What happens when economic giants and middle-sized countries shake hands over multinational trade partnerships? Lots of smiles for the cameras and announcements about ‘historical collaboration’.
More importantly, the recently signed Trans Pacific Partnership (TPP) and the establishment of an ASEAN Economic Community (AEC) could reshape trade worldwide and supply chains in the Asia pacific region. Or this, at least, is what the architects of these agreements would have you think.
The Trans-Pacific Partnership is a mega trade agreement. Negotiated and initialed in early October, it encompasses 12 countries with a combined GDP of USD28tn: The United States, Australia, Canada, Japan, Brunei, Malaysia, Chile, Mexico, New Zealand, Peru, Singapore, and Vietnam.
It could bring together more than 800 million consumers and affect the lives and livelihoods of workers almost everywhere. And most of all, it has a very ambitious – and contentious – goal: extensive trade liberalization across the Pacific Rim.
The stakes are high. So is the pressure.
Who stands to gain? Japan, New Zealand, and Vietnam would benefit the most: consumers from cheaper goods, exporters from lower trade barriers in new markets. The Knowing (American R&D e.g.), The Doing (Vietnamese manufacturing) and The Having (Canadian natural resources) countries will complement one another. Chemical, Machinery and Equipment, and Electronics supply chains will benefit the most; peer pressures will help improve business practices regionally.
If ratified by all TPP members, the new trade framework can boost regional GDP by +USD38bn over the first two years of implementation.
But there are risks to the TPP’s adoption. These stem from perceived currency manipulation, possible negative impacts on key national industries (Agrifood and Automotive) and social discontent, mostly in the United States.
The TPP's success will also be conditioned on outsiders’ trade policy response.
As for the possible losers, the EU and China come to mind. The latter is busy developing a very ambitious international trade development, dubbed ‘one belt, one road’, a so-called 21st century Silk Road.
So it’s not all smiles when it comes to the TPP.
As for the ASEAN Economic Community (AEC), it is mostly seen as an opportunity to strengthen the ASEAN block. Singapore, Thailand, and Malaysia stand to gain the most, already acting as springboards to international value chains.
Companies affiliated with the AEC will benefit from peer-pressure and synergies. Access to new markets and trade opportunities (+USD3.8bn in 2015 and +USD9.9bn in 2016 overall), lower transaction costs (up to +USD7bn in savings on export), and fresh financing from investors (+USD8bn per year) are all clear advantages.
An interesting (and favorable) reshuffling of regional value chains is yet to come, including those including China. Electronics, chemical, automotive and agri-food will benefit the most while machinery and equipment, textile and energy may lag behind.
So again, losers and winners, smiles and frowns and many trillions of dollars are at stake.