Our new study on the economic impact of the Trans-Pacific Partnership agreement (TPP) released today, adds important findings on the impact of TPP for both its members and for, those not a party to the agreement.

This trade pact was recently signed by the US and 11 other Pacific Rim economies (Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam), representing some 37% of the world Gross Domestic Product (GDP), 10% of world population and 20% of world trade.

The TPP will create a Pacific economic bloc that will address not only traditional global trade issues (i.e. duties and quotas), but also labor laws and technology. Nevertheless, it still falls short in regulatory cooperation, mutual recognition of standards, and joint setting of standards. Furthermore, it does not go very far in services or government procurement, and important carve-outs in agriculture are very likely.

This agreement brings together some of the richest and most developed countries in the world with rather poor ones. TPP members differ dramatically with respect to their degree of openness as measured by total trade (goods plus services) as a fraction of GDP. This heterogeneity highlights the difficulties in finding common ground, as well as the strong focus on development related aspects such as labor and environmental issues.

China did not take part in the TPP. However, it has pushed for another big trade policy initiative in Asia at the APEC (Asia-Pacific Economic Cooperation) summit, which brings the TPP countries, and other Pacific Rim countries including China together into a Free Trade Area of the Asia-Pacific (FTAAP). This agreement would cover both a higher world GDP share (56%) and a consumers’ share (40%).

Consequences for insiders

Merely eliminating tariffs would not yield sizeable effects, since tariffs are already low between the OECD countries, and between TPP members through existing agreements. On the other hand, a medium-depth agreement (reducing tariffs, addressing non-tariff barriers such as comparable to other existing agreements), could raise incomes for both TPP members and the world.

Consequences for outsiders

The FTAAP agreement, which in contrast to TPP includes China, would be much more beneficial for the world than TPP, as it could increase world income by almost 4%. All world regions would benefit; insiders more than outsiders, but many poor, resource rich economies (such as in Sub-Sahara Africa), with close ties to China, would also substantially benefit.

Overall, the TPP agreement has no measurable effect on Europe. In contrast, the FTAAP agreement would yield larger effects on European countries. The benefits would be larger if such an agreement would address non-tariff barriers (3%), outpacing those of the US, an insider. The main explanation is that Europe benefits much more than the US from an increase in global demand since it is more open. The UK, France, Germany and Spain would benefit the most.

This outlook depends, nevertheless on a given technological structure of comparative advantage. Such a change would pose a larger threat to China (-0.9%) than to the EU (-0.2%).

 Sectoral effects in Europe

Both TPP and FTAAP would lead to an important shift in the competitiveness of the old continent. Thus, market share losses across all sectors for the EU and German industries are expected.

The TPP poses a sizeable threat to the European and the German automotive industries, but the FATAAP represents a higher one. This negative impact would be driven by the stronger integration of business processes in Asia.

The FTAAP would also yield sizeable reductions in the relative global weight of the metals and leather industries in Europe, while TPP would have no impact. On the other hand, the chemicals industries in Germany would benefit from both agreements.

Read here our full studyWho Wins and Who Loses with TPP

For another look at TTP  see our video interview with Professor Joseph Stiglitz on TTP

Read the full text of the TPP agreement released by the US Government