If U.S. pulls out of Asia Pacific trade pact, China will be happy

China’s President Xi Jingping, left, speaks during a meeting with President Obama, right, at the Asia-Pacific Economic Cooperation in Lima, Peru.
China’s President Xi Jingping, left, speaks during a meeting with President Obama, right, at the Asia-Pacific Economic Cooperation in Lima, Peru. AP

Last weekend, President Obama attended the Asia Pacific Economic Cooperation (APEC) Summit in Lima, Peru. He had originally hoped to reassure APEC partners of America’s commitment to free trade, but discussions focused on the uncertain position of the United States in the world economy and China’s potential leadership role.

Before the presidential elections, the United States was on track to becoming a big player in Asia Pacific trade. President-elect Donald Trump now plans on doing just the opposite, and China couldn’t be happier. With the United States welcoming a new administration, China is poised to deepen its roots in Latin America and become an even bigger player in the world economy.

The APEC Summit hosted discussions on skills development, boosting regional food markets, and supporting development of small- and medium-sized businesses. APEC’s ongoing agenda also focused on advancing regional free trade in the Asian Pacific.

A prolonged global slump and increased public disgruntlement with globalization made global growth a central topic at the summit. Going forward, however, APEC leaders must carefully approach the new U.S. administration’s ideological shift. Since APEC is founded on free trade and investment in the Pacific Rim, a more-closed U.S. economy could erode the bloc’s confidence and further delay a strong global recovery.

As the Peru’s minister of economy and finance until 2014, I saw our country’s progress toward stability with low inflation and strong exports. Peru and other Latin American APEC economies have expressed their desire to seek more integration with the Asia Pacific to spur growth and development. China is already Peru’s top export destination. Although it is still too early to make concrete predictions, I imagine that by the 2017 APEC meeting in Vietnam, China will be the new centerpiece of trade discussions in the Asian Pacific Rim.

The new U.S. administration’s opposition to the Trans-Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA) represents a major shift in future U.S. trade policy. President-elect Trump has called for bringing back the manufacturing jobs lost to free-trade agreements, a view that Secretary Clinton shared to a lesser extent. This new opposition to free trade is certainly not what I would expect from a Republican-dominated Congress.

If the new administration follows through on promises made during the campaign, the United States will play a much smaller role in the North America Free Trade Agreement, if any. The United States will also impose sanctions to stop alleged exchange rate manipulations by countries such as China.

There’s a right way and a wrong way to go about those tasks. I suggest the United States carefully think about the implications of renegotiating certain NAFTA provisions and reach a reasonable understanding with China to avoid a trade war and commercial retaliations.

If the United States takes unilateral action — like fully withdrawing from NAFTA — APEC will suffer the most serious blow since its creation in 1989, and the global economy will suffer.

This year’s APEC Summit made evident the uncertainty surrounding the new U.S. administration’s participation in the forum and APEC’s future role in the global economy. It is impossible to know precisely what measures the new administration will take on free trade. Nonetheless, I am confident that China will continue to extend its prominence in Latin America, and in the rest of the Asia Pacific Rim.

Miguel Castilla is former Peruvian finance minister and ambassador and resident fellow at the Adrienne Arsht Latin America Center at the Atlantic Council.