Asia’s Winners and Losers from the $30 Trillion Trans-Pacific Partnership
“China containment,” a “U.S. pivot” to Asia or simply a free trade agreement, the Trans-Pacific Partnership (TPP) has been called many things since a deal was finally reached on October 5. For Asia, though, the TPP has created a long list of winners but also some losers, including possibly the world’s second-biggest economy, China.
Following five days of round-the-clock talks in Atlanta, negotiators from the twelve-nation grouping concluded a deal around 5 a.m. local time, when a compromise was reached on the monopoly period for next-generation drugs. Comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, the TPP is the biggest global trade pact in two decades, encompassing 40 percent of world gross domestic product (GDP) and economic output worth nearly $30 trillion.
Having feared another failure after August’s Hawaii talks broke down, celebrations that a deal had finally been done after five years of negotiations could be heard from Washington to Wellington.
“Long after the details of this negotiation like tons of butter have been regarded as a footnote in history, the bigger picture of what we have achieved today remains,” New Zealand Trade Minister Tim Groser said. “It remains inconceivable that the TPP bus will stop at Atlanta.”
U.S. President Barack Obama was quick to congratulate negotiators, describing his trade approach as “leveling the playing field for American workers and businesses, so we can export more products stamped Made in America all over the world that support higher-paying American jobs here at home.”
The president said the TPP “levels the playing field” for U.S. farmers, ranchers and manufacturers by eliminating more than 18,000 taxes placed on U.S. exports, while including “the strongest commitments on labor and the environment of any trade agreement in history.”
But in fuel for critics who have accused the TPP as seeking to “contain” China, despite invitations for Beijing to join the pact, Obama said: “When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy.” He also noted the pact “strengthens our strategic relationships with our partners and allies in a region that will be vital to the 21st century.”
Overall though, the Peterson Institute for International Economics has pointed to significant economic gains from the TPP. It expects the TPP could enlarge the participating economies by nearly $300 billion a year over the next decade, an annual 1 percent GDP gain that “continues indefinitely.”
As the two largest TPP economies, the United States and Japan are expected to account for two-thirds of the estimated GDP gains, while exports of member countries could increase by $440 billion, or 7 percent.
There is the potential for further gains too, should other Asian nations join the partnership. Already, South Korea has expressed interest in joining, while Indonesia, the Philippines, Taiwan and Thailand are reportedly assessing the benefits.
China is also not precluded from joining the TPP, with the Peterson Institute stating: “Within a decade, the trade deal could also become a framework for meaningful bilateral engagement between the United States and China.”
China the Biggest Loser?
Notably, China’s initial response to the TPP announcement struck a cautious tone, with a Commerce Ministry spokesperson saying, “China holds an open attitude toward [a] system construction that adopts to WTO rules and contributes to Asia-Pacific regional integration.”
However, other Chinese commentators were less restrained, amid suggestions the TPP would provide a competitive boost for rival Asian exporters such as Japan and Vietnam, as well as linking them more closely in Washington’s sphere of influence.
According to comments on China’s Global Times, readers accused the U.S. president of a “Cold War mentality,” saying Washington was “shamelessly tightening the noose around China’s neck” and the communist giant should respond accordingly.
Shen Dingli of Shanghai’s Fudan University told the International Business Times the TPP could potentially cut up to two percentage points from China’s GDP growth rate, which has already fallen to its lowest in twenty-five years.
“China considers TPP as a threat, but what can China do?” he asked. “We need to meet the threat and raise our domestic economy to a higher standard, which means more marketization, revamping our domestic economic trade and investment institutions massively, making our domestic manufacturing more competitive and innovative.”
Shen described Obama’s statement about writing the rules as potentially “racist” and “wrong – everyone should be able to write these rules,” although he noted that trade pacts are not a zero-sum game, with China potentially open to joining the TPP in the future.
New Arrow for ‘Abenomics’
For Japanese Prime Minister Shinzo Abe, the TPP deal has delivered a potential boost to the third, pro-growth “arrow” of his hotly debated Abenomics reforms.