Wealthy Nations Daily Update - Trans-Pacific Partnership (“TPP”)

At last the Trans-Pacific Partnership (“TPP”), the biggest trade agreement in history was signed yesterday in Atlanta, five years after negotiations began. The agreement reduces trade tariffs and other forms of protectionism in a dozen countries with economic output of just under USD 30tn and accounts for ~40% of the global economy. The agreement now has to be ratified by lawmakers in the TPP nations before it can take effect which may take time, some believe that President Obama’s term of office, 15 months left, may be over before they seal the deal.

Obama faces a fight to get the agreement through congress especially as one of the biggest winners from the agreement is thought to be the Japanese auto industry which will get cheaper access to the US market. In return, Japan has had to reduce some of the protections granted to its rice farmers so Uncle Ben should be pleased although his rice would need to be rather more “sticky” than its free flowing claims if chopsticks are to be used.

Another winner is thought to be Australia, who will benefit from reduced tariffs on everything from iron and steel products to pharmaceuticals, machinery, paper and auto parts. It is estimated to reduce taxes from Australian trade by around AUD 9bn. Vietnam is another big winner with estimates of GDP being boosted by as much as 11% by 2025, with a pick-up in exports of around 28% as companies move factories to the low wage country.

The biggest loser from the agreement could be China as it failed to join TPP, although Chinese officials are now indicating interest in joining in the future. So Chinese exporters may lose market share in the US and Japan to developing countries such as Vietnam. This agreement has broadly permitted President Obama to tighten trade ties across Asia with Japan, Australia, New Zealand, Singapore, Malaysia, Brunei and Vietnam involved in the region as well as Canada Mexico, Peru and Chile.

The White House estimates the agreement will reduce 18,000 tariffs on US manufactured goods while critics argue it will kill off American manufacturing jobs, reduce environmental standards and raise drug prices. It could be quite a battle getting TPP through congress.