The Pacific Trade Deal, formally known as the Trans-Pacific Partnership, was a free-trade agreement that the United States was negotiating with 11 other countries that had a border along the Pacific Ocean. Despite the potential advantages that this arrangement could bring to the United States, President Donald Trump felt that the disadvantages of this agreement outweighed them. He signed an executive order which withdrew Americans from the TPP on January 23, 2017.
The Trans-Pacific Partnership was initially signed on February 4, 2016, with the agreement in principle created in 2015. Each legislature was required to approve the TPP before it could go into effect, so the executive order from the Trump Administration negated that vote from the perspective of the United States.
The other members of the Pacific Trade Deal went through with the arrangement anyway, creating an agreement between Canada, Chile, Japan, Brunei, Australia, Malaysia, New Zealand, Mexico, Singapore, Vietnam, and Peru. If the United States had been involved, then the TPP would have covered 40% of the world’s gross domestic product, with a total value of nearly $110 trillion.
As of May 2019, the agreement is active for seven of the countries. These are the current pros and cons of the Pacific Trade Deal to consider.
List of the Pros of the Pacific Trade Deal
1. It works to stop unsustainable practices which could harm the environment.
The TPP offers protections in several industries which guard against the use of unsustainable practices during the manufacturing, shipping, and distribution processes. The remaining countries in this agreement are not permitted to perform fishing or logging practices which could harm the local economy for decades afterward. Substantial penalties are in place for those who are not adhering to the rules in place by the deal.
2. There are wildlife protection provisions in place to stop poaching.
All of the countries involved in the TPP today agree that there are benefits for everyone if they work together to stop wildlife tracking from legal or illegal hunting activities. The goal of this agreement is to reduce the market for animal products that come from endangered species. Elephants, rhinos, and several marine species receive protections under this deal that are not part of other current global trade arrangements. There are now stoppages available to the member nations that restrict products like ivory, rhino horn, and shark fins.
3. It provides a boost to economic growth for all participating countries.
When the United States was involved in the final draft of the TPP, the initial estimates for economic growth between the member nations was over $300 billion per year. Americans would have seen about 1/3 of this growth in the global export market. Industries such as agriculture, automotive manufacturing, plastic manufacturing, and machinery are the biggest winners of this deal because of the new access which is possible to countries outside of Asia. When there is more trade going on throughout the world, then there are more employment opportunities available to the average person. The Trans-Pacific Partnership is already creating this benefit for the seven countries it currently covers as of May 2019.
4. There would be fewer tariffs in place with the Pacific Trade Deal.
The goal of the TPP is to open more markets for free trading opportunities. With seven out of the 11 nations already ratifying this agreement, there is a push to reduce the number of tariffs that are present with the current export market. There are currently more than 18,000 taxes which are active on products shipped from country-to-country that impact the prices which consumers pay at the store. By removing them from the buying and selling processes, there are now more opportunities for each country in this deal to grow their economy.
Although there are businesses and industries that might see fewer domestic sales because of this agreement, the overall impact on the international market is designed to make up for these losses by creating gains in new markets.
5, It creates more spending power for individual consumers.
With the United States staying out of the TPP, the amount of wages which are added to the global economy will reduce from over $220 billion a year to about $150 billion per year, but this amount will still have a positive effect on the remaining members in the agreement. This figure includes direct and indirect wage increases, new job opportunities, and higher sales levels because of better market access around the Pacific Ocean. Local economies are the real winners with the Pacific Trade Deal because small business owners have greater access to more products that they can sell at competitive prices to their current clients or customers.
6. There are protections in place to stop intellectual property theft.
Another reason why the United States originally wanted to be involved with the TPP was because it offered an opportunity to protect the intellectual property of Americans and other nations who do business in Asia. Over $600 billion worth of potential sales disappear from the economies in Europe, North America, South America, and Australia because of IP theft problems that occur in Asian countries – and especially China. This agreement stops the illegal transfer, implementation, or profiting from intellectual Property where there are no licensing arrangements or purchasing contracts that give permission for its use.
7. It creates new opportunities for technology improvements.
The Pacific Trade Deal makes it possible for companies of any size in the member nations to receive access to the latest technologies from the various relationships or investments that are possible under this agreement. This structure makes it possible to add an additional micro-economy at the local level which can thrive because there is access to an international market for everyone. Even freelancers and those in the gig economy gain an opportunity to find new levels of success with this advantage because the TPP provides new levels of opportunity that would normally go to larger companies under the standard agreements which traditionally govern trade.
8. There would be lower levels of government spending.
Most governments in the world today subsidize local industries as a way to create growth in the local economy. Even President Trump considers using subsidies to compensate farmers who may be losing funds in the trade war that the U.S. is picking with China because of mutually increasing tariffs on popular products. Thanks to the structure of this agreement, there would be lower levels of government spending because fewer enforcement needs would be necessary with the TPP as the governing agreement.
That means consumers would pay less because the presence of taxes would not be in the market. There would be additional choices in the market because of the higher levels of access that are possible around the Pacific Ocean. This advantage could make it possible to fund social programs, infrastructure needs, or even pay off debt.
9. It would reduce local problems with business turnover.
When a business, industry, or economy segments receive protection from the government, then there is less of a desire to push revenues toward research and development. This issue creates stagnation within specific sectors because there is always access to a consumer base who will purchase the items in the supply chain. The TPP encourages competition on a global scale by introducing new labor markets, additional specialties, and other benefits that create macro-competition on micro-levels for the member nations.
This advantage provides more motivation for local businesses to continue pressing the envelope of innovation so that new products or services continue to stimulate the overall economy.
10. There would be more expertise in the supply chain.
The TPP encourages more vertical integration in the supply chains of numerous businesses and industries because the focus is placed on internal expertise. The manufacturing of new products and services benefits from an international footprint where organizations can source global talent to help with the structure, design, implementation, and sale of new ideas. That means the best people are always available to member nations with the Pacific Trade Deal since there are fewer restrictions in place for immigration, work permits, and the processes which can lead to permanent residency one day.
The secondary advantage which comes from this key point is that the outside experts which organizations bring in to secure their vertical integration efforts can train domestic workers to build up local skills. That means the best practices developed for each industry around the world can receive consistent implementation within each community. This work eventually leads to higher levels of creativity and innovation, reducing costs for consumers while providing safer items to purchase.
11. It creates new markets for cheaper goods around the world.
If an organization wants to keep their development costs as low as possible, then it is almost impossible to stay out of China right now. Their integration capabilities, total capacity, and lower wage costs make it possible to produce high-quality goods at competitive prices so that a product remains affordable for the average customer.
“Watch out!” warns TechPacker. “Some trading companies, which buy products and then sell them at a higher price, claim to be factories when they aren’t.” The Pacific Trade Deal shores up this problem for member nations by requiring verification of capacity, allowing for more product development and market access because of the guaranteed structures.
List of the Cons of the Pacific Trade Deal
1. The United States would lose all of its negotiating power by rejoining the agreement.
Trade Minister Steven Ciobo says that there would be pros and cons for Australia if the United States were to make an effort to rejoin the TPP. The most notable change would be a lack of access to the Japanese beef market for local farmers. “Now don’t get me wrong,” Ciobo said, “that isn’t saying we don’t want the Americans back in, we do. But what I am saying is I can’t see us picking all the stitching that brought this deal together to accommodate the United States at this point.”
The advantages once negotiated by the United States are no longer part of the Pacific Trade Deal. If Americans want to join this agreement, then they are stuck using the current arrangements that were put in place after the withdrawal.
2. It helps those who already have money more than it provides assistance to others.
Most of the gains that occur under the terms of the Pacific Trade Deal go to workers who are earning the equivalent of $90,000 per year or higher. It encourages the inequality that Americans already face where the most gains from the agreement go to those who don’t need the financial assistance. Although there would still be jobs created because of the terms of the TPP, the promotion of purchasing cheaper goods would shift jobs away from high-paying positions whenever possible without reducing the impact of the C-Suite.
Imagine having a factory of automotive workers on the line earning $30 per hour for their services. Those jobs would go to Mexico or Vietnam under this deal where the standard of living is lower, so the average wage might be $8 per hour. The white-collar executives stay put with their wages while the blue-collar workers are left to scramble for something else.
3. There is not as much impact without the involvement of the United States.
Over 30% of the economic benefits that were possible with the Pacific Trade Deal were centered around the United States when Americans were part of the agreement. Although all of the member nations in the TPP still can and do trade with the U.S. each year, the overall revenues and economic impact that were possible are reduced significantly because of the Trump Administration’s executive orders.
4. It would prolong copyright protections that could keep costs high for consumers.
Although this provision was taken out of the Pacific Trade Deal after the Americans withdrew from the agreement, the prolonging of copyright protections and guarding IP causes an increase in costs for consumers. Additional protections reduce the likelihood of generic product development, which means customers are forced to buy name-brand items when there is a pain point they must address. Because cost is one of the primary decision-making factors that consumers follow, there could be less spending in the member nation economies in the future since prices in some industries might be much higher.
Americans already save about $170 billion each year because of the presence of generic drugs. Other nations see a proportional level of savings in their economies as well. With the TPP in effect, these financial advantages might eventually disappear
5. It focuses more on the front end of the supply chain then the back end of it.
When looking at the structures of the Pacific Trade Deal, the primary benefits go toward those in the developing and manufacturing sections of the supply chain. This process might create tens of thousands of jobs around the world, but most of the employment opportunities will likely land in the least developed nations who are members of this agreement. It creates a one-way street where the richer countries are importing products and services from the poorer ones while shipping wages outside of their network.
The threat of this disadvantage is that the economic circumstances of the richer nations could reduce while the poorer countries see a lift, which means the real winners are those who fall outside of the middle class. We’ve already seen this problem with NAFTA when manufacturers moved positions to Mexico because of the cheaper labor. The TPP encourages this issue as well.
6. There will be fewer opportunities for local goods or services.
The emerging economies in our world today have yet to go through a full industrial revolution, which means over half of their economic output comes from agricultural activities. Most of the small businesses in this area are small farms which struggle to provide for themselves, much less offer something of value to the import/export market. By introducing mass-market farming from wealthier nations through this agreement, the ultra-local industries could experience failure over time because the imported goods are far cheaper than anything that a local farmer could produce.
7. It could introduce worsening employment conditions in developing countries.
The Pacific Trade Deal works to create better employment conditions by penalizing organizations which fail to comply with worker safety regulations. History teaches us that the outcome of this arrangement is that international companies will outsource their labor to economies that are outside of the TPP, taking advantage of the reduced oversight in the labor market to keep costs low while avoiding the administrative costs of regulatory compliance. This issue impacts women most often since cultural differences often cause them to work in a job that is already not wanted by others.
8. There could be problems with natural resource access.
When richer countries approach a poorer one with a trade deal, the goal of any agreement is to access more natural resources to improve domestic supply chains. Emerging nations typically have fewer regulations in place that prevent environmental damage because the goal is to extract as much value as possible. Since it costs less to do business with fewer rules in place, companies and countries feel like they have a win/win situation since it costs less to make the same goods while providing a revenue service to governments who are desperately seeking ways to improve local economic conditions.
9. It would reduce tariffs, which could reduce nationwide income.
Tariffs are typically a tax that consumers pay eventually, but it does create an economic gain for the governments who choose to levy them. Consumers can shift their spending habits to countries that aren’t covered by a tariff policy, but a complete reduction with significant trading partners can reduce incoming revenues that support local programs. There may be a day in the future when the member nations of the Pacific Trade Deal must increase taxes in other ways to make up for the loss of revenues that this agreement creates.
10. There might still be theft of Intellectual Property with the Pacific Trade Deal.
Although the push of the TPP is to reduce the issues with IP theft that occur, the partnerships that the agreement encourages to form would force businesses to share their Intellectual Property, patents, or trade secrets to have access to international markets. An example of this disadvantage would be if an Australian business wanted access to the lower costs of the manufacturing industry in Thailand, then the inter-agency agreement would force them to share their proprietary methods before gaining access to the lower costs.
Countries can still require this if another nation wants access to their market as well. Even Japan could require Australia to share agricultural methods if they want their beef farmers to gain access to their lucrative market.
Verdict on the Pacific Trade Deal Pros and Cons
President Donald Trump suggested in 2018 that the United States might be willing to re-join the Trans-Pacific Partnership if he could get a better deal. As John Kasich noted on CNN on May 20, 2019, that means the reason for the withdraw is more because this idea was part of the previous administration’s efforts to better the country, which is a ridiculous reason to change trade policy.
The other countries involved in the TPP had already made several concessions to the United States, especially with regards to the length of patents for pharmaceutical manufacturers. Bringing Americans back into the deal under that philosophy is probably not possible.
The pros and cons of the Pacific Trade Deal show us that the practice of compromise can lead to better economies, more opportunities, and a closer world. We need more big ideas like this one to help bring us together as humans. Even if the United States is not involved, the rest of the world is moving forward with this agreement. Only time will tell if it is a successful venture.
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