The TPP has lots to love – and hate
On the campaign trail, it’s toxic.
Delegates at both conventions chanted against it, and speakers smeared it as a recipe for eliminating American jobs.
One candidate for president and two vice presidential candidates who once openly supported it have flipped and now stand in opposition.
It’s the Trans-Pacific Partnership, or TPP -- a sprawling regional trade deal that would be the largest of its kind ever if supporters, including President Obama and congressional Republicans, can pass it amid a tide of skepticism over international trade.
Obama in September plans to mount a final push toward approval of TPP, which would align the U.S. and 11 nations in the Asia-Pacific region including Japan, Australia, Vietnam, Canada and Mexico under an agreement that would eliminate thousands of tariffs and streamline regulations. The stakes are enormous: The countries involved in the deal collectively conduct 40 percent of global trade.
Supporters contend the TPP would boost U.S. farming and manufacturing interests by opening new markets while serving as a check on the trade ambitions of China. But critics decry the secrecy surrounding negotiations and argue that the deal could eliminate U.S. jobs and hurt industries including pharmaceuticals because of inadequate patent protections.
A required vote in Congress to ratify the TPP would take place after the election.
GDP gains for the U.S. likely would be minimal from the deal, around 0.13 percent by one estimate, since the U.S. economy is so large, wrote Samuel Rines, senior economist and portfolio strategist for Avalon Advisors, in a research note.
“But realizing an immediate economic benefit is not the American goal,” Rines wrote. “It’s more about engaging with emerging Asia and being present while the rules of trade are set. The U.S. and Japan could also act as an economic counterbalance to China in the region -- helping the smaller, less-developed countries compete for export growth.”
A prevailing concern among critics is the deal is chock full of murky details, making it difficult to predict winners and losers, said Usha C.V. Haley, a professor of management at West Virginia University College of Business & Economics and an expert on international trade.
“So many people have put out estimates -- everything from puppies and unicorns, to sober assessments, to dire assessments,” said Haley, the author of three books on trade in the Asia-Pacific region. “It’s not crystal clear to anyone.”
She sees the TPP as potentially a big win for the tech sector, including the likes of Google (GOOG) and Uber, which would be able to expand into new markets while protecting proprietary code by using servers back home. It would also be a boon for U.S. agriculture and the processed-food industry, providing tariff-free access to lucrative markets including Japan and Korea, where demand is high for U.S. products from beef to soda.
Haley noted the most pushback on the TPP is coming from some manufacturing interests, and she tends to agree they have cause for concern. Of particular worry: rule-of-origin regulations requiring a certain percentage of a product’s materials come from partner nations are lower in the TPP than NAFTA.
That could amount to “an open door” for China to gain access to the U.S. market via trading relationships with other countries that are participants in the TPP deal. Manufacturers of steel, glass, paper and auto parts could suffer, said Haley, who noted it took less than a decade for China to seize production of 90 percent of the world’s solar panels.
TPP supporter John Boyd, a principal in site-selection and legislative advisory firm The Boyd Co., acknowledges the secretive way the deal came together among “bureaucrats and big business” makes it a hard sell to citizens of all political stripes.
It’s so toxic that Hillary Clinton, who previously offered support for the deal, has backtracked. As have vice presidential contenders and former TPP supporters Mike Pence and Tim Kaine.
That’s unfortunate, Boyd argued, because few elected officials are making the case for an agreement that could have a wide-ranging, positive effect on the U.S. economy -- and consumer pocketbooks.
“American consumers will be big winners here as lower import tariffs mean lower prices for all of us on the goods and services we buy,” said Boyd, whose clients have included PepsiCo (PEP), Visa International (V) and Pratt & Whitney. “Lower prices means American incomes can go farther, rising the standard of living.”
If the TPP falters, it could have “catastrophic results” for the food-and-beverage industry as it’s opening new facilities in Canada, which has free-trade deals with twice as many nations as the U.S. that give it a lower cost of raw materials such as sugar.
On the other hand, the TPP would give U.S.-based firms access to new markets. He noted that 60 percent of the world’s millennials live in Asia and have “an insatiable appetite for U.S.-branded food and beverage products.”
Another beneficiary would be finished-product manufacturers such as Boeing (BA), which could sell more planes to fast-growing Asian economies. It’s worth noting that the National Association of Manufacturers has endorsed the TPP, saying it “will open markets and put manufacturers in a much stronger position to compete in an important and growing region of the world.”
But if the TPP succeeds, the gradual departure of U.S. manufacturing jobs to lower-cost countries could accelerate, with many of the gains going to Vietnam, Boyd predicts. Either way, he said, U.S. manufacturing investments will continue to bleed to low-cost, offshore locations -- and a protectionist attitude won’t help.
His prescription for that problem? “Cut taxes, ease up on regulations, allow offshore profits to come back here with no tax penalties, invest more in workforce training and improve our nation’s crumbling infrastructure.”