The Trans Pacific Partnership was a proposed trade agreement which would have improved trade between countries like Australia and Brunei with Canada and the United States. The initial draft of the agreement was signed on February 4, 2016, but it was not ratified as required. That means the agreement did not take effect.
Once the United States withdrew its signature from the proposed agreement, they could not enter into force. The remaining countries which had signed on to the initial structure provided by the Trans Pacific Partnership formed a new agreement that they called the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It incorporates most of the original provisions and went into effect on December 30, 2018.
The purpose of this agreement is to outline measures that lower barriers to trade, including tariffs or non-tariff issues. It would have served a geopolitical purpose to reduce dependence on Chinese trade while encouraging nations in the TPP to draw closer to the United States.
Over $107 trillion in total gross domestic product was involved in this potential partnership. Although it was never implemented, these are the theoretical pros and cons of the Trans Pacific Partnership that may have eventually developed.
List of the Pros of the Trans Pacific Partnership
1. It boosts economic growth and exports.
The goal of the TPP was to boost export levels while encouraging economic growth for all of the signatories involved in the treaty. This process would have created more jobs and prosperity for the 12 countries initially involved in the agreement. The initial estimate showed that the value of exports would increase by $305 billion by the year 2025. Exports in the United States alone would have increased by over $123 billion. The primary benefactors of the Trans Pacific Partnership would have been the auto industry, plastics, machinery, and agriculture.
2. It would remove problematic tariffs on thousands of goods.
There are currently over 18,000 tariffs placed on exports from the United States to other countries that are in Forrest right now. The American government had already withdrawn 80% of the tariffs on imports coming into the country. That means the Trans Pacific Partnership would have created a playing field that was more even for U.S.-based manufacturers trying to sell goods and services overseas.
3. It would have added more wages to each local economy.
The 12 countries of the Trans Pacific Partnership would have seen income rates rise for workers because of this agreement. It was estimated that over $223 billion per year would’ve been added to local economies thanks to the improvements in trade. Over $77 billion of that amount would’ve gone directly to workers in the United States. There would have been indirect wage increases and new job opportunities to support the workers in the TPP who would have been more productive under the agreement as well.
4. It offered wildlife protection provisions that would have stopped poaching.
All of the countries which were involved in the TPP agreed that they would begin to prevent wildlife tracking from legal hunting or poaching activities. The goal of this part of the Trans Pacific Partnership was to reduce the market for rhinoceroses, elephants, and marine species which are abused for specific body parts. There would have been if you were opportunities to sell rhino horn, elephant ivory, and shark fin because of this agreement.
5. It guarded against unsustainable environmental practices.
Another advantage found in the TPP was a provision that prevented environmental abuses domestically as a way to boost the economy. Countries would no longer be permitted to perform on sustainable fishing or logging practices as part of the agreement. If the treaty had gone into effect, then there would’ve been substantial penalties placed on countries that were not it hearing to the included rules.
6. It would have stopped intellectual property theft.
The theft of intellectual property creates a significant drag on the economy of the United States. It’s also for the other 11 countries involved in the TPP is well. MarketWatch estimates that up to $600 billion of value is stripped from the U.S economy each year because companies overseas are taking advantage of lax domestic rules about protecting the rights and privileges of international companies. One of the primary goals of the Trans Pacific Partnership was to stop the illegal transfer, use, or profiting of IP that belongs to someone else in one of the member countries.
7. It would have offered benefits to several countries and sectors.
There were numerous benefits to consider for all the member countries and specific industries when looking at the structure of the TPP. It didn’t just help with intellectual property laws. There would’ve been improvements in the structure of contracts around the world as well that could help to stop piracy issues.
Chemical engineering, software development, international legal advising, electrical engineering, and bioengineering fields would all stand to benefit from the improvement framework provided by the Trans Pacific Partnership.
8. It would have opened the American market to cheaper goods.
Although there were legitimate concerns about high-paying jobs leaving the United States for the lower wage markets in the TPP, many of those losses would’ve been offset by the cheaper goods and services available to the average American. One of the most significant benefits was the ability of New Zealand’s dairy market to finally access households in the U.S. who are wanting additional competition.
9. It would have strengthened the rest of the world against China.
The original member nations of the Trans Pacific Partnership were Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. Although the purpose of the TPP was to improve trade opportunities between these countries, the overall goal had a greater ambition: to offer each country an opportunity to strengthen their economic viability without relying on China to do so.
10. It would produce goods and services based on higher levels of expertise.
A significant advantage to consider with any free trade agreement is the level of expertise involved when manufacturing new goods and services. Companies which have an international footprint typically offer more expertise that domestic organizations when developing local resources. These worldwide firms have access to more resources that make it possible to develop better distribution networks as well.
When these international partners get an opportunity to work with companies that are strictly local, it gives them a chance to train domestic providers in the best practices that are used globally. This process gives everyone access to better information, which will eventually lead to higher levels of innovation and lower costs for consumers.
11. It would create opportunities for technology transfers.
The Trans Pacific Partnership would make it possible for local companies to receive access to the most up-to-date technologies from the partnerships they can form with their multinational partners. This structure makes it possible to grow the economy add an ultra-local level. When these events occur, then so do the job opportunities in that sector. Then there is the added benefit that the international firms can provide specific employment training services at the local or domestic level.
12. It could lower government spending.
Many governments around the world, including the 12 members of the originally proposed TPP, subsidize local industry segments to stimulate the domestic economy. This cost comes straight from the wallet of the taxpayers. If the Trans Pacific Partnership were to be implemented as intended, then there is the possibility to remove the subsidies from the overall budget. That would make it possible to transition the spending to other places which could benefit from the extra money.
13. It reduces the issue of business stagnation.
When companies, industries, or entire economic statements receive protections from the government, then there is a higher risk of stagnation occurring within that sector. There is no reason for them to be competitive because the basic needs of the organization are met through subsidy payments. When these protections are removed by structures like the Trans Pacific Partnership, then it can motivate these firms to start innovating again because they have a chance to be competitive on a global scale.
List of the Cons of the Trans Pacific Partnership
1. It would have helped the rich to get even richer.
Agreements like the Trans Pacific Partnership typically benefit workers that have higher income levels around the world. Most of the gains that would’ve been possible because of the TPP were going to go to work or is making roughly $90,000 per year. This agreement would have also created substantial income inequality issues in every country. That is because they typically promote the purchasing of cheaper goods from low-wage countries to reduce import and export costs for everyone.
2. It would have disproportionally helped the United States.
What is really interesting about the fact that the Trump Administration pulled out of the TPP is that a majority of the benefits which this agreement provided would’ve gone to the United States. About 1/3 of the economic benefits expected when the Trans Pacific Partnership eventually went into effect were headed to America in one way or another. One of the most significant benefits involved protecting patents and copyrights.
If you owned intellectual property in one of the 12 countries involved in the TPP, then you would have benefit significantly from the income gains available in this agreement.
3. It would reduce the availability of cheaper generic products.
One of the most significant disadvantages of the TPP was a prolonging of copyright protections for items that are generally expensive, such as brand-name drugs. The processes of this agreement would’ve made it more challenging to create generic alternatives to the expensive items on the market. Cost is the primary factor which drives consumers toward generic medication over the alternatives in the United States.
The Association for Accessible Medicines estimates that Americans have saved roughly $1.7 trillion over the past decade because of the availability of generic medication.
4. It would create disproportionate benefits across the economy.
The United States stood to benefit from the TPP when looking at its projections for trade in gross terms. The issue with this gross is that it would not be uniformly distributed across the entire economy. When looking at the Trans Pacific Partnership, it is clear to see that the goal was to improve services more than any other aspect of trade. That means we would have seen changes to capital flows, manufacturing bases, and an increase in various knowledge-based services that may not have benefitted the average person.
5. It would have likely led to higher levels of job outsourcing.
Although the TPP would have created thousands of new jobs, many of them would have eventually landed outside of the United States. When there is a reduction in tariffs on imports, then organizations can begin expanding to other countries. That makes it possible to provide imports from countries with a lower cost-of-living because it improves the profit margin of the organization involved. Companies in the same industries with a higher standard of living for wages find it challenging to compete because labor is their most significant cost.
When NAFTA agreements came into being, many manufacturing industries laid-off workers in the United States because it was cheaper to build products in Mexico. The Trans Pacific Partnership would have created similar circumstances, except nations like Brunei would have a chance to get their workers involved too.
6. It would not prevent all IP theft.
The TPP pushed hard to create better protections for intellectual property rights. If a country wanted to be a member of this agreement, then they would have to abide by the rules that protected copyrights and IP. Even with the structures that are in place in China for American companies, most providers will not give U.S. firms who want access to the 1.4 billion people in the market a chance at it unless they sign over the rights to this information in the first place. The Trans Pacific Partnership would create similar circumstances.
7. It would begin to crowd out domestic industry.
When you look at the world today, most of the emerging markets are a traditional economy. That means they are relying on farming and agricultural work for most of their employment. These operations are typically family operations which do not have the ability to compete with subsidized businesses in the developing world. It is not unusual for small farms and similar businesses in countries like Brunei or Mexico to lose everything, and then force people to look for work in the city. This process aggravates issues with crime, poverty, and unemployment.
8. It could produce poor working conditions in emerging markets.
The Trans Pacific Partnership sought to create better working conditions around the world by supporting specific structures that would penalize companies for not looking out for worker safety. When you look at the outcomes of most free trade agreements, the vision on paper does not equal what happens in reality. Multinational companies often outsource jobs to the emerging economies where there are not adequate labor protections. This structure often affects women and children the most, as they are the ones most likely to be subjected to the unfair conditions in the manufacturing sector.
9. It could degrade the availability of natural resources.
Emerging economies often have fewer restrictions in place for activities that would harm the environment. When the new free trade agreement occurs, they can lead to the depletion of timber, minerals, and similar domestic resources. Although the TPP put in specific restrictions to prevent many of these outcomes in this disadvantage, the nations who were not part of the agreement would escalate their activities globally as a way to potentially stay competition.
10. It would create a loss of income for other countries.
In a tweet written on July 24, 2018, President Trump stated that “tariffs are the greatest.” The United States removed a majority of tariffs from TPP countries because it naturally promoted free trade agreements by creating reciprocal results overseas. The Trans Pacific Partnership would formalize this policy to reduce costs in the import/export world immediately. The only problem with this change in the structure of trade is that smaller nations often rely on the income from tariffs as a way to fund social services. Countries like Brunei might have struggled to replace this reduced tax revenue.
The pros and cons of the Trans Pacific Partnership show us that when countries are willing to work together, then it creates the possibility of a brighter future for everyone. Although this agreement will never become a legal framework for the world because of the U.S. withdrawing from it, the remaining member nations may get to see some of the advantages and disadvantages discussed above in the coming years as their revamped agreement shapes the future of trade.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.