The TPP: Where will growth come from?

Florence Chong's picture

THE TPP is a geopolitical play more-so than a trade deal. It is Washington telling Beijing it still has influence in Asia . . .


COMMENTATORS have gushed that the Trans Pacific Partnership agreement will be transformational, and that it will secure Australia’s future post-mining boom.
Of course, the conclusion of any trade agreement that allows for freer access of goods and services is a good thing, and should be applauded.
But perhaps one should look at the TPP in its proper perspective.
First and foremost, it should be said that growth in trade is predicated on economic growth and consumption.  
In this low growth global environment, where confidence is missing and people are not consuming as much as in previous decades, a trade agreement is not likely to miraculously generate global demand and therefore create more trade.
It is precisely because of lack of demand that world trade growth remains sluggish.  Growth in global trade is now at a level not seen since World War 2.
Then, take a look at the economies which make up the TPP.  First of all is the US, which makes up 64 per cent of the TPP’s total economy. Growth is not as robust as hoped for. While employment is picking up, US consumers are still cautiously guarded in their spending.
American retail sales edged up 0.2 percent in August 2015 — that is lower than the 0.36 per cent monthly growth averaged between 1992 and 2015.  The sluggishness shows that the benefits of lower gasoline costs for American households have not yet translated into a retail boost, as expected.
Japan, which represents 16 per cent of the TPP economies, is struggling to kick-start consumption. Abenomics is floundering and has not managed to engender the growth that the Government had hoped for Consequently, Japanese shoppers have kept their wallets shut. An obvious reason for elusive consumption growth in Japan is the ageing of the population. Elderly people do not spend the same way as a young person in the family-formation stage of life.
The next group of TPP economies include Australia, Canada and Mexico, with a collective economy still smaller than that of Japan (US$4,524 billion against US$4,602 billion).
Both Canada and Australia face the gloomy prospect of declining commodity prices and weak global demand for their resources. How much they are going to contribute to global trade or trade within TPP is, at the moment, open to conjecture.
The remaining seven economies, which account in total for just US$1,487.4 billion (smaller than the Australian economy) and six per cent of the TPP economy, are unlikely to have a dramatic impact on trade within TPP countries. The smallest of the economies in the group is Brunei, with a GDP of just US$17.3 billion.  It will be interesting, then, to see how Brunei can contribute to wealth creation of other TPP countries, including Australia.
The TPP is a geopolitical play more-so than a trade deal. It is Washington telling Beijing that it still has influence in Asia.
While the negotiations have been concluded, the next 90 days will still be critical, as President Obama must shepherd the TPP through Congress.
Presidential hopeful Donald Trump has virtually dismissed the TPP as “a terrible mistake”, while Hillary Clinton, who, as Secretary of State, supported it, now, as a Presidential aspirant, is hedging her bets.
Clinton has reserved backing the deal until she has seen the final text. Other Presidential candidates are equally unconvinced that it is a good deal for American workers.
The US trade specialist law firm, King & Spalding, notes in a client alert that Congressional reaction to the conclusion of the deal  has been met with a mix of optimism, concern and caution.
Similarly, the TPP is a focal point for Canadian political leaders as they jockey for victory in the country’s general election in October. Tom Mulcair, who heads the New Democratic Party, has vowed to walk away from the TPP if his party wins.
The ambition of the US Trade Representative when the TPP was initiated was to set what was termed a “gold standard” for trade deals, appropriate for the 21st century, covering labour and environmental standards.
When it comes into being, the TPP will, for the first time, make such commitments enforceable and potentially subject to trade sanctions if they are not met.
Admirable sentiments, but they won’t be easy to enforce in Malaysia, for example, which relies on a large illegal migrant population for cheap labour, and in Vietnam, where unionised labour is restricted.
Consider, too, that the ASEAN countries are also in bed with China through its Regional Closer Economic Partnership (RCEP), which makes no pretence to wanting to uphold labour or environmental standards.Trade is a wonderful world of contradictions — Florence Chong.