Written by Pooja Narayanan
The Trans-Pacific Partnership (TPP) is a free trade agreement that includes 12 Pacific Rim countries: the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile, and Peru. Its objective is to create a market more attractive to investment through reduced tariffs and corruption, as well as stronger protection for intellectual property. Though the TPP is intended to stimulate global trade and boost global GDP, the agreement comes with several risks.
According to the US government, the TPP eliminates over 18,000 tariffs on Made-in-America exports. The Obama administration touts the TPP as a better opportunity for American products to compete in the global market. With this bloc of nations responsible for 40 percent of global trade, the government also hopes to create jobs—every $1 billion of exports supports around 5,800 jobs. However, economists from Tufts University estimated that the TPP would decrease US economic growth by around 0.5 percent over 10 years and lead to 448,000 American jobs lost.
Despite this, The TPP is expected to increase global GDP by $223 billion. Because the TPP is set to increase demand among signatories, an increase in Foreign Direct Investment (FDI) is predicted to follow for members and some nonmembers as well. According to a study by the Peterson Institute for International Economics, the US expects to see increased FDI inflows of a little over $20 billion.
One risky feature of the TPP is that it lacks restrictions or penalties for currency manipulation. Japan, Malaysia, and Singapore have a history of manipulating their currencies. In fact, according to the Economic Policy Institute, Japan depressed the market value of the yen by 35 percent between 2012 and 2014, and Vietnam has been following closely in its footsteps. Currency manipulation has contributed to the 2 million American jobs lost as well as the rising $178 billion trade deficit between the US and other TPP nations. The TPP is set to exacerbate this trade deficit.
Critics also view the TPP as an attempt to undermine China, a powerhouse of global trade. China has proposed the Regional Comprehensive Economic Partnership (RCEP), which includes 16 countries: the ASEAN nations and 6 other countries. Together, they make up about 30 percent of global GDP. The agreement excludes the US. Chinese leaders are trying to steer global trade in the direction of a China-centric future.
Many believe the agreements will complement each other. According to US Trade Representative Michael Froman, the TPP can become a “building block” for free trade agreements in Asia. The pacts are expected to improve rules-based trading in Asia. The two agreements may lead to a regional free trade agreement that includes the US and China; in 2014, at the Asia-Pacific Economic Cooperation Summit in Beijing, leaders began looking into the possibility of regional free-trade agreement.
Others claim that not approving the TPP will only embolden China. Conflicts in regards to the South China Sea, have created tension between China and its Southeast Asian counterparts. The US is also seeing a weakening relationship with the Philippines, which is increasingly following China’s lead. Despite the creation of a new defense agreement in 2014 between the US and the Philippines, Filipino president Rodrigo Duterte has repeatedly slammed the US and stated that the Philippines will be following China. The failure to approve and implement the TPP may only drive countries in the region away from the US and closer to China.
Though the TPP would increase free trade and boost global GDP, it also comes with risks. The U.S. government must take measures to ensure that the agreement would not hurt the domestic economy; otherwise, it risks letting the TPP amplify the negative effects of past failed free trade agreements.
However, as the Obama administration comes to a close in preparation for President-elect Donald Trump, the White House has conceded that the TPP will not pass Congress. In January 2017, both houses of Congress will be controlled by Republican lawmakers, who have fiercely opposed TPP. Not only has President-elect Trump repeatedly attacked the TPP on his campaign trail, but the proposal has also faced much opposition from the public. Despite its positives, the TPP will most likely not be ratified due to protectionist policy proposals of President-elect Trump. However, it remains to be seen whether this agreement will have an impact on the future of US trade relations.