What does mean the TPP for China and the world economy?

After a long period of negotiations the 12 members of the Trans-Pacific Partnership (TPP) reached an agreement on October 5th. This could have big implications for member countries of TPP and for the rest of the world economy.

For Japan and US the TPP has a great meaning. It will allow many Japanese goods to enter with no tariffs to TPP markets like US (some will immediately go down to zero while others will do after some years) especially products where Japan is very competitive as electrical appliances, automobiles, industrial machinery, chemicals. For its part US could sell more of its agricultural goods to Japan and invest more there. But as important as it is in the economic side, also in the political side he TPP will make stronger the alliance between Japan and U.S. It is part of the US “pivot” to Asia strategy of President Obama. TPP rules will cover 40% of the world economy and US will continue to reinforce its presence in the Asian region with this agreement and for Japan it means that will have US on its side in the coming future.

For Peru it could mean better access to markets like Japan, even if we have already a Free Trade Area with this country, and also access to new markets like Australia and Vietnam. The issue for Peru is to have the products to sell to these markets.

Countries like Chile and Mexico the TPP means that they will continue to sell more to markets in Asia and North America. For countries like Colombia not a member of the TPP it will make more urgent the need to reach trade agreements with countries in Asia. In the case of Argentina and Brazil, they would continue being excluded because their markets are closed and they are not eager to reach trade agreements with other countries.  

The multilateral negotiations within the World Trade Organization are going nowhere as it is difficult for the many countries there to reach an agreement among themselves and also because discussions in some subjects, as labor standards or intellectual property rights, is opposed by some of them. That’s why regional agreements like TPP are in fashion now. So in the future probably the weakness of the WTO will become more evident and trade agreements will be reached among group of countries who share more similarities among themselves.     

It could be said that China could be the one which could lose more with the TPP, because for example some Chinese products compete with Japanese goods and with the TPP Japanese goods will get preferential access to TPP markets, and also because TPP countries that use parts and components from China to manufacture some goods now will prefer or will have to use parts and components from other TPP countries to qualify for preferential access to other TPP markets. Other effect is that investment from countries like US and Japan will get better access to other TPP markets. In general new rules for services, investment, intellectual property rights have been set up mainly by the US in the TPP and these US want to establish also these rules in other agreements like in the TTIP (with European Union countries) and China is being excluded from this process.         

What can China do? China should continue with its efforts to integrate more with the economies of the East Asian region trying to conclude soon the Regional Comprehensive Economic Partnership with the ASEAN group plus Japan, South Korea, India, Australia and New Zealand. Also China should involve more countries in its strategy of achieving its “one belt one road” initiative to reestablish the land and maritime Silk Roads across Asia and Europe and to Africa, and make active use of the Asian Investment and Infrastructure Bank, the BRICS New Development Bank and other funds that is setting up. Chinese companies also should be more active going abroad to invest not only in the natural resources sectors. Finally China should continue to open more its economy, to foster competition and continue the reforms to modernize more its economy.