Impact of TPP on Global Supply Chains
The TPP—otherwise known as the Trans-Pacific Partnership—is a free-trade agreement that is held between the US and eleven other countries that all touch the Pacific Ocean (hence the name). This agreement is fairly new in its creation, having just been signed by officials in each country in February of 2016 and includes the following countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Vietnam, Singapore and the US (The US has since been removed from TPP via executive order).
The TPP is the world’s largest trade partnership, even bigger than the North American Free Trade Agreement (NAFTA). The twelve countries involved in the TPP make up 40 percent of the world’s total gross domestic product (GDP) equivalent to $107.5 trillion, 26 percent of the global trade, and contain 793 million consumers. It’s no surprise that the TPP is going to have a huge impact on global supply chains. Understanding the impact of the US involvement can mean serious change for your global supply chain. Below are some of the pros and cons of the US’s position in the TPP and how the President’s decision will affect your operations.
US involvement in TPP:
There’s no doubt that the TPP helps to boost exports and economic growth in the now global economy. If the US is to stay involved within the TPP, the results could mean more jobs and wealth for both the US and the other eleven countries involved. US commercial exports are calculated to increase by approximately $123.5 billion, mainly in the machinery, auto, plastic and agriculture industries. The TPP would also remove the 18,000 export taxes placed on US goods to other countries, ultimately adding approximately $77 billion a year into the incomes of US workers.
The potential faults in the TPP agreement means that the US opens its doors to tax-free imports from foreign nations. In many cases and industries (i.e. retail) this could mean production moving overseas to cut costs. This could mean seriously adverse effects for various job markets in the US. This would also entail the prevention of wage increases in blue collar jobs. Free trade agreements often contribute to income inequality meaning improvement in business bottom lines, but also the stalling of wages and salaries for workers. TPP encourages the procurement of cheaper goods from low-wage countries and therefore it becomes very possible to create job-loss.
Whether it’s a good decision or a poor one, the fate of the US in the TPP has yet to be seen.
InsideTheBox is a US based industrial product development company offering logistics consulting services. As we are a company built by manufacturers serving manufacturers, naturally we are monitoring how the US’s involvement with the TPP will affect our industrial manufacturing industry and its workers.