President Trump often says our trade partners treat us unfairly. Yet one of his first acts as president was to withdraw from a trade pact agreement designed to give favored treatment to its signatories. On Dec. 30, 2018, that pact, the Comprehensive and Progressive Trans-Pacific Partnership (known as TPP), went into effect without the United States.
The TPP is a free trade agreement negotiated by the Obama administration that would have allowed the United States to participate in a free-trade zone with several countries, including Canada, Japan, Mexico, and several others. TPP had critics on both sides of the aisle, but it offered an extended free-trade zone and was part of an Obama administration effort to counter Chinese economic influence.
As it stands, the TPP features 11 countries that make up nearly 13.5 percent of the global GDP. That figure would have been 38 percent with the inclusion of the United States. The Wall Street Journal editorial board recently described the U.S. withdrawal from the TPP as the greatest “own goal” in recent economic history.
American manufacturers, exporters, and farmers all stood to gain from access to the TPP trade zone. With America on the outside looking in, US producers will be missing out on those opportunities. The Peterson Institute for International Economics has estimated that: “U.S. real income under the original TPP would have increased by $131 billion annually, or 0.5 percent of GDP.”
Other countries, like Canada, are actively taking advantage of this opportunity. Jim Carr, Canada’s Minister of International Trade Diversification, is busily promoting the concept of “diversification” of Canadian trade away from reliance on trade with the United States. For instance, Carr has recently been in Japan (a party to the TPP) promoting Canadian goods and services, and specifically Canadian beef.
Pulling out of TPP has put U.S. producers at a competitive disadvantage compared to Canada and other parties to the trade pact. Sales that could be made by American companies may instead be made by companies from TPP signatory countries.
The United States recently spent several months renegotiating the North American Free Trade Agreement with Canada and Mexico before coming to terms on the new United States-Mexico-Canada Agreement, or USMCA. Despite the president calling NAFTA the worst trade deal ever made, and the president’s hasty withdrawal from TPP, the USMCA is largely a repackaged NAFTA with two thirds of the new provisions originating from the TPP.
The Trump administration has made some passing indications that it would reconsider rejoining TPP. It is not clear how serious the administration is, but it should do so. Until it does, American producers will unnecessarily be missing out open access to significant markets.
Doug McCullough is director of the Lone Star Policy Institute.
