The world had not seen a big multinational trade pact for over 20 years. After 7 years of negotiations, United States and eleven other Pacific Rim nations reached a final agreement on 5th October 2015. Now after all the meetings between world political leaders, the final step lies in Obama’s hands: Securing approval from Congress.
Obama has pledged that the TPP would open new markets for U.S. goods and services and establish rules of international commerce that give “our workers a fair shot at the success they deserve.” Congress however is more skeptical. The deal now faces months of scrutiny in Congress, where some bipartisanship opposition was immediate.
Assuming that all goes well and Congress approves the TPP, what would be the likely effects of the new trade agreement on the economy and on America’s influence throughout the world?
The Economic Impact on the TPP is Exaggerated
Progressives and labor unions rally against the bill think that it will be the end of manufacturing jobs and worker protections in the United States. Conservatives and corporations think that the bill will drive tremendous economic growth in the country. Neither is correct.
Two of the nation’s leading economists, Paul Krugman (left) and Nicholas Gregory Mankiw (right), both agree that the trade agreement will increase domestic income of all the nations involved by 0.5% by 2025. In the United States this amounts to little over $80 billion, certainly nothing to irrelevant, but nothing that will spark tremendous economic growth. The problem is that trade is relatively free throughout much of the world. Borders have been liberalized. The average good traded between these twelve countries has only a 1.4% tariff on it There just isn’t a whole lot to be gained by removing these tariffs.
Growth prospects might be limited however there are other aspects to consider — primarily the interests of US businesses and multinational corporations.
First, intellectual property rights. The US is trying to enhance protections for pharmaceuticals drugs and Hollywood movies. In many of these developing countries that are part of the TPP (Vietnam, Malaysia, Bruinei) knock-off drugs and films are sold to consumers. The TPP would put stricter regulations in place in these countries, ensuring this does not continue.
Agriculture producers also have a lot to gain from this deal. The United States currently produces a surplus of food, and much of that food goes to waste. Opening up international markets could be a huge boon for the agricultural industry.
Against China’s Power
Many of the potential benefits from the trade agreement concern the relationship the United States has with China. Importantly, China is not part of this trade agreement, but they are working on their own trade agreements in the region with many of the same countries in the TPP. China also won’t push for the same environmental regulations and worker protections the United States is currently pushing for.
This is an opportunity for the United States to expand it’s influence in the South Asian region and prevent these countries from falling under China’s influence.