Trans-Pacific Partnership

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Author: William Pottenger

According to an Oct. 6 report from the Financial Times, the twelve members of the Trans-Pacific Partnership (TPP) reached an agreement on an outline of the trade pact. This is a small, yet significant, step forward toward an agreement, which, in my opinion, serves to benefit the world economy.

The deal involves 40 percent of the world’s economy, including the United States, Japan and 10 other Pacific Rim Countries. Notable omissions from the agreement include China and South Korea. However, according to an article from the Wall Street Journal, the latter of the two has expressed interest in joining the TPP in the future. On the other hand, China’s absence from the deal can be interpreted in many different ways.

One possible explanation is the United States’s geopolitical pivot towards Asia and its eagerness to compete with the China’s dominance in the region. Additionally, China is becoming increasingly self-reliant on domestic consumption in lieu of relying primarily on exports and manufacturing. Both examples serve to explain the short term reasons China may not join the TPP. In the long run, however, it would be in China’s best interest to join. Ma Jun, Chief Economist at China’s central bank, estimates that China would forfeit 0.5 percent of GDP for each year the country did not engage in the deal.

In the United States, this trade agreement is a heavily politicized issue. For example, presidential hopefuls such as Hillary Clinton, Bernie Sanders and Donald Trump have all condemned the deal for different reasons. Most recently out of the three, Ms. Clinton denounced the deal because she thinks it will cost Americans their jobs. However, I believe such concerns are overblown.

While trade deals do typically effect jobs, the TPP would not affect the number of jobs available to Americans; rather, the TPP would affect the organization of the labour market. For instance, California’s avocado farmers may lose as a result of this deal because the tariffs on their products, along with 18,000 others, would be removed. On the other hand, the broader economic implications of this deal look far more promising.

According to the Peterson Institute for International Economics, the TPP would boost the world economy by $223 billion by 2025. Given China’s slowing growth, and overall sluggish world trade, the TPP would revitalize not only rich developed countries but also poor developing countries. According to an article from The Economist, Vietnam, to take just one emerging market as an example, would experience a 10 percent GDP growth were the TPP to be passed into legislation, which looks like a considerable challenge.

In order for the TPP to pass in the United States, the bill will have to be approved by a Republican dominated US congress. Although President Obama holds fast track trade authority, which passed through congress earlier this year, he still faces significant hurdles in trying to ratify the TPP. The fast track authority merely eliminates filibuster and amendment powers. For the sake of improving the world economy, I hope the TPP passes.

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