Pacific Trade Bust

The first casualty of America’s new anti-trade politics.

White House officials finally gave up on the Pacific free-trade deal on Friday, after weeks of insisting they had the votes to pass it. This failure was inevitable given the left-right protectionism of the 2016 campaign, but let’s hope it’s not the first thunder crash of a new era of trade war that a shaky world economy can ill afford.

Both Donald Trump and Hillary Clinton ran against the 12-nation Trans-Pacific Partnership, or TPP, and at least the President-elect’s opposition was sincere. The TPP has always lacked a majority in the House and maybe even the Senate, and votes weren’t lost merely because both candidates fanned sentiment against “globalism.” The details included too many non-trade provisions like labor and environmental rules that inspired defections by free traders.

President Obama’s TPP contingency plan was for Mrs. Clinton to win the election and then for Congress to pass it in the lame-duck session. So Mrs. Clinton, who helped negotiate the accord as Secretary of State, was given a pass to benefit politically from renouncing her own handiwork and moving left on trade, while Republicans would then do her and Mr. Obama a favor by jamming TPP through Congress before she took office and had to spend political capital to pass it.

This is the crack political thinking that helps explain why TPP is dead. The President is the only actor whose leadership can lower the political temperature when populism runs hot. Yet Mr. Obama sat on the sidelines as critics on the right and left piled on against the deal. Negotiating for years and then rushing TPP to land in an election year was also politically reckless.

The immediate economic costs to the U.S. are minimal, because U.S. tariffs are already low on most products. Instead, the U.S. is giving up the best opportunity in decades to liberalize countries where barriers to trade and investment are high, like Vietnam and Malaysia. American exports would have gained in these markets, and over the long-term TPP would have improved U.S. competitiveness and added to growth when trade volumes are already historically weak.

The strategic damage is far more considerable. The TPP would have been a geopolitical counterweight to China’s growing influence in the Asia-Pacific, and it would have strengthened U.S. regional relationships. Now China will strike its own trade deals one by one or across the region. Authoritarian governments are bidding to displace America as dominant powers in their regions, and Mr. Trump will be tested by this alarming trend.

The disintegration of TPP is a particular misfortune for Japanese Prime Minister Shinzo Abe, who gambled on America and made TPP central to his economic reform agenda of breaking up domestic cartels and prying open industries like farming and retailing. Mr. Abe will have to find another opening to make Japan great again.

Mr. Trump promised to undo “the rape of our country” that he called TPP even if Congress had decided to pass it, and the political reality is that he won the election. But the President-elect will have to resolve the tension between his pro-growth proposals, like tax reform and deregulation, and his protectionist impulses.

Perhaps he’ll be satisfied with measures like imposing tariffs in anti-dumping cases or small changes to current trade deals. But over the decades Congress has given the President more unilateral power to impose punitive tariffs that could lead to retaliation, and Mr. Trump often campaigned as if he intends to blow up America’s 100-year-old role as the anchor of the international trading system.

Mr. Trump says he’s a free trader but that recent deals have hurt American workers and companies. He could prove he’s open to trade by starting bilateral trade negotiations with Japan, or perhaps with Great Britain as it prepares to leave the European Union.

Global equities first sold off on Mr. Trump’s election this week, then rallied on expectations that implementing pro-growth policies would be his priority in 2017. But the Pacific trade failure is a reminder that he’s also the first authentic protectionist to win the White House since the 1920s, and that carries big economic risks.