The Trans-Pacific Partnership

Trans-Pacific Partnership

Summer, 2017

Abstract

        The Trans-Pacific Partnership (TPP) is an unratified trade agreement that included 12 countries, including the United States until January 23rd, 2017.  Much like all large trade agreements, the deal creates and prolongs some forms of protectionism, while reducing some trade barriers.  Given this fact, the overarching question remained; was the deal ultimately good or bad for free trade from the perspective of the United States?

        Conceptually the ideal of free trade might translate to: No border barriers; no domestic regulations or policies that have protectionist intent or effects that otherwise impart relative privileges on domestic companies or their products; no superfluous rules that are merely tangentially related to trade, but when violations occur, enforceable rules which can be invoked to erect new impediments to trade.  Measured against these ideal standards, the TPP – with its 5,500 pages and 30 chapters of explicit rules and exemptions – would not pass the free trade test. The TPP is not free trade.  Like other U.S. trade agreements, the TPP leans more toward a managed trade agreement, with provisions that both liberalize and restrict trade and investment.  On face value, some free traders would reject the TPP for its failure to eliminate all restrictions. While such comprehensive trade liberalization would be ideal, expecting the TPP to deliver real free trade to the U.S. stakeholders is unrealistic, an outcome that is simply politically unattainable.  This paper will summarize the TPP and provide analysis as to whether the trade agreement would have ultimately benefited the U.S. economy.

Keywords:  Trans-Pacific Partnership

Trans-Pacific Partnership Agreement

Introduction

        The Trans-Pacific Partnership (TPP) concluded on October 5, 2015, and reflects inevitable compromises with two key objectives: to establish new, market-oriented rules in a host of rapidly changing areas of international commerce and to reduce trade and investment barriers among TPP countries to yield considerable gains for the TPP partners (Plummer, 2016).

        TPP, the largest regional trade accord in history, would have set new terms for trade and business investment among the United States and 11 other Pacific Rim nations - coalescing an annual gross domestic product (GDP) of nearly $28 trillion that represents roughly 40 percent of global GDP and one-third of world trade (Granville, 2017).  The TPP was the product of years of negotiations that culminated in late 2015 with the endorsement of the 12 nations’ trade chiefs.  The agreement served as a landmark achievement for the Obama administration, which had pushed for a United States foreign policy “pivot” to the Pacific Rim (Granville, 2017).  The goal was to bind Asian-Pacific nations closer through lower tariffs while also to strengthen against China’s growing regional influence.

To understand the TPP one must first understand the economic overview of the Asian-Pacific region and the current 21 member economies of the Asian-Pacific Economic Cooperation (APEC).  APEC includes all eleven of the current TPP participants and is home to 40% of the world’s population and more than half of global GDP and, growing quickly (Bank, 2013).  With the inclusion of Canada and Mexico, TPP negotiating partners made up 31% of U.S. goods and services trade in 2011, and the Asia-Pacific economies as a whole made up over 60% of total U.S trade (Williams, 2013).  In 2011, all but three of the economies in the Asia-Pacific region had GDP growth above the 1.8% level reached in the United States, and more than half experienced growth above the world average of 3.8% (Bank, 2013), accounting for increased economic influence and share of world trade.

From 1983 to 2011, Asia’s share of world imports grew from 18.5% to 30.9%, pushing the member economies to becoming a significant and integral part of international supply chains (Bank, 2013).  For example, in 2009, 64% of Asian non-fuel imports were in intermediate goods accounting for over $600 billion which moved between Asia and North America (Bank, 2013).

The Asia-Pacific region represents an important source and destination for U.S. trade and foreign direct investment (FDI).  While the APEC economies represent over 60% of overall U.S. trade, the partners also make up about 25% of the FDI into and out of the United States (Analysis, 2013).  These FDIs are the subject of disciplined negotiations in bilateral investment treaties (BITs) or as part of FTAs.  The United States typically includes FDI provisions in its FTAs, as previously reached in the existing FTAs between the United States and six of the 10 TPP participants (Williams, 2013, p. 18).

The countries that constitute the current group of TPP participants are economically and demographically diverse.  The U.S. is much larger than the other members in terms of both economy and population.  Compared to the next closest TPP member, the United States has nearly three times the population of Mexico and more than eight times the GDP of Canada.  The United States is the largest TPP market in terms of both GDP and population.  In 2011, non-U.S. TPP partners collectively had a GDP of $5.7 trillion, 37% of the U.S. level, and a population of 346 million, slightly larger than the U.S. population (Williams, 2013, p. 4).

GDP per capita at purchasing power parity (PPP), considered a rough measure of a country’s level of economic development (reflects differences in the cost of living among countries), ranges from just under $4,000 in Vietnam to nearly $60,000 in Singapore, which during the negotiation stage was $10,000 higher than PPP of the United States (IMF World Economic Outlook (WEO), 2013).  These countries vary greatly in their geography as well, ranging from Australia, a large and resource rich continent, to Singapore, a small, trade-dependent city-state.

Contrary to previous trade agreements, the TPP involved countries with which the United States had existing FTAs.  Prior to entry into the TPP, the U.S. already had FTAs in place with Australia, Canada, Chile, Mexico, Peru, and Singapore, which together account for nearly 85% of U.S. goods trade within TPP countries.  Malaysia and Vietnam were the largest U.S. trade partners among TPP members without an existing U.S. FTA (Williams, 2013, p. 5).

TPP and Global Perspective

        In 2000, the United States accounted for 45% or nearly half of all goods exported to other TPP countries.  Ten years later, the U.S. share had fallen to 28% (Williams, 2013, p. 28).  During the same period, China’s share of exports to non-U.S. TPP countries increased from 4% to 14%.  In 2000, the U.S. was also the top importer from other TPP countries, receiving 56% of all exports from non-U.S. TPP countries, but by 2011 this share dropped to 35% while China’s share increased from 2% to 11% over the same time period (Williams, 2013, p. 28).