Media coverage of two major global trade agreements, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade Investment Partnership (TTIP), has largely centered on the effects the pacts might have on multinational corporations and national economies. International trade is also a pillar of support for many small businesses in the U.S., however. How might these new agreements affect U.S. entrepreneurs who export products and services? The TPP, which is awaiting Congressional ratification, and the TTIP, which is still under negotiation, will assuredly change how American businesses interact with Europe and Asia. Business News Daily spoke with some experts to find out just how these trade agreements might impact American businesses.
The TPP agreement was reached on Oct. 5, 2015, between a dozen countries that comprise roughly 40 percent of the global economy: the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The overall aim of the agreement is to lower or eliminate barriers to trade, such as tariffs and export subsidies. All told, the TPP is expected to eliminate or reduce around 18,000 various tariffs.
The TTIP, still under negotiation, is an anticipated free-trade agreement between the U.S. and the 28 member nations of the European Union. While the final agreement may look different from the current text, the objectives are to gain better access to European markets for American businesses, while also solidifying the bond between the U.S. and the European Union.
As happens with any big shift in the global market, there are bound to be winners and losers; while the agreements should make it easier for the U.S. to export products and services to growing economies abroad, it also means that U.S. exporters will have to compete harder with foreign companies that engage in international trade — companies that sometimes do so at significantly lower costs.
Major potential for U.S. exporters
Tomas Hult, a professor at Michigan State University and Byington Endowed Chair in international business in the Eli Broad College of Business, said he anticipates new opportunities in the U.S. automobile, agricultural, pharmaceutical and technology sectors as a result of the TPP.
"Currently, the U.S. faces up to 70 percent tariffs on automobiles in some of the TPP markets, [like] Vietnam, which would be eliminated," Hult told Business News Daily. "U.S. farmers face up to a 40 percent tariff reduction. … And, perhaps, the most important [aspect,] top tech companies such as Google will find it even easier to operate internationally.
"Any agreement that the U.S. enters into will have consequences for these smaller firms," Hult said. "In fact, the TPP agreement has established a specific section … that deals with the advantages and operating issues for small businesses. This is a first for a U.S. trade agreement."
According to Hult, the TPP makes up for lost ground in American trade policy. While he noted that the particular structure of a trade agreement determines whether it would help or hurt small business, he said that the U.S. shouldn't continue to lag behind other countries, which are quickly establishing large networks of trade agreements.
"Since [1985,] the U.S. has signed only 14 regional trade agreements involving some 20 countries – 18 more are currently being deliberated," he said. "During the same 30-year period, the world has seen 256 new trade agreements, as registered with the World Trade Organization, with 132 of them implemented in just the last decade."
"Trade across country borders is following largely the same pattern as the establishment of new trade agreements, and the U.S. is losing out on opening up markets for its small, medium and large companies by not engaging in more and better trade agreements at the rate of that of the rest of the world," he said.
Increased demand for U.S. agricultural exports
Researchers at UC Davis Agricultural Issues Center (AIC) examined the potential impact of the TPP on California's agriculture industry and found that, over a decade of TPP implementation, California's farmers could expect increased exports to Vietnam, Malaysia and especially Japan. Some of the products in high demand in those countries include dairy, wine, citrus fruit and deciduous fruits, as well as beef, poultry, hay and vegetables.
In a paper co-authored for the Giannini Foundation of Agricultural Economics, Daniel A. Sumner, director of the AIC, Hyunok Lee, an assistant professor of agricultural and resource economics at UC Davis, and William A. Matthews, a researcher at the AIC, wrote:
"[T]he big prize is Japan, but the economies of Vietnam and Malaysia also hold potential, especially as their markets develop."
Sumner, Lee and Matthews identified four major benefits that California's farmers could expect if the agreement is ratified.
1. Reduced barriers to exporting goods
2. Better access to imports
3. More economic growth and expanding markets at home and abroad
4. More political and economic stability
However, they offered a cautious view of how significant the TPP's impact would actually be within other member nations, and gave two reasons. First, the researchers noted the conspicuous absence of some of Asia's largest economies, including China. In addition, many of the TPP's anticipated signatories are already parties to other free-trade agreements with one another, and many of the provisions outlined in the new agreement simply serve to solidify previously established trading conventions.
"Indeed, many TPP members have [free-trade agreements] with other members, so the amount of effective market opening is less than might first appear," the researchers wrote.
The agreement might also bolster California farmers against their Australian competitors in the region, they wrote. Australia already has standing agreements with Japan and Malaysia. The U.S does not currently maintain such an agreement with either nation, putting American producers at a competitive disadvantage.
However, the researchers cautioned that the effects of the TPP on the American economy would be "moderate at best," and that the most significant aspect of the deal is likely "that China and other large Asian economies may want to join [later]." Access to those economies, the researchers posit, would significantly increase the magnitude of the agreement's impact.