What happens now with TPP off the table?
The TPP, or Trans-Pacific Partnership, is a 12-nation free trade agreement drawn to promote trade on an international scale. It brings together 800 million consumers, close to US$28 trillion of wealth amounting to 36% of global GDP and US$11 trillion in trade, amounting to 26% of global trade.
Member countries consist of United States, Japan, Canada, Australia, Mexico, Malaysia, Singapore, Chile, Peru, New Zealand, Vietnam, and Brunei. But late last month, United States President Donald Trump has officially withdrawn the country from the TPP.
Global Trade at Stake
Had the TPP gone through, member countries’ GDP could have been boosted by US$38 bil over the first two years of implementation. TPP would have greatly increased trade liberalisation in goods and services with its reduction of taxes, tariff and non-tariff barriers.
With the TPP now off, the already weak global trade could weaken further. In 2016, USD denominated exports in China, South Korea and Singapore dropped 7.70%, 5.90% and 4.90% respectively, according to a report released by Euler Hermes. Trade volume is expected to grow only modestly, below 4.00% in the medium term. Euler Hermes forecasted growth of 2.90% in 2017 following an all time low of 1.90% in 2016.
Beyond the financial impacts, TPP also aimed to enhance fair labour practices, encourage freer investment movement, protect intellectual property (IP) and e-commerce rights, as well as harmonise legal and regulatory issues amongst the member countries.
With the TPP now off, Singapore and the other member countries will need new sources of trade drivers as well as work through their differences in a tougher economic landscape.
One Belt, One Road as an Alternative
Fortunately for Singapore and other ASEAN TPP members, China’s One Belt, One Road initiative could be a favourable alternative to turn to. There are massive infrastructure investment plans under way that aims to improve economic cooperation and connectivity in Asia, Europe, the Middle East, and Africa.
This could lead to a capital boost when investment flows in as well as a stronger demand from China for strategic natural resources. Competitiveness in the region would also be enhanced with rising trade. Singapore could benefit greatly as a hub for financial services and logistics operations with its strategic position.
Regional Comprehensive Economic Partnership as an Alternative
Aside from the TPP, there are other partnerships Asia Pacific countries can turn to. The Regional Comprehensive Economic Partnership (RCEP) is one such agreement which involves China, ASEAN, Australia, New Zealand, India, South Korea, and Japan. The RCEP represents a market amounting to US$22 trillion and 3.5 billion people. RCEP intends to liberalise trade of goods and services, facilitate flow of investment, and promote best practices.
All is not lost even with the TPP off. Singapore needs to remain competitive and participate in strategic partnerships to navigate a slowing economic climate.