement with Prof Quah, except to point out that OBOR at present has “little meat on its bones”, and faces great challenges in Pakistan-occupied Kashmir alone—to say nothing of the enormous challenges in creating bankable deals in the troubled regions that the Silk Road passes through, such as terrorism.

However, TPP has its own problems. A lack of support among the American public is likely to delay its passage, due to increasing anxiety over the loss of American jobs—fuelled by the fallout of globalisation and the fact that Wall Street executives have escaped punishment for financial crises under their watch.

In conclusion, a globalised world means that the rules of global trade must exist, even for countries that claim not to abide by them and prefer a “law of the jungle”. TPP is a global architecture uniting 12 countries under ideas that benefit the entire world, no country more so than China—and combined with OBOR, it is set to revolutionise trade around the world… provided they complement each other and the superpowers are able to resolve their differences for the good of the rest of the world.


This article is written as an event coverage piece for the TPP? Or OBOR? Superpower Grand Strategy and International Economic Ambition dialogue session which took place at the Lee Kuan Yew School of Public Policy on 7 November 2016.