Trans-Pacific Partnership Arrives as World Trade Growth Slows
The Trans-Pacific Partnership took five years and 19 formal rounds of talks to forge. Negotiators met in Ho Chi Minh City, Kuala Lumpur, Lima, Melbourne, San Diego, and elsewhere on the Pacific Rim, hammering out nettlesome details on tariffs for everything from meat to auto parts. The result is the biggest regional trade agreement in history. When the TPP’s completion was announced on Oct. 5, it was heralded as a boon to the 12 countries involved, which together account for 40 percent of the global economy. Not only would rich nations such as the U.S., Canada, Australia, and Japan benefit, so would less-developed partners such as Peru, Indonesia, and the Philippines.
The full effects of the TPP, which has yet to be sold to a dozen legislatures, including the U.S. Congress, may not be felt for years. Japan’s beef tariffs, for one, will drop from 38.5 percent to 9 percent, but over 15 years, to the frustration of U.S. and Australian cattle ranchers. It’s hard to even figure out what the TPP’s impact will be on global trade. “We haven’t done a calculation of this type,” Trevor Kincaid, deputy assistant U.S. trade representative, said in an e-mail.
For now, the world’s economies are finding it difficult to trade their way toward prosperity. On Sept. 28 the World Trade Organization cut its forecast for growth in trade this year to 2.8 percent from 3.3 percent. It added that its forecast could be “over-optimistic.”
The WTO does predict an acceleration to 3.9 percent next year. That’s still well below the 5 percent average of the past two decades. The 1990s and early 2000s, when trade grew twice as fast as gross domestic product, are long gone. Carl Weinberg, chief economist at High Frequency Economics, points out that total world exports for the year through June were 11 percent below those from a year earlier. “The contraction of world trade has yet to show a bottom,” he says. “This could be more than an economic headwind. It could be a tornado.”
One problem with the TPP is that for years it’s been used as a cudgel against the other enormous part of the global economy: China, itself in the middle of a slowdown. The country’s role as the world’s No. 1 exporter could make it an adversary of the TPP—or a candidate for future membership. Its foreign ministry offered a conciliatory note, saying, “China hopes the agreement and other free-trade arrangements can be mutually beneficial.” The U.S. has signaled it might consider Chinese TPP membership, but that would take years to negotiate.
The TPP may be the most important deal since 1994’s North American Free Trade Agreement, but the rest of the world continues to battle over tariffs, duties, and incipient protectionism. Big free-trade agreements are rare. A pact between the U.S. and the European Union, the Transatlantic Trade and Investment Partnership, has yet to be concluded, though the TPP may provide an impetus. Although the WTO has pulled off such coups as negotiating China’s entry into the organization, for the last few years it hasn’t been able to expand global free trade further.
If trade growth fails to pick up, says Adam Slater, a senior economist at Oxford Economics, countries may try to devalue their way to prosperity—a form of trade cheating. Says Slater: “The temptation to try to grab a bigger slice of a given trade pie is likely to increase.”
The bottom line: The TPP holds promise, but the world economy has yet to regain the strong trade growth of the past two decades.