Trans-Pacific Partnership Summary, Pros and Cons

How the TPP Lives On Without the United States

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.

The TPP was between 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 and 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. 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.

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. On December 30, 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force. The trading bloc represents 495 million consumers and 13.5% of global GDP.

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 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 that 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. 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.

The CPTPP and China

All parties have signaled that other members can join in the future. So far, the Taiwan, Thailand, and Indonesia have indicated an interest.

China expressed willingness to join the CPTPP. Being the world's largest economy, China 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

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.

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 2017, the estimated trade value among all countries was $1.1 trillion. 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 $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.

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 Last but not least, the trade agreement could have superseded financial regulations. 

Pros
  • Boosted U.S. exports and growth

  • Removed tariffs

  • Added billions in income to U.S. workers

  • Bigger than NAFTA

  • Offset China's economic power

  • Protected patents

Cons
  • High-income workers benefited the most

  • Reduced availability of generics

  • Reduced incentives to protect environment

  • Superseded financial regulations

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

These five sticking points stood in the way of the deal.

Shorter Patents

The United States agreed to shorter patents, especially for biologic 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.

State-Owned Enterprises

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 Vietnam, Brunei, and Malaysia. Those countries had to allow labor unions.

Agricultural Tariffs

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.

Auto Industry

These countries also agreed to open up their automotive industries. That could cost local jobs while lowering the price of cars and trucks.

Disputes

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.  

Tobacco

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.

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