It’s the biggest trade deal the world has seen in decades.
The Trans-Pacific Partnership (TTP) will cover about 40% of the global economy. The overall aim is to make trade easier between the 12 countries involved.
The participants have signed off on the deal in Atlanta, after five years of negotiations.
But what does it all actually mean in practice?
Globalisation has winners and losers – the world isn’t that flat
The TPP is a trade deal between the US and 11 other countries – Japan, Australia, New Zealand, Singapore, Vietnam, Brunei, Canada, Chile, Mexico, Malaysia, and Peru.
It all started out ten years ago with a deal between Brunei, Chile, New Zealand and Singapore that eliminated tariffs on most goods traded between the countries. The quartet also agreed to try to co-ordinate rules on jobs, competition and intellectual property.
This new, larger deal, covers “everything from pharmaceuticals and banking to milk”, reports The Guardian. The basic point is to try to make doing business between countries easier. But of course, that’s easier said than done – which is why it’s taken so long to do this particular deal.
Tariffs and trade barriers exist for a reason. They’re there because groups of special interests – industries, or sections of the population – want to protect their privileged positions in society. The last thing they want is to sacrifice those protections and advantages in the name of free trade.
And this is the whole point about globalisation in general. It’s often been painted as a win-win development. It’s not. Globalisation means more competition, and when industries and individuals are exposed to more competition, some of them lose out.
The core benefit of globalisation is that it’s meant to make the overall economic pie bigger by increasing opportunities for trade and activity. But make no mistake – the pie might be larger, but some people will find that their slice is smaller.
It’s also understandable that some people fear that globalisation just means handing power to faceless global corporations with no loyalty to any nation state or accountability to anyone beyond consumers and shareholders (and as the VW scandal shows, in practice, often accountable to pretty much no one).
Of course, the TTP comes just as the wealthy-country club, the Organisation for Economic Co-operation and Development (OECD), is agreeing a sweeping new tax approach with members to force multinationals to report earnings and tax paid on a country by country basis. So they don’t get it all their own way – indeed, I suspect now is not a great time to be investing in expensive multinationals.
Anyway – none of this makes globalisation a bad thing necessarily. But there’s no point on going into this with your eyes shut. There are winners and losers. A refusal to acknowledge that on the behalf of our ‘elites’ is partly what has driven populist political anger across the globe.
This is also one reason why you’re unlikely to see this deal have any major impact on share prices or investments overnight. For a start, while the participants might have shaken hands at the table, it’s now all got to be signed off by their respective governments.
Each of the last three US trade deals took four to six years to implement after they were signed, notes Capital Economics. And with ‘globalisation’ becoming a dirty word in our era of ‘new populism’, plenty of US Democrats – including Bernie Sanders – and Republicans – including Donald Trump – are opposed to this one.
However, in the long run, assuming it gets through, reckons Capital Economics, TTP “should have large and positive implications for global growth, albeit only over a (very) long time period”.
Two countries that should benefit from the TTP
So in the long run, who wins? Arguably this is most interesting for one of our favourite markets, Japan.
For a start, it’s an endorsement of ‘Abenomics’ at a time when Shinzo Abe’s honeymoon period is well and truly over. Managing to get a deal like this through is a sign that all his talk of reform is more than just talk.
In the longer run, Takuji Okubo of Japan Macro Advisors tells the BBC that “there is no room for doubt” that this is a good deal for Japan. The government reckons “the economy will expand by 0.66% as a result of the elimination of tariffs”.
If you throw in other red-tape-trimming, “the economic benefit will be much larger, probably to the tune of 2% of GDP”. And as SMBC Nikko analyst Jonathan Allum notes in his regular Japan commentary The Blah!, any liberalisation of Japan’s particularly coddled agriculture sector would be good news.
In short, if you already liked Japan (we do) then this is just another reason to like it.
But there’s another market of particular interest here: Vietnam. As a low-cost manufacturer, Vietnam should benefit from having greater access to developed markets, although it may also struggle with tighter rules on labour standards.
However, overall, being part of this deal has to be good news in terms of putting pressure on Vietnam to continue reforming and opening up, rather than risk backsliding as has happened in the past.
We’ll be looking at how to invest in Vietnam in more detail in an upcoming issue of MoneyWeek magazine – look out for it.
And if you’re not already a subscriber, sign up now.