Withdrawal of Trans-Pacific Partnership Trade Deal by the US - Implications & Significance

Soon after assuming office, the President of the United States, Mr. Donald Trump signed an order to withdraw from the Trans-Pacific Partnership Trade Deal which was inherited by him from his predecessor, Mr. Obama. He signed this executive order which involved the withdrawal from the negotiation process of the TPP trade deal.

This order sent strong signals to the global world leaders about Trump's views on trade which were also evident during the campaign. Trump had vowed to withdraw US from the TPP trade deal as soon as he would come into power, as they believed it to be harmful to American workers and the manufacturing sector. We need to understand what the TPP trade deal or Trans Pacific Partnership Agreement (TPPA) is, why is it important, and what will be the implications of this withdrawal order.

What is the Trans-Pacific Partnership Trade Deal?

The TPP was a pact signed on February 2016 by 12 countries bordering the Pacific Ocean and represented almost 40% of the world's economic output. The main aim of the pact was to strengthen the ties between these countries, reduce the tariffs, and boost growth by fostering trade. It was also hoped that the countries will build a good relationship with each other on economic policies and regulations.

The Trans-Pacific Trade Partnership deal was formed and negotiated under former US President Barack Obama but was never ratified by the Congress. The withdrawal of TPP trade agreement will not immediately affect the US economic policy, but it surely indicates the changed outlook of the US on trade under Trump's leadership.

How Important is the TPP Trade Deal?

The TPP trade deal initially involved the 12 countries which border the Pacific Ocean. These include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States (Withdrawn). These countries have a collective population of about 800 million, which is almost double of the entire European Union's single market. These nations already are responsible for about 40% of world trade.

Given there are different approaches and a standard among the member countries, this deal was considered to be a great achievement for the trading industry. These standards would encompass factors such as workers' rights, regulatory coherence, environmental protection, etc. With the United States pulling out of this deal under Trump's leadership can prove to be a big low to the other countries participating in this deal.

Top 5 Implications of the TPP Withdrawal

The TPPA deal was negotiated by Barack Obama, and had faced stiff opposition from many sides of the parties. This deal withdrawal may bring a big impact on the businesses and workers in the United States and affect the global trade on a large-scale. We have listed some of the below top implications of US President Trump's decision -

1. Huge Gains for China in Sight

   With the United States, out of the picture of the free Pacific trade, China has a huge opportunity to fill this void. China could create an Asian free trade pact which would allow them to trade with different countries which Obama hoped that the US would. This will help China to strengthen their hold as an economic power in the region.

2. Trade War on the Cards

   The TPP deal withdrawal by the United States could possibly strike off a trade war between the US and China. If both the countries start boycotting each other's products, it can have some serious impact on both the economies on a large scale. Further, countries in Europe and Asia could also experience some of the ripple effects of this trade war.

3. Mexico to Reduce its Dependence on the US

   The Trump administration has already shown strained and sour relations with Mexico with respect to his immigration policies. Some of the experts have predicted that this can help Mexico reduce their dependence on the United States for trade. Mexico has the option to tie up with other countries and rely less on the United States.

4. A Formidable Opportunity for Other TPP Countries

   Without the United States in the Trans-Pacific Trade Deal, the deal is probably dead. But there is a slight chance that the other countries in this deal could sign a different deal among themselves without involving the United States. That could change the trade relations among these countries drastically.

5. Change in US Relations with Other Trading Partners

   Trade-dependent countries such as Peru may feel the impact of this withdrawal. Countries such as these may look more towards China as the new primary trade partner. The United States has benefitted a lot from trading with these countries and can have a negative impact on them in the future.

What Will Happen to the TPP Trade Deal without the United States?

For the Trans-Pacific trade agreement to take effect, at least 6 countries, which account for about 85% of the group's economic output, need to ratify the pact by February 2018. The United States need to be on board to meet the final condition of the pact.

Some of the countries in the pact have also suggested that a similar pact can be signed without the involvement of the United States. But also, some of the countries, including the Prime Minister of Japan have indicated that the deal without involving the United States and their 250 million customers can be meaningless.

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