Analysis of the Impact of Trans-Pacific Pact - Case Study Example

Analysis of the Impact of Trans Pacific Pact Name: Institution: Analysis of the Impact of Trans Pacific Pact The Trans Pacific Pact is a trade agreement that was established on October 2015 after seven years of negotiations between twelve countries within the Pacific Rim. These countries include Brunei, Chile, Peru, United States, New Zealand, Japan, Mexico, Singapore, Australia, and Vietnam. Objectives of the trade agreement included enhancement of economic growth, increase in productivity, increase in jobs, promotion of transparency, improvement of living standards, enhanced environmental conservation methods, and a reduction in poverty, among other tasks. Part of the ways to achieve these objectives included a reduction in the limitations of international trade between these countries (Ching, 2015). Many of the tariffs and duties placed between the countries will be lifted to create a freer environment that enhances trade. The trade agreement was also established as a means of settling international disputes pertaining to economic trade. The Trans Pacific Pact is considered one of the most important trade agreements established in the last 20 years, and has the potential of gaining more than 28 trillion in international trade and investments for the countries involved. the effect of the trade for the twelve pacific rim countries are therefore estimated to be positive economic advancements, improved living standards and enhanced environmental conservation methods, among other long term benefits. However, the trade pact may have several implications for countries that are not involved. Despite the location of China as part of the Pacific Rim, it was not included in the Trans Pacific Pact due to their high level of reservations held for the past (Li & Whalley, 2012). This was because there existed several international trade requirements, which China was not willing to adjust on their end (Nan, 2015; Curry, 2016). There was widespread skepticism that followed on the announcement of the Trans Pacific Pact, which led to China distancing themselves from it in order to make observations from the ‘outside.’ Due to the differences in trade policies between China and other westernized nations, the trade agreement may present challenges in conducting international economic exchange in the future. Currently, China’s trade with other Pacific Rim countries is considerably significant, although the trade restrictions still exists between them. With this trade agreement, lifted duties and tariffs will direct trade away from china and towards the twelve countries included in the Trans Pacific Trade. “The TPP will pull Vietnam (especially) and other signatories economically closer to the United States, and thus reduce Chinese economic preponderance. Given that South Korea is likely to quickly join in any completed TPP agreement, these shifts can have a long-run economic impact on China” (Naughton, Kroeber, Jonquieres, & Webster, 2015). China will also be faced with the challenges of achieving economic reforms within the country, particularly those that create a good environment for international trade. With the Shanghai Free Trade Zone, much is not being achieved in terms of the objectives set, thus there is a need to form a strategic solution to the need for economic trade pacts that allow easier trade between China and her neighboring countries. However, Li and Whalley (2012) suggest that China may be hurt by the economic shift in balance of the trade pact between the countries, though not to a great extent. This is because the strategic geographic position coupled with the sheer size of the economy will be able to offset the financial setbacks as other trade options are explored. In fact, the authors state that some of the countries within the Trans Pacific Pact may be hurt by the union. In the event that China joins the trade pact, there will be many economic opportunities to explore and benefit from for her as well as other involved countries. However, the countries excluded from the trade past will be most economically affected. According to Yu (2012), china’s exclusion from the Trans Pacific Pact will limit their trade capabilities because of the existing tariff reductions and market access to the preferred industries. Despite China being the second largest economy in the world today, it still has a long way to go in terms of achieving an optimum environment for international trade, which has the potential to further boost its economy significantly. China also has a massive geopolitical influence over other countries within the Pacific Rim region, and the Trans pacific pact may be an avenue to create a rivalry where countries may be forced to choose between two of the most powerful economies, China and the United States. With the slower growth being experienced in China already, a study conducted estimated a total loss about 47 billion dollars, which may be a cause of concern for the decision makers. This may leave further reduce the economic growth by about 3 percent (Tiezzi, 2015; Hsu, 2015). However, significant economic loss was less likely to be experienced considering the strong foothold china already has on international trade. There exists much controversy surrounding the issue of the Trans pacific pact and whether it was secretly a method of regulating its economic growth. From the moment the TPP was established, it has been seen as a tool for controlling the development of China. “Given the country’s ambitions, its leaders are understandably concerned about the concerted effort by the U.S. and other Asia-Pacific countries to curtail its economic growth” (Yu, n.p). Thus, the effect of failure to join the trade pact could be seen as a method of maintaining economic growth for China without subscribing to the stipulated standards. According to Ching (2015), the United States Department of Agriculture estimates that the economic impact of exclusion from the trade agreement on china is not significant, while a Chinese economist from bank of china estimates a striking reduction of two percent of the annual GDP in the first year of operation (Hong Kong Means Business, 2016). Nevertheless, these statistics remain uncertain in the coming months until the effects are actually experienced while the pact is in effect. In the mean time, china has agreed that such economic pacts are beneficial to economies involved, but the rules of the trade pacts need to be agreed upon by the members. Economists have predicted that the economic losses, despite not being alarming, will be a force that pushes China to join the Trans Pacific Pact eventually as a means of achieving economic reform. However, a counter for the Trans Pacific Pact is the Regional Comprehensive and Economic Partnership (RCEP) in which China has placed itself at a trading advantage between the ASEAN countries. However, even these two trading blocs will likely experience an overlap in the member states, which may present dilemmas for the nations in the end. The Australian government has also cited concerns over the competition of international products over local productions. With the lifted tariffs and duties, it will become easier for traders to acquire stock from other Pacific Rim countries within the trade pact, thus disrupting local trade. However, some positivity in the trade agreement is aligned with the acquisition of imports at cheaper prices than ever before. Reference Ching, F. (2015). TPP: Playing the China card on trade. The Globe and Mail. Retrieved from http://www.theglobeandmail.com/opinion/the-tpp-playing-the-china-card-on-trade/article26793029/ Curry, B. (2016). What is TPP? Understanding the new Pacific trade deal. The Globe and Mail. Retrieved 26 January 2016, from http://www.theglobeandmail.com/report-on-business/international-business/what-is-tpp-understanding-the-new-pacific-tradedeal/article26648948/ Hong Kong Means Business. (2016). China and the Trans-Pacific Partnership. Retrieved 26 January 2016, from http://hkmb.hktdc.com/en/1X09ZYFR/inside-china/China-and-the-Trans-Pacific-Partnership Hsu, S. (2015). China and the Trans-Pacific Partnership. The Diplomat. Retrieved 26 January 2016, from http://thediplomat.com/2015/10/china-and-the-trans-pacific-partnership/ Li, C., & Whalley, J. (2012). China and the TPP: A Numerical Simulation Assessment of the Effects Involved. http://dx.doi.org/10.3386/w18090 Mitchel, T. (2015). China lays out ‘countermeasures’ to offset exclusion from TPP - FT.com. Financial Times. Retrieved from http://www.ft.com/intl/cms/s/0/8e81ab8c-763c-11e5-a95a-27d368e1ddf7.html#axzz3yMBGetp1 Nan, Z. (2015). China to keep eye on TPP impact. Chinadaily.com.cn. Retrieved from http://www.chinadaily.com.cn/business/2015-10/10/content_22147371.htm Naughton, B., Kroeber, A., Jonquières, G., & Webster, G. (2015). What Will the TPP Mean for China? Foreign Policy. Retrieved from http://foreignpolicy.com/2015/10/07/china-tpp-trans-pacific-partnership-obama-us-trade-xi/ Tiezzi, S. (2015). What Does China Think of the TPP? The Diplomat. Retrieved from http://thediplomat.com/2015/10/what-does-china-think-of-the-tpp/ Yu, P. (2015). How China's Exclusion From The TPP Could Hurt Its Economic Growth. Fortune. Retrieved from http://fortune.com/2015/10/19/china-exclusion-tpp-economic-growth/ Read More