Trans-Pacific Partnership Summary, Pros and Cons

What Does Trump's Executive Order to Withdraw from the TPP Mean?

TPP protest

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The Trans-Pacific Partnership was a free-trade agreement between the United States and 11 other countries that border the Pacific Ocean. On January 23, 2017, President Trump signed an executive order to withdraw the United States from the agreement.

Officials from each country signed the agreement on February 4, 2016. The negotiations were successfully concluded on October 4, 2015. Each nation's legislature had to approve the agreement before it went into effect. Before that could happen, Trump's executive order removed the United States from the process. 

The TPP was between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The countries involved produce 40% of the world's total gross domestic product of $107.5 trillion. They supply 26% of global trade and 793 million of the world’s consumers.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership

On March 8, 2018, the other 11 TPP countries signed a modified agreement without the United States. The new deal follows the TPP, with the suspension of 20 minor provisions. China is considering whether to join the trade pact. Doing so would significantly alter the balance of power in international commerce.

On April 12, 2018, Trump signaled the United States might be willing to rejoin the TPP. Trump said he would only do so if he could get "a better deal" than Obama did. But many countries feel they already gave enough concessions. For example, they agreed to let U.S. drug companies keep their patents longer than is the norm in other countries. 

On December 30, 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership entered into force. The first six countries to ratify the agreement were Canada, Australia, Japan, Mexico, New Zealand, and Singapore. On January 14, 2019, the CPTPP entered into force for Vietnam.

The agreement will make it more difficult for U.S. businesses, especially farmers, to export to Japan. U.S. food will be more expensive than that from signatories like Canada.

A big concern is whether China would use the CPTPP to avoid the tariffs imposed by Trump's trade war. China could send raw materials to CPTPP members, such as Vietnam. Factories there would send finished products to America, avoiding the tariff.

Like most other trade agreements, the CPTPP removes tariffs on goods and services and sets reciprocal trade quotas. Unlike most agreements, it removes non-tariff blocks to trade. It also harmonizes regulations and statutes. It shares those features with the Transatlantic Trade and Investment Partnership.

The CPTPP covers a broad range of goods and services. These include financial services, telecommunications, and food safety standards. In this way, it affects foreign policy and even laws within countries. For example, it suggests that countries set up an agency like the U.S. Office of Information and Regulatory Affairs. It analyzes the costs and benefits of new regulations.

All countries agreed to cut down on wildlife trafficking. That helps elephants, rhinoceroses, and marine species the most. It prevents environmental abuses, such as unsustainable logging and fishing. Countries that don't comply will face trade penalties. 

All parties have signaled that other members can join in the future. So far, the Philippines and China have indicated an interest. China, the world's largest economy, would take America's place in the agreement. That would radically shift the balance of power in Asia.

TPP Pros

The original TPP would have boosted U.S. exports and economic growth. This should create more jobs and prosperity for the 12 countries involved. It will increase exports by $305 billion per year by 2025. U.S. exports would increase by $123.5 billion. It would benefit the machinery, auto, plastics, and agriculture industries.

It would have increased exports by removing 18,000 tariffs placed on U.S. exports to the other countries. The United States has already withdrawn 80% of these tariffs on imports. The TPP would have evened the playing field.

The agreement would have added $223 billion a year to incomes of workers in all the countries, with $77 billion going to U.S. workers.

The TPP trade area would have been bigger than the North American Free Trade Agreement, currently the world’s largest. In 2012, the estimated trade value between all countries was $1.5 trillion in goods. In 2011, it was $242 billion in services. It would have been smaller than the TTIP. That's the other large regional trade agreement being negotiated. It’s between the United States and the European Union. Talks went into limbo when Trump took office.

Notably, the TPP excluded China. That was deliberate. It was meant to balance the trade dominance of both China and India in East Asia. The TPP would have given the United States an excuse to intervene in trade disputes in the oil-rich South China Sea. China has been beefing up its military to back its incursions in that area.

TPP Cons

Most of the gains in income would have gone to workers making more than $88,000 a year. Free trade agreements contribute to income inequality in high-wage countries. They promote cheaper goods from low-wage countries. 

This would have been particularly true for the TPP because it protected patents and copyrights. Higher-paid owners of intellectual property would have received more of the income gains.

The agreement regarding patents would have reduced the availability of cheap generics. That will raise the cost of many drugs. Competitive business pressures will reduce the incentives in Asia to protect the environment. Last but not least, the trade agreement could supersede financial regulations. 

U.S. Negotiators Fought Hard to Get a Good Deal

These five sticking points stood in the way of the deal. Here's how they were overcome.

The United States agreed to shorter patents, especially for biologic drugs. Pharmaceutical companies can keep their formulas secret for five to seven years instead of 12 years.

All state-owned enterprises must comply with global trade standards that protect their workers and the environment. The United States had to overcome objections from Vietnam, Singapore, and Malaysia. Those countries must now allow labor unions or face penalties.

The United States, Japan, and Canada agreed to lose some tariff protection for dairy, beef, and poultry producers. This was the biggest sticking point. Farming subsidies received by U.S. and EU companies prevented the success of the Doha round of trade talks held by the World Trade Organization. The fact that farmers were willing to lose tariff protection was a big win for negotiators.

These countries also agreed to open up their automotive industries. That could cost local jobs while lowering the price of cars and trucks. The United States won the battle over the Investor-State Dispute Settlement Mechanism. That gives foreign companies more rights to sue the government than domestic firms have.  In return, the United States agreed to restrictions on the trade of tobacco. It will no longer allow cigarette companies to use arbitration panels to sue countries that tax or otherwise restrict cigarette advertising.