What are the impacts of Trump withdrawing the US from the TPP?

 Overnight president-elect Donald Trump reiterated that he will withdraw the U.S. from the Trans-Pacific Partnership (TPP) agreement.

The agreement is effectively dead in the water as in order to come into effect it must be ratified by at least 6 of the 12 signatories accounting for 85% of the total GDP of the group. Without both the US & Japan the agreement will not be ratified.

This is a blow to what would have been a step forward in terms of opening up trade, promoting growth and improving both labour & environmental protection between countries that account for 37% of the world GDP and 11% of its population.

So what happens now?

Well, there are there possible outcomes:

  1. The first is that nothing happens, the U.S. does not ratify the agreement and it fails to come into effect;
  2. The second option is the agreement could be renegotiated removing to U.S. & including other countries such as China & Indonesia. While this is possible it would take a long time to have to renegotiate the agreement which took around 7 years of negotiation;
  3. The more likely outcome is that countries will look to join China’s own regional agreement, the Regional Comprehensive Economic Partnership (RCEP). This agreement already includes seven nations from the TPP including Australia.

The RCEP agreement comprises of 16 countries currently accounting for around 40% of global trade. Members from the TPP who were not originally included such as Canada & Mexico are able to join.

The agreement is mainly focused on reducing tariffs but does not have the same focus on labour and environmental protection as the TPP. 

So how will this effect Australia?

The TPP was estimated to have increased Australia’s exports by around 5% so there would have certainly been a benefit. Its rules would have also forced other countries to play by the rules when it comes to labour, intellectual property and the environment.

However Australia already has free trade agreements in place with key trading partners such as the U.S., China, Japan, Korea and beginning negotiations with the EU.

So the effects of the agreement being ratified should not have any significant impact on Australia.

The impact will be greater felt on countries such as Vietnam, Singapore and Malaysia who had the most to gain from the agreement.

As a result of the more protectionist stance by the U.S. under Donald Trump over the coming years we are likely to see a shift away from the U.S. with China playing a more dominant role in terms of leadership & trade in the Asian region.

comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.