The foreign ministers of 11 Asian and American countries signed on Thursday an updated Trans-Pacific Partnership (TPP) trade deal in Chile's capital, Santiago. The TPP was originally signed in 2015 by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. However in January, on his third day in office, US President Donald Trump signed an executive order on US withdrawal from the agreement after calling it "terribly structured," harmful to US workers and undercutting US companies.
Nevertheless, the remaining 11 countries decided to revive the major trade agreement in May without Washington's participation and renamed the bloc the CPTPP in November. Experts believe that the United States would forfeit economic benefits that it would enjoy were it still a member of the bloc.
L. Alan Winters, a professor of economics at the University of Sussex and the director of the UK Trade Policy Observatory, told Sputnik that member countries of the bloc would rather import from other members than from the United States, which would have its exports subjected to trade barriers.
"The United States might lose a little bit of exports. Things that the United States is selling to the member countries will now enter tax-free from the other members like Mexico or Australia and so the United States might lose some exports," Winters said, adding, however, that this loss of exports will be an irritation rather than a major shock to the US economy.
In a study conducted by the Peterson Institute for International Economics in October, the institute’s researchers stated that under the CPTPP the United States faces a $2 billion loss as US firms become less competitive in the CPTPP markets under the new trade deal.
Dr. Sangeeta Khorana, a professor of economics at Bournemouth University, agreed that the deal will have an impact on US exports, but said that it holds wider implications for the United States and threatens US influence in the Pacific region.
"The CPTPP will impact on current market access for US firms in the countries markets that are now CPTPP members. The agreement serves as a powerful signal that countries that previously counted on American leadership are now forging ahead without it. So it weakens US position internationally and takes away the role of the US as a pacesetter or agenda setter of economic affairs. It will impact on the ability of US to shape the rules in the Asia Pacific region," Khorana said.
Moreover, Khorana added that not only does the deal allow increased market access for the bloc’s member countries, but it also signals that protectionism is no longer in fashion.
In another round of protectionist measures seeking to save US jobs and prevent the decline of domestic metals producers, Trump on Thursday signed a policy that imposes 25 percent tariffs on steel imports and 10 percent duties on aluminum exports, which will go into effect within the next 15 days, and cover all of the CPTPP bloc’s member countries except Canada and Mexico. The policy is part of Trump’s "America First" agenda.
The original TPP trade deal was never ratified by the US because of congressional opposition, but was strongly backed by ex-President Barack Obama's administration.
Winters stated that it is likely that the United States would reconsider its decision on choosing to withdraw from the original TPP trade deal, even if it may not happen under the Trump presidency.
"I think that many people think that the United States eventually will come back to the idea that it ought to engage with the CPTPP. I am not sure that I see it happening in this presidency … on the whole, my expectation would be that the United States would actually start to think that it ought to be engaged with these things and it would eventually come back into the fold," Winters said.
According to local media, US Treasury Secretary Steven Mnuchin said on February 27 at an investment summit that the US president will consider a renegotiated CPTPP trade deal and that the United States has begun having high-level talks on the deal.
CPTPP Members to Reap Large Benefits
The CPTPP aims to remove trade tariffs between member countries and reduce non-tariff measures which create obstacles to trade. The agreement also seeks to harmonize regulations between member countries and enforce minimal labor and environmental standards.
Khorana stated that the CPTPP would be particularly effective in removing trade barriers for digital services and agricultural products between the bloc members.
"The trade agreement aims to reduce tariffs and establish new trade rules. It will be successful in opening more markets to free trade in agricultural products and digital services around the region," Khorana said.
The CPTPP also introduces an Investor-State Dispute Settlement mechanism, which allows companies to sue governments if they believe their profits have been affected by a change in the law. Much of the TPP original trade deal remains intact, with the suspension of 22 items that were relevant when the United States was bound to be a signatory.
Winters stated that the trade deal would ease the exchange among the bloc’s members of more sophisticated goods than produced by their own countries.
"Well, it's always nice to get access to a big rich market. The rest of the TPP still has significant spending power, and getting into their markets, and indeed permitting their more sophisticated goods into your own economy with fewer restrictions — both of those generate benefits," Winters said.
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Khorana stated that the richness of the market means that countries like Chile, Mexico and Peru will benefit from a larger reach in terms of trade.
"For example, Chile, Mexico and Peru get better market access to countries on either side of the Pacific. Chile will benefit from improved market access for 17 percent of exports," Khorana said.
Winters added that between the members, those who will benefit the most from the CPTPP trade deal, will be countries like Vietnam which has undergone the most liberalization in its trade policies as a result of the deal.
"The main beneficiaries are the countries that undertake the biggest liberalizations in their trade policies. They are increasing their access to markets elsewhere but they are also changing their domestic economies and that’s where the real benefits of trade reform come from… Well I would expect countries like, say, Vietnam to be one of the strong beneficiaries," Winters said.
CPTPP Good for Global Trade Dynamic
Apart from bringing benefits to the individual members of the CPTPP bloc, experts are sure that the CPTPP trade deal would also benefit the global trade dynamic.
According to statistics released by New Zealand’s Ministry of Foreign Affairs and Trade, the trade deal covers an estimated 480 million people on either side of the Pacific Ocean. The economies of the CPTPP countries account for 13.5 percent of world GDP, which is cumulatively worth $10 trillion.
Apart from bringing benefits to individual member countries’ economies, Khorana stated that the agreement is expected to generate an additional $147 billion in global income.
Winters stated that the agreement, if implemented with success, is also likely to benefit global trade through setting an example for any future global trade deal.
"Assuming that they are able to get on and they implement it effectively, that is going to be good for the world economy and it is going to show that a diverse group of countries really can reach a moderately deep agreement, and that will encourage other trade agreements … And if they can implement it, it really shows that one can get agreements that really mean something," Winters said.
The CPTPP still faces ratification by individual governments, which will have to consider whether the trade deal is in their national interest.
The views and opinions expressed by experts do not necessarily reflect those of Sputnik.