Between the nuclear deal brokered with the Islamic Republic of Iran, the impending shutdown of the U.S. government, and the ongoing media coverage of the presidential election, the Trans-Pacific Partnership (the trade deal agreed upon between the U.S. and a group of nations primarily in the Asia-Pacific region) has gotten relatively little publicity.
However, this is nothing short of the most far-reaching trade agreement ever secured. While this has slipped toward the bottom of the news media’s radar, it nonetheless warrants some attention. Who benefits? Who came out on top? Moreover, what does this trade agreement mean for the United States?
What Does the TPP Do?
The new deal broadly cuts tariffs on imports for the nations involved in the partnership: the U.S., Canada, Mexico, Chile, Peru, Japan, Australia, New Zealand, Vietnam, Singapore, Malaysia, and Brunei. These countries had been negotiating the deal for five years before coming to terms. The individual legislatures of each country must now approve the deal, however.
Since even GOP presidential candidate Jeb Bush isn’t clear on what a tariff is, it might be worth defining. A tariff is essentially an extra tax on certain imports. It’s a protectionist measure to make it more expensive for companies to import foreign materials or products, because the government wants to encourage the use of domestic alternatives.
Like most trade deals, the TPP is a means of breaking down these kinds of trade barriers.
First, let’s look at what groups or entities got the short end of the straw in the deal.
Environmental Standards: The new agreement allows certain environmental standards to be relaxed in order to facilitate trade. While this may be fine in specific applications, it opens the door for foreign corporations to literally sue a sovereign country in the TPP for not making such environmental allowances.
Manufacturers Based in the U.S.: Like most overseas trade deals, the TPP works in favor of outsourcers and against domestic manufacturers by rendering them less competitive compared to manufacturing companies located in cheap labor markets.
State-owned Companies in Malaysia: The deal is a blow for the resource mining companies owned by the Malaysian government. These firms have been trying for years to kick out foreign businesses in refining and processing commodities that would like to operate in Malaysia. Now, foreign firms will likely have an even stronger foothold in the country.
China: The world’s second-biggest economy opted not to join the TPP. This is beginning to look like a bad call: although many of the Asian countries involved in the deal will remain large trading partners with the Chinese, they will undoubtedly lose market share to firms from nations that are part of the pact.
Japanese farmers: The TPP removes or greatly reduces tariffs on all sorts of Japanese agricultural and horticultural products, from rice to beef to pork.
Vietnam: The fast-growing Southeast Asian economy is expected to see its annual GDP increase by more than 10% over the next decade thanks to the competitive edge Vietnamese manufacturers will enjoy, likely attracting many new companies to the country.
New Zealand and Australia: Both countries should see new markets open up due to less trade barriers for goods manufacturers, industrial parts makers, as well as farmers. It will also save both countries tens (even hundreds) of millions of dollars annually in import taxes.
Multinational Corporations: Most commentators are right in crowning MNCs the real champions of the agreement. Multinational conglomerates, especially those that have the economies of scale to move operations to new countries, will have a field day taking advantage of the favorable trade conditions on both sides of the Pacific Ocean.
Japanese Automakers: Bloomberg deems carmakers in Japan as the biggest winners of the entire TPP. It is true that these companies, which already have such a strong foothold in the global automobile industry, will now have much easier access to the American market—the biggest export market for cars. (China is the biggest auto market, but still relies heavily on domestic production.)
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.