Yes, Trump’s withdrawal from TPP will hit Canada
More than two weeks have passed since Donald Trump’s victory over Hillary Clinton for the race to Presidency in the United States. The outcry to the election was a fury of media and social mobility to oppose the new president-elect, but as Obama’s term comes to a close, it will only be inevitable: Donald Trump will be the 45th President of the United States of America. Whether you like it or not and regardless of what political spectrum you associate with, Trump has won. But it is not in my plan to tell you why this is, what could have been done differently, or where I sit on the election. My plan is to look at the implications in Mr. Trump’s first presidential ‘address’ since his win, and what this might mean for Canadian markets. In lieu of the Trump narrative, the social media tycoon had released his first presidential statement via way of a YouTube video (typically, President-Elects do this by way of interview hosted by a credible news agency). To be fair, Trump was interviewed on 60 minutes, but the answers provided were rather vague in their implications so we will move past that. Trump posted a YouTube video to announce his list of priorities that he will focus on when he assumes office on January 20th, 2016. (That’s less than 2 months away.)
Now, there is no shortage of media sources and reports with professional statements, analysis and opinions on the future under Trump; and many outsiders (who aren’t American) would rather move past the rhetoric of “Donald Trump and that painful election”. However, Trump’s decisions as president will not exist in a tight-knit, fantasy realm exclusive from the rest of the political and social world. Essentially, government decisions — any government decision — do not exist in a vacuum. Trump has released a statement outlining his priorities, and the reality will sink in if it hasn’t already. Moreover, in his video Trump made it clear that when he assumes office one of his priorities will be withdrawing from the Trans Pacific Partnership trade agreement.
TPP as the ‘it’ deal
The Trans-Pacific Partnership has been an ongoing, multinational trade agreement. Negotiations were concluded on October 4, 2015. The 12 Trans-Pacific Partnership (TPP) countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The major player in the deal is the United States, but after the October 4th negotiations China expressed interest in joining the trade deal.
In summary, the TPP focused on regional integration of markets, developing economies in the Pacific region, and in reducing tariff trade barriers among other things. (A comprehensive outline of TPP’s goals and priorities can be found on the U.S. Office of Trade’s website: here). TPP’s appeal to signing-on countries was to establish rules and regulations on labor, environment, and intellectual property that would have resulted in tariff reduction. Essentially, trade would have been easier to engage in as the rules were more clearly defined between these countries. The Pacific region has recently emerged as a young and capable labor market with many locals eager to engage in global trade under economic premises. In 2015, TPP had approximately 1,500 pages, covering all areas of policy including labor, environment, and IP categories to name a few.
China’s subsequent interest was a game changer. For countries like Malaysia and Chile whose markets are only just emerging, receiving easier access into China and the U.S. is a mutually beneficial deal, and the potential economic integration with the US and Canada had many excited for progressive market changes.
Losing the TPP: What Canadians need to know
Now that Trump has publically announced his plans to drop out of the TPP, China’s interest in joining is now (potentially) void. Japan has stated plans to maintain its part in the TPP, but China has yet to officially release a statement. Losing out on the two largest economic markets (China and the US) will likely make TPP significantly less important, as a result, the future ‘impact’ of TPP may suffer. When we talk of a trade deal having ‘impact’, we are referring to the trade deal’s potential to succeed in reaching outlined goals in the long run.
As the TPP has not yet been implemented, the loss felt by Canadian’s won’t be all that substantial from our current market trends. The TPP would have allowed prices on certain goods to drop for Canadians, as tariffs would have been reduced thus making some products cheaper in import. A sector that Canada was heavily relying on the TPP to reduce prices in would have been the automobile industry. Canada has no domestic producer for automobiles, and the TPP would have resulted in an almost completely eliminated tariff Canadians would be paying on Japanese cars, for example. (When you pay a tariff on goods, it is usually added onto the final cost of the product. Think of it like an inter-governmental ‘tax’.) The loss of US does not necessarily mean the extra prices on Japanese cars won’t go down if the deal continues, but it does make the impact a lot smaller.
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Trump’s backing out of the TPP has concerns for consumers. Despite Japan’s commitment to remain in the TPP, the Prime Minister has also stated that the deal ‘would be meaningless without the United States’, as reported by The Guardian. This hints at a larger narrative of Trump’s inability to commit to a course of action. Simply examine his withdraw of prosecuting Hillary Clinton and his backing down to build ‘the wall’ in his 60 minutes address to see Trump’s political rhetoric. Instability and an unwillingness to commit to a course of action are cause for concern between countries, as Canada, Japan and the other TPP members are now left with a ‘what do we do now’ following the US’s backing out. Some see the backing out as the United States being unwilling to cooperate in a globalizing world. Focusing inward instead of outward will not bode well in international relations where the market has become dependent on imports and exports between countries.
For Canada, losing TPP has a major problem, it will lose its only trade agreement with the worlds’ third largest economy: Japan. As mentioned above, TPP would have made Japanese products cheaper for Canadian consumers. This is important in sectors that Canada cannot supply itself; with the example of automobiles. Japan has expressed its commitment to ratify TPP, but now that the US will be leaving, it is highly unlikely that the deal will move forward. For the United States, this will not have the same impact. The US already has a strong sector for automobile production, so access to the Japanese manufacturers is not intrinsically a loss.
It is safe to conclude that should the TPP be scrapped come January, it was Trump’s backing out that rolled the dice for the TPP’s doom. In true to the Trump slogan: he is making America great again, by giving Americans more jobs, and by building up the American economy. Canada sold separately.
