After years of negotiation, the Trans-Pacific Partnership (TPP) deal was finally reached on Monday. This means that a new trade bloc has been created with reduced trade barriers among the 12 countries that signed. Since these countries together are responsible for 40% of the world’s GDP and 26% of total trade, the impacts of TPP are far-reaching and significant to the world economy, as well as to the U.S. economy.
Surprisingly, China, the world’s largest economy, is excluded from this deal. Economists indicate that the TPP is meant to balance China’s trade dominance in East Asia. It gives the United States an opportunity to get more involved in the Asian market, which is considered the region that has the most potential for economic growth in the coming decades. As the world’s largest consumer, the United States has had large trade deficits with most Asian countries for a long time. The country is now trying to use the TPP to boost its exports. Analysts predict that U.S. exports will increase by $123.5 billion by 2025 as a result of the deal. Since 98% of all U.S. exporters are small and medium-sized enterprises (SMEs) and they represent 40% of U.S. goods exports, SMEs will benefit the most in this deal because it will significantly reduce their export costs.
People are also afraid that the positive effects will be offset by the negative effects on jobs and wages. Because the agreement will greatly reduce the trade barrier between the U.S. and the Pacific-Rim countries and because U.S. companies are always looking to outsource more jobs to countries with lower labor costs, the deal will push more jobs out of the U.S. and squeeze wages. In addition, the TPP will widen the income gap in the U.S. This is because the agreement focuses on protecting copyrights and patents and those with the highest wages are the ones that will receive the most protection from the agreement terms. Those earning low wages will likely have to accept even lower wages to remain employed. A research paper calculated that expanded trade overall has lowered wages for a non-college-educated worker by about $1,800 annually.
The impacts of the TPP on the U.S. are significant. It opens the door for increased trade with Asian countries, but it also threatens domestic jobs and wages. However, we cannot deny the fact that the TPP will facilitate international trade and help to further integrate the global economy.