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What’s The Deal With The Trans-Pacific Partnership?

November 01, 2016
On October 5, 2015 in Atlanta, Georgia, twelve countries participating in the Trans-Pacific Partnership (TPP) managed to reach an agreement. It was a hallmark victory for Barack Obama, who had been pushing for a “pivot” to Asia to allow for the United States and its partners to redefine the rules of trade and investment in the most dynamic region in the world.

By Hannah Rosenfeld

Once ratified, the TPP will set new standards in the arena of international trade by addressing issues such as state-owned enterprises, digital commerce, transparency, and intellectual property protection [1]. Taxes on trade will be cut and regulations that have long impeded trade will be reduced; it will become easier for different sectors to cross borders; and competition from state-owned enterprises will be made more fair. The TPP is the first trade agreement formed that has been designed for modern digital markets, and should it be implemented in the United States, small American business for the first time in history will have the opportunity to access approximately half of the world’s economy [2].

The trade deal includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. According to the Peterson Institute, the United States and Japan together will account for 60 percent of the economic benefits from the TPP, yet the absolute increases will be greater for Japan than any other participating country [3]. By 2025, Japan’s exports and imports are said to grow by US$140 billion annually and its national income by more than US$100 billion [3]. C. Fred Bergsten argues that in the 1980s and 1990s, Japan had suffered a growth stunt as a result of rejecting calls from the United States and its neighboring countries in the Pacific to open up its economy [3]. Thus, Prime Minister Shinzo Abe has now seized the opportunity for the TPP as a stimulus for a growth the country needs in order to return to a global economic power. Abe, who’s Liberal Democratic Party recently won a majority of seats in the Upper House in July, is set to have the Diet ratify the agreement this autumn.

Japan will ultimately profit from the TPP, as with all other participating member states. With more relaxed regulations over foreign companies, it will become easier for Japanese companies to broaden their horizons overseas in order to attain new opportunities. The auto industry will also benefit: with the reduction of tariffs on exports, the industries will be able to purchase more parts of their products from countries that are not members of the TPP, such as China, and sell their vehicles with reduced tariffs to international markets. Furthermore, reduced tariffs on agricultural imports will lower the costs of such items to the Japanese consumers – at the expense of farmers in Japan who claim that their products will be undermined by cheaper imports.

Simply put, Japan wants to approve the TPP despite political opposition to the deal in the United States. The deal that Obama has been working to ratify before he leaves the White House has been vehemently opposed by both Hillary Clinton and Donald Trump, who claim that the deal will hurt American workers. Even if the TPP were to be ratified by the elections in November, there is a possibility that the next American president will seek to withdraw the United States from it.

A poll conducted by the Pew Research Center in March 2016 indicate that 47 percent of Americans support free trade agreements between the U.S. and other countries, while 43 percent view them negatively [4]. In fact, a partisan division on support for the TPP does exist. While criticism of the deal is generally more widespread among Republican supporters, a majority of Democratic supporters have generally agreed that free trade has been beneficial for the United States [4].

Should the U.S. fail to ratify the agreement, there will be tremendous geopolitical consequences. U.S. Trade Representative Michael Froman said last week (7/29) that if Congress fails to ratify the TPP, the U.S. would “hand China the keys to the castle.” [5] While the TPP is waiting to be ratified, China has been proceeding with its own trade deal, the Regional Comprehensive Economic Partnership (RCEP), which could set its own standards for trade in the region. As such, Bergsten insists that if China fails to join the TPP in the near future, the region “could divide into two broad economic zones” which could prompt greater security anxieties [3]. Wolff draws out this claim and argues that if Congress fails to implement the TPP, future international trade will have lower standards than U.S. expectations; trade agreements negotiated by other countries may single out American trade in the region; and China will most likely set the decree upon which trade is to be conducted in Asia [2].

Many argue that the ratification of TPP through Congress will provide the US with an impetus to “rebalance” to Asia and to reinvigorate U.S. economic engagement in the Asia-Pacific region. This will not only strengthen many of the pre-existing political alliances, but it will establish the terms of trade and investment and allow for the United States to play a greater role in the region. Furthermore, should China meet the necessary standards for admission, the United States should be prepared to support its entry when the time comes.

References

  [1] Rogowsky, Robert A. et al. “TPP and the Political economy of U.S.-Japan Trade Negotiations. Woodrow Wilson International Center for Scholars. 2014 [Online] Available: https://www.wilsoncenter.org/sites/default/files/TPP and the Political Economy of US-Japan Trade Negotiations_1.pdf. [Accessed July 28, 2016]

  [2] Wolff, Alan. “What a Failed TPP Would Mean for the U.S. Economy”. Fortune.com. Jan. 6, 2016. [Online] Available: http://fortune.com/2016/01/06/failed-tpp-u-s-economy/, [Accessed July 27, 2016].

  [3] Bergsten, C. Fred. “The Trans-Pacific Partnership And Japan”. Peterson Institute for International Economics. Para 2, Nov. 16, 2015. [Online] Available: https://piie.com/commentary/op-eds/trans-pacific-partnership-and-japan, [Accessed July 27, 2016].

  [4] Stokes, Bruce. “Republicans, especially Trump supporters, see free trade deals as bad for U.S.” Pew Research Center. Mar. 31, 2016. [Online] Available: http://www.pewresearch.org/fact-tank/2016/03/31/republicans-especially-trump-supporters-see-free-trade-deals-as-bad-for-u-s/, [Accessed July 30, 2016] 

  [5] Taj, Mitra. “Killing the TPP would hand China ‘keys to the castle’: U.S. trade representative”. Reuters. July 29, 2016. [Online] Available: http://www.reuters.com/article/us-usa-trade-idUSKCN1090QZ?il=0, [Accessed July 29, 2016] 

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