During the first presidential debate, both candidates discussed their position on the TPP, but what is it? The Trans-Pacific Partnership, or TPP is a trade agreement between the United States and 11 other nations. The full text can be read here, but for those of you who don’t have time to read a complex several thousand page trade deal, I’ll discuss several of the highlights.
The twelve nations that comprise this deal have an economic output of $28.5 trillion annually or approximately 40% of world trade. The TTP has been debated and drafted since 2008. The first problem that many of the opponents have with the deal was that many of the people forming the draft were executives with corporations. They are needed for their knowledge of the ins and outs of the industries involved, but detractors state that there were no persons working for the American people, and that they most likely built a deal that favors their own interests.
The main focus of this deal like any others is to reduce taxes and other barriers to trade in the form of a variety of taxes, tariffs and protectionist policies. The TPP will remove 18,000 different taxes on American products headed to the other countries. This will also remove American taxes on foreign goods. These taxes will be phased out over the next ten years. The effects of these for consumers mean we will receive cheaper goods. For business in America, it means we will grow in areas that we have a comparative advantage and shrink in areas we don’t. Comparative advantage is the ability of one country to do a single economic activity better than its competitor. In the US we have advantages in land, making us more competitive in farming. We also have a comparative advantage in producing intellectual properties and patents on medicine and technology. In these we would grow, but we are disadvantaged when it comes to labor-intensive industries. We cannot compete due to a strong exchange rate and higher minimum wages. These industries will have to increase productivity to stay competitive. This will hurt low-skill labor jobs. In trade between the countries, the United States accounts for half the exports and one-quarter imports. These numbers could easily shift after a new deal.
This deal could grow the economies of several of the developing countries through forcing several new policies. They are all meant to drive the countries to adopt more liberal economic policies. They require adoption of anti-corruption and no subsides to any state-owned companies. Another requirement is countries accepting of investor-state dispute settlement. These ISDSs give companies the ability to sue governments over new laws or loss of property. These type of clauses have been in most trade agreements. They have become an issue due to the rapid increase in number of suits filed. Some large suits have been the Canadian company suing the United States for $15 billion for the president vetoing the keystone pipeline and Phillip Morris's suit with Australia over its plain packaging law -- in this case Australia won. The United States has won 12 but did lose the case over meat origin law and had to repeal its law.
In any of these areas, countries could fight for exceptions. New Zealand required that its state-owned company, Fonterra, was exempted. Australia fought for tobacco companies to not be covered by ISDSs. The TPP is currently been ratified by all 12 countries and signed by President Obama. Congress gave him fast-track authority, so now congress can only vote yes or no. If you believe that there is more bad than good, you should contact your representative and tell them to vote no; however, voting about trade based solely off emotion can be devastating. The results of a no vote would be mean that the TPP has to be completely renegotiated. The TPP requires, if not every country's signature, then at least six countries' and their combined GDP must be 85% of the original 12. The US having greater than 15 percent of the GDP total has veto power and can force everyone back to the negotiating table making it different than Brexit or any other trade deal.
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