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By Ahilya Mehta OpinionsFebruary 2, 2017

Transpacific Partnership symbolizes missed avenue for global trade

Photo courtesy of Wbur Boston

The 2016 presidential election was one to remember. Both candidates, with their controversial histories, held very strong policy approaches; not only were these policies strong, but they were also rarely ever the same. The Trans-Pacific Partnership (TPP) was one of the only policies where the two campaigns saw eye-to-eye — both candidates were opposed to the TPP. However, their opposition to the agreement is not reason enough to dismiss it. The TPP is what may be called a grey area in politics and economics. Although it may put the domestic economy at an initial disadvantage, long term benefits are remarkable. For this reason, both the leaders of the United States and the governments of the signatories decided to give the countries at least 15 years to adjust to the TPP, since they understood that instant gratification means little in politics. Indeed, the long term positives of the TPP greatly outweigh the negatives.

If the United States followed through with their involvement in the TPP, it would be the largest free-trade zone in history. This may have had an initial backlash, but former free trade agreements such as North Atlantic Free Trade Agreement (NAFTA) have illustrated the benefits of a free trade partnership. To be more specific, free trade has led to more exports, more investment and more jobs for the United States. The Trans-Pacific Partnership would be a much greater achievement for the U.S. government. The TPP involves 12 countries with an overall annual gross domestic product of nearly $28 trillion. That represents approximately 40 percent of the global Gross Domestic Product and around a third of international trade revenue. The 12 nations that negotiated the TPP were the U.S.A., Japan, Australia, Peru, Malaysia, Vietnam, New Zealand, Chile, Singapore, Canada, Mexico and Brunei Darussalam.

In a world so deeply connected, this level of free trade would tear down international trade barriers significantly. With 40 percent of the global economy trading freely, global exports should increase by $305 billion per year by 2025. U.S. exports would increase by $123.5 billion and the G.D.P. would increase by $47 billion. Moreover, the agreement would help to harmonize these nations’ actions through the growth in economic interdependency. Economic interdependency makes nations more dependent on each other and reduces the chances of hostile political, economic or military action amongst these nations. In fact, the Obama Administration pushed for the TPP’s success not only to increase their economic standing, but also to use it as a platform for economic rebalancing in Asia. The partnership would increase the United States’ influence in a predominantly China-centric economic region. The United States’ would also be able to take advantage of the TPP as a way to counterbalance China’s economic influence in Asia. Moreover, the growth in free trade and reduction in tariffs would lower prices and make the markets more competitive. It is for these reasons, among many others, that it took years to negotiate the TPP. It was considered a hallmark achievement for the Obama Administration during a time of political global unrest, as it would help the transition of the United States pivot towards the Pacific rim.

Nevertheless, every coin has two sides, and the TPP is no exception. While the TPP helps the United States G.D.P grow exponentially, it will cause an estimated loss of 448,000 jobs through 2025, and only creates an estimated 128,000 jobs by 2032. This is because a lot of companies move their jobs overseas to countries like Malaysia or Vietnam with much lower minimum wage requirements. In a country with 4.7 percent unemployment rate, not accounting for the number of men and women who have dropped out of the labour force, this large fall in the number of jobs will have a dramatic effect. However, putting restrictions on labor mobility is something the nations negotiating the TPP could consider. Free trade within a goods market may be good for the U.S. economy, which is predominantly a service market, because the TPP will create jobs within the agricultural and manufacturing industries. Nevertheless, the TPP would force U.S. wages to compete with international wages. If federal wages are reduced, not only would the unemployment rate increase but there would also be a fall in the standard of living. The reduction jobs and wages would  amplify the United States’ $500 billion trade deficit. Ordinarily, a large trade deficit would make a country’s goods more competitive internationally, however, China and other countries’ central banks have been bulk buying dollar-based assets. These assets causes central banks to maintain, if not increase, the large U.S. trade deficit. This definitely complicates matters for the U.S. government, but by removing 18,000 tariffs placed on U.S. exports to the signatory countries and by adding $223 billion a year to incomes of workers in all the countries, with $77 billion of that going to U.S. workers, this is a partnership that needs reconsideration.

In a world so connected, it will be impossible for America to have a more isolationist approach without suffering consequences. It is possible that for this reason,  President Trump is offering to have negotiations with individual country leaders about free trade, going over NAFTA trade policies, and trying to find a middle ground for America. The U.S.A. is just as dependent on the international community to maintain the welfare of its economy as those countries are dependent on the U.S.A. Isolationism will solve nothing, other than take America several steps backwards.

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