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Obama Administration Outlines Risks of Not Passing TPP

The Obama administration outlined in a brief published just ahead of the presidential and congressional elections the risks for U.S. consumers, workers and businesses of not passing the Trans-Pacific Partnership. Following the astounding victory of Republican candidate Donald Trump over his Democratic opponent Hillary Clinton in the 8 November content, Republican leaders and administration officials have both acknowledged that TPP will not be considered by Congress in an eventual lame-duck session.

The brief prepared by the Council of Economic Advisers warns that if TPP is not implemented the United States would forgo substantial economic gains, face trade diversion, and enjoy less market access compared to mainland China and other economies, especially if the Regional Comprehensive Economic Partnership that would cover all ten ASEAN nations as well as Australia, mainland China, India, Japan, South Korea and New Zealand is successfully negotiated and implemented. The brief states that TPP would provide a broad range of opportunities for U.S. consumers, workers and businesses, lifting growth rates over time and contributing to rising living standards. Various economic studies have also shown that the majority of gains from TPP would accrue to workers, as increasing productivity and demand for labour would both contribute to wage increases relative to a world without TPP.

The brief focuses specifically on the impact to the United States if RCEP is implemented and TPP is not. Conservative estimates by the Council of Economic Advisers indicate that there are 35 goods-producing industries in the United States directly at risk of increased competitive pressure from mainland China and Japan if RCEP goes into effect. These industries employ nearly five million workers, maintain 162,000 business establishments in the United States and account for just under ten percent of total U.S. goods exports to Japan. Other potential outcomes outlined in the brief include the following.

  • Mainland China would likely see substantial tariff cuts when selling to Japan, with typical reductions of over five percentage points where tariffs are cut and many tariffs cut by more than ten percentage points. The average tariff on goods covered by RCEP would likely be less than half the average rate faced by the same goods if exported from the United States.
  • Thirty-five industries in the United States that sell a combined US$5.3 billion in goods exports to Japan a year would see an erosion of their market access to Japan relative to mainland Chinese firms due to tariff cuts under RCEP. U.S. sectors facing significant risks include, among others, other miscellaneous manufacturing; fruit and vegetable preserving and specialty food manufacturing; fishing; fruit and tree nut farming; resin, synthetic rubber and artificial synthetic fibres; other food manufacturing; and other leather and allied product manufacturing.
  • Seventy-eight U.S. industries that each export over US$1 billion a year in goods to TPP partners and employ nearly 12 million workers in 360,000 business establishments nationwide would fail to see improved market access if TPP is not passed. Further, the rules of the road in Asia formed in the absence of TPP could substantially disadvantage U.S. firms and workers in these industries.
  • The lost opportunities to increase growth and productivity in the U.S. economy are substantial if TPP is not passed. This would also prevent the United States from helping to shape trade in Asia to adhere to high standards and U.S. values.

The brief emphasises that these potential outcomes are just an illustration of some of the many consequences of not passing TPP. According to the Council of Economic Advisers, the implications of RCEP itself would encompass more countries and the United States would be left out of other potential bi-lateral and pluri-lateral trade agreements, leading to further trade diversion. Indeed, countries have already made clear that they will move forward in negotiating their own trade agreements that exclude the United States if TPP does not enter into force. In addition, provisions in TPP to level the playing field, including in the areas of labour, the environment and state-owned enterprises, would not go into effect, nor would the joint declaration by TPP countries to address currency manipulation and competitive devaluation. More broadly, RCEP could become the dominant trade agreement in Asia and set the rules of the road for trade in the region for the foreseeable future.

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