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Donald Trump Has Pulled the US Out of TPP. What Does This Mean?

Donald Trump Has Pulled the US Out of TPP. What Does This Mean?

2017-01-24 02:18:00
David Cottle, Analyst

Talking Points:

  • US President Trump has pulled the US out of the TPP accord, as promised
  • The pact's membership would have accounted for 40% of the global economy
  • Future of TPP ex-US unknown but China may now take the lead in the region

What is the Trans Pacific Partnership?

The TPP is a trade agreement among twelve Pacific Rim countries, but does not include China. It was signed in February 2016 in New Zealand after seven year of talks.

It is the most significant free trade deal the US has signed since the North American Free Trade Agreement (NAFTA) was signed back in 1994.

Its aim was to “promote economic growth, support the creation and retention of jobs, enhance innovation, productivity and competitiveness, raise living standards, reduce poverty in the signatories’ countries and promote transparency, good governance and enhanced labor and environmental protections.”

Those signatories are: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Vietnam, Singapore andof course the United States. Together they account for about 40% of the global economy.

The TPP was one of the Obama administration’s economic goals. It was also a way to bolster US influence in the Pacific region and to increase its say in global trade, labor and intellectual property rules.

The TPP reduces thousands of tariffs and aims to maintain “high standards” on labor, environmental standards and intellectual property norms.

Although the full text of the 1500-page agreement has not been released, leaked excerpts reveal intellectual property rights extensively protect pharmaceutical patents, release information on copyright infringers, and set up environmental standards without enforcement mechanisms.

Why isn’t China included?

Beijing’s true feelings about the TPP have been difficult to divine for many years. It was invited to join the TPP back in 2012, by then Secretary of State Hilary Clinton.

Why does Donald Trump want to take the US out of it?

The President’s position is that the TPP favors big business rather than employment in the US and threatens more of the blue-collar workers who formed much of his electoral base.

He has called it “a potential disaster for our country” and indicated his intent to take the US out of the agreement on the first day of his presidency, a threat he has now made good on. Judging from his comments, Trump will instead seek to rely on bilateral trade deals.

What happens to the pact if the US withdraws?

At this point nobody really knows, but the TPP is weakened beyond recognition by the withdrawal of its largest member. Those who may have joined it at least in part to increase US influence in the region at the expense of China’s may feel that without the US the whole thing is pointless.

Japanese Prime Minister Shinzo Abe has reportedly said that that the TPP without the United States would be “meaningless.”

Where will financial markets go in the first quarter? See our forecasts and find out!

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.