Trans-Pacific Partnership Summary, Pros and Cons
How the TPP Lives on Without the United States
The Trans-Pacific Partnership (TPP) was a free trade agreement between the United States and 11 other countries that border the Pacific Ocean: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The countries involved produced 40% of the world's total gross domestic product of $107.5 trillion. They supplied 26% of global trade to 793 million of the world’s consumers.
The negotiations were successfully concluded on October 4, 2015. Officials from each country signed the agreement on February 4, 2016. However, each nation's legislature had to approve the agreement before it went into effect. Before that could happen, on January 23, 2017, President Donald Trump signed an executive order to withdraw the United States from the agreement.
The TPP Lives on Without the U.S.
On March 8, 2018, after Trump withdrew the U.S. from the deal, the other 11 TPP countries signed a modified agreement. On December 30, 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force. The trading bloc represents 500 million consumers and 13.5% of global GDP.
Seven of the countries have ratified the agreement so far. The remaining countries (Brunei, Chile, Malaysia, and Peru) have yet to ratify.
What's in the CPTPP?
The CPTPP removes 99% of tariffs on goods and services, just like the original TPP did. It also sets reciprocal trade quotas. These measures make it more difficult for U.S. businesses, especially farmers, to export to CPTPP members. U.S. exports will be more expensive, thanks to tariffs, than those of signatories like Canada.
Unlike most agreements, the CPTPP 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 that can analyze 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.
The CPTPP and China
All parties have signaled that other members can join in the future. So far, Taiwan, Thailand, and Indonesia have indicated an interest.
China expressed a willingness to join the CPTPP. As one of the world's largest economies, analysts estimated that China's membership would quadruple the economic gains of the agreement. It would also significantly alter the balance of power in international commerce.
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.
TPP Pros and Cons
Boosted U.S. exports and growth
Added billions in income to U.S. workers
Bigger than NAFTA
Offset China's economic power
High-income workers benefited the most
Reduced availability of generics
Reduced incentives to protect the environment
Superseded financial regulations
- Boosted U.S. exports and growth: The original TPP would have boosted U.S. exports and economic growth. This would have created more jobs and prosperity for the 12 countries involved. It would have increased 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.
- Removed tariffs: It would have increased exports by removing 18,000 tariffs placed on U.S. exports to the other countries. Of these, the United States had already allowed 80% of these imports to enter without tariffs. The TPP would have evened the playing field.
- Added billions in incomes to U.S. workers: The agreement would have added $223 billion a year to the incomes of workers in all the countries, with $77 billion going to U.S. workers.
- Bigger than NAFTA: The TPP trade area would have been bigger than the North American Free Trade Agreement (now the U.S.-Mexico-Canada Agreement), currently the world’s largest.
- Offset China's economic power: 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.
- High-income workers benefited the most: Early analysis of the deal suggested that the income gains would have gone to workers making more than $87,000 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.
- Reduced availability of generics: The agreement regarding patents would have reduced the availability of cheap generics. That could have raised the cost of many drugs.
- Reduced incentives to protect the environment: While some aspects of the TPP aimed to protect the environment, competitive business pressures from increased international trade could have reduced or outweighed the incentives to protect the environment in some countries.
- Superseded financial regulations: Last but not least, the trade agreement could have superseded financial regulations.
U.S. Negotiators Fought Hard to Get a Good Deal
These five sticking points stood in the way of the deal.
The United States agreed to shorter patents, especially for biological drugs. Pharmaceutical companies could have kept their formulas secret for five to eight years. This is less than the standard 12-year period of exclusivity.
All state-owned enterprises agreed to comply with global trade standards that protect their workers and the environment. The United States had to overcome objections from countries that didn't want to allow labor unions.
The United States, Japan, and Canada agreed to lose some tariff protection for dairy, beef, and poultry producers. This was the biggest sticking point, and 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 host governments.
In return, the United States agreed to restrictions on the trade of tobacco. In the past, U.S. cigarette companies have used arbitration panels to sue countries that tax or otherwise restrict cigarette advertising.