US Departure From TPP Will Impact Pacific Credit Ratings

Donald Trump is expected to remove the US from the low-tariff Trans-Pacific Partnership in January 2017, and plans to pursue bilateral deals instead. The deal has already been signed, but is yet to be ratified.

The other signatories – Australia, New Zealand, Malaysia, Singapore, Vietnam, Brunei, Japan, Canada, Peru, Mexico and Chile – now face some difficult decisions. The principle behind the deal was that developing countries would agree to move towards international labour standards in return for improved access to all other markets in the deal, but mainly to the US. So a US departure would remove much of the rationale; and according to some estimates, bring an opportunity cost of $150bn – $300bn in new global trading and output.

Vietnam was expected to be the main winner. Peru, Chile, Mexico and Brunei have less at stake but are all facing challenges on other fronts. Mexico’s main concern is the risk to NAFTA, while Brunei’s economy remains very dependent on oil and is a heavy importer of many essentials. A diluted TPP will mean slower growth in shipping volumes passing through Singapore, and may cap commodity exports from Malaysia.

Japan , Australia, New Zealand, Canada will all be able to salvage something from the new, smaller, low-tariff zone but the main risk is that some of the more vulnerable Asian signatories are pushed closer to China, who see major opportunities in any US withdrawal. China are keen to promote overland trade routes; the remaining TPP participants in the Americas may find themselves in a much more peripheral position that they expected.

Image Source: YouTube / Donald Trump

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