The TPP’s prosperity promises

January 18, 2016 at 10:01

The TPP’s prosperity promises

Daniel Twining | October 5, 2015


One way to make sense of the current world is to measure the progress of rules-based order versus coercion-based disorder. The latter category includes the collapse of state structures in the Middle East at the hands of violent extremists, Russia’s invasion of Ukraine and China’s territorial revisionism in maritime Asia. The former category includes the just-concluded Trans-Pacific Partnership agreement, which promises to liberalize trade and investment among 12 economies comprising 40% of global gross domestic product, 30% of global exports and 25% of global imports.

The forces of instability in the international system look backward — to a violent caliphate in the case of the Islamic State and to a “might makes right” world of spheres of influence in the case of Russia and China. By contrast, signatories to the TPP, with its complex rules on harmonizing regulatory standards, intellectual property laws and foreign investment regimes, look forward to an era of revitalized globalization that strengthens peace through prosperity. When it is enacted among the U.S., Japan, Canada, New Zealand, Australia, Singapore, Malaysia, Vietnam, Brunei, Mexico, Chile and Peru, it will be the most consequential trade pact in two decades, underscoring the primacy of economic leadership in the race for prosperity and security in the modern age.

Four views of TPP

There are four useful lenses through which to view the TPP’s implications: its economic logic, its role in member states’ domestic politics, its geopolitical impact, and its potential as a foundation for an even wider and deeper set of economic arrangements among the world’s principal powers.

The TPP will liberalize trade in goods and services, lift foreign investment restrictions and enhance regulatory transparency among its signatories. It will open up sensitive economic sectors such as automobiles and agriculture that to date have enjoyed protectionist barriers. It advances “new economy” priorities like freeing trade in digital products and reinforcing the open Internet among member states. It will enhance intellectual property rights in innovative industries like pharmaceuticals.

Economists at the Peterson Institute for International Economics forecast that TPP enactment will boost global gross domestic product by nearly $300 billion per year. This would be important progress given that global trade is actually contracting after many years of expanding faster than the world economy — a worrisome indicator after several decades of globalization-fueled growth.

For its signatories, the TPP will provide a positive external shock that heightens competitiveness, further opens the markets of key trading partners and benefits consumers through lower prices of traded goods and services. For countries including the U.S., in time it will increase the percentage of workers engaged in the export sector, where jobs pay more than in domestically oriented sectors of the economy. According to the U.S. Trade Representative, the U.S. exports $1.9 billion of goods to TPP members every day, a figure that will grow with the deal’s implementation.

The Peterson Institute estimates that by 2025 the TPP will enhance Japanese exports by $140 billion and U.S. exports by $123 billion, leading to annual GDP gains for these countries of nearly $100 billion and $80 billion. But the TPP will not only benefit the big economies; smaller countries like New Zealand, with its world-beating dairy sector, will enhance their access to the vast markets of the Pacific Rim.

Politics behind the economics

Perhaps as important as the economics is the domestic politics of the TPP. U.S. President Barack Obama is racing against the clock. Hillary Clinton, one of his possible successors, has her eye on the protectionist left wing of the Democratic Party, whose presidential nomination she hopes to secure. As such, she has backed off her support for a trade deal she once championed as secretary of state. The 90-day Congressional review period for any deal also bumps debate over the agreement into the U.S. presidential primary season, risking a populist backlash against the deal during an election year.



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