Trump Cuts Ties with TPP: US President Donald Trump signed the Executive Order withdrawing the US from the Trans-Pacific Partnership (TPP) in the Oval Office of the White House on Jan. 23, 2017. Thus, US is now pulled out of TPP.

On Jan. 23, 2017 US President Donald Trump formally withdrew the US from the Trans-Pacific Partnership (TPP); a trade agreement between 12 Pacific Rim countries.

Some members, like Australia and Singapore, are trying to push for a TPP ratification despite the US withdrawal.

The future of this trade agreement however is now in limbo at best, given that the US alone accounts for more than 60% of the signatories’ total GDP.

The US decision to pull out could foretell profound economic and strategic implications for certain Asia Pacific economies and industries.

Australia and New Zealand: Mainly food producers and exporters and service providers would have benefited from increased market access to TPP markets.

Malaysia: TPP envisaged improved access for palm oil exports to the US and other TPP markets due to decreased import tariffs. This would have provided Malaysian businesses with a competitive edge against Indonesian palm exporters.

At the same time the Malaysian manufacturing and textile sectors expected significant increases in exports as a result of the access to a large duty free market, while more foreign companies would have increased investment in Malaysia to set up branches for regional operations.

Japan: Auto manufacturers are facing a setback in respect to improvement in long-term growth opportunities. Under the TPP agreement they would have gained better access to the US market, including manufacturing US-bound cars with more parts provided by (cheaper) Asian sources.

Singapore: As the city state is largely export-oriented, many businesses exporting to the large US market would have benefited from the removal of duties on more types of goods than previous trade agreements provided for.

Port facilities, shipping and trade financing are sectors that would have widely benefited from rising intra-TPP trade flows. TPP would have enabled Singapore companies in the IT, construction and consultancy sectors to bid for government procurement projects in markets such as Malaysia, Mexico and Vietnam, which were previously closed to foreign bidders.

Vietnam: The country was supposed to be a major beneficiary of a US-led TPP, which would have led to a significant increase in its medium-term growth prospects.

However, it has shelved ratification immediately after the outcome of the US presidential elections, expecting the US to exit TPP. It is estimated that Vietnam’s GDP would have grown an additional 10% over the coming 10 years.

Reduced and discontinued tariffs would have boosted growth in its export-oriented food, textiles, furniture and consumer electronics industries.

For textile/footwear manufacturers alone better market access to Japan and the US was expected to boost export growth by about 50% over the next 10 years. The failure of TPP would leave Vietnam more economically isolated and dependent on China.

China: While not being a member of TPP, the US exit gives China a greater opportunity to shape trade and the economic order in the Asia Pacific region by launching its own trade agreements.

Beijing is already actively promoting its own trade agreement known as the Regional Comprehensive Economic Partnership (RCEP), which would include several key TPP members, such as Japan and Australia.

While the US exit from TPP does not squash the growth prospects of TPP members, in the short term, it reduces some opportunities for more rapid growth given that the agreement was already in the ratification process.

The above article is provided from Atradius.

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