The Trans-Pacific Partnership, involving the United States and 11 other Pacific-bordering countries, has a tremendous upside for the U.S. For example, it’s projected to boost U.S. inflation-adjusted annual income by $131 billion by 2030, which represents 0.5 percent of GDP. It’s also anticipated to generate an additional $357 billion in annual exports by the same year, according to the Peterson Institute for International Economics (PIIE), a Washington, DC-based think tank.

The massive agreement, whose members generated a combined GDP of $28 trillion in 2014 or 36 percent of world output, was concluded October 5, 2015. But due to its level of controversy, analysts say the TPP is unlikely to receive a Congressional vote during President Obama’s remaining term.

Gains and Costs

Overall, the agreement is expected to boost annual world income by $492 billion by 2030, when the agreement is nearly fully implemented, says PIIE. In absolute terms, the United States is the biggest beneficiary. The next largest group to gain significantly includes Japan, Malaysia and Vietnam. And the remaining parties to the agreement, which include Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, and Singapore, are anticipated to accrue many benefits.

In terms of impact on American labor, PIIE reports the deal will raise U.S. wages, but not change U.S. employment levels. It’s also anticipated to slightly increase job churn in the United States. “While the TPP is not likely to affect overall employment in the United States, it will involve adjustment costs as U.S. workers and capital move from less to more productive firms and industries,” says PIIE. The think tank estimates that 53,700 U.S. jobs will be affected.

Since only 5 percent of small or medium-size U.S. companies export, there’s a significant potential for growth.

This includes jobs eliminated in less productive importing industries along with jobs gained in more productive exporting and expanding industries. And to provide perspective on the number of jobs impacted, consider the fact that “55.5 million U.S. workers changed jobs in this way in 2014,” indicates PIIE. The least skilled workers are expected to be negatively impacted the most.

Some Details for Consideration

According to the United States Trade Representative, the TPP will eliminate most tariffs on industrial goods upon the agreement’s implementation. And non-tariff barriers on these goods also will be eliminated or reduced.

Tariffs on U.S. exports of transportation equipment, the U.S. International Trade Administration reports, also will be eliminated. This is important since 26 percent of U.S. transportation equipment is exported to TPP countries. Currently, tariffs on these goods are as high as 75 percent resulting in foreign duties on U.S. exports of auto parts totalling $22 million annually. Upon the implementation of TPP, nearly all U.S. auto products exported to TPP countries will become duty free.

With regard to agricultural goods, tariffs and other restrictive policies of all TPP members will be eliminated or reduced. Plus, agricultural export subsidies will be terminated. And most tariffs will be removed immediately by member countries on textiles and apparel products, the U.S. Trade Representative says.

Environmental laws, as part of the TPP, are to be enforced and not weakened as an incentive to attract investment. The marine environment, among other environments, is agreed to be protected in various ways.

TPP also ensures the free flow of information and data that drive the growing e-commerce industry, the internet, and the digital economy. Importantly, TPP countries agree not to require companies to build data centers or store data in countries as a condition for servicing them.

Intellectual property, a major component of the digital economy, is protected in the TPP by establishing standards based on the World Trade Organization’s TRIPS Agreement and international best practices. With regard to trademarks, it provides protection of brand names.

In The Spotlight

Overall, the largest advantages are likely to come from U.S. exports of services, the strengthening of intellectual property rights and the harmonization of standards and regulations, says Ralph Watkins, former trade analyst at the U.S. International Trade Commission.

Wide Industry Support Achieved

According to the U.S. Chamber of Commerce, many industries have come to support TPP due to the vast benefits it offers. Thus, the American Farm Bureau, the Business Roundtable, the Emergency Committee for American Trade, the National Association of Manufacturers, and the U.S. Chamber of Commerce all support TPP.

Since only 5 percent of small or medium-size U.S. companies export, there’s a significant potential for growth. And small businesses account for almost two-thirds of America’s net new jobs, says Ed Gerwin, Senior Fellow at the Progressive Policy Institute. By leveling the playing field, American firms will be better able to pursue foreign markets and achieve higher levels of success.

China’s Absence from the TPP

Some analysts say China sees its absence from TPP as a strategy by the United States to contain the Middle Kingdom and reduce its influence in the region. China’s absence from the TPP also carries costs for the country. The Brookings Institution, a Washington, DC-based think tank, says China could incur income losses of more than $46 billion by 2025. On the other hand, if China was admitted, it could gain over $800 billion by the same year, the think tank says.

Should China eventually be admitted, it would be required to implement a number of reforms. For example, it would be necessary for China to open its services and investment sectors, and it would have to agree to rules that would impact China’s state-owned companies, the Brookings Institution says. This could be a difficult challenge for China, at least in the short term.

This article appeared in Global Impact, a Great American Insurance Group publication.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is chair of the Upstate New York District Export Council and founder of the ManzellaReport.com and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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