Skip to main content

Yesterday President Donald Trump signed an executive order withdrawing America's intent to sign the Trans-Pacific Partnership (TPP). This trade deal, involving a dozen countries in Asia as well as North and South America, was intended to create a broader Pacific Rim marketplace; however, it has also become a political flashpoint.

During the 2016 election. both Trump and Hillary Clinton came out against the treaty, with Trump vowing to pull America out of the deal upon taking office.

But now that he has followed through, who will be the winners and the losers from America's decision to jump ship?

Short Term: No One

In the next year or two, no one will feel the loss of the Trans-Pacific Partnership.

This was a deal designed around a generational time frame, aimed primarily at establishing a broad marketplace and building American access to both closed off markets like Japan and still-emerging economies like Vietnam, Malaysia and Peru.

It contained relatively few major changes to the way countries do business but instead codified a set of "rules of the road" intended to make trade easier.

"I don't think there's going to be any big, immediate, tangible impact from the TPP not being ratified by the United States," said J. Bradford Jensen, a professor of international business with Georgetown's McDonough School of Business. "The way I think of TPP is that it was a long run bet to try to both pry open service markets in places like Japan and Malaysia, and also a long run bet to have a large, very robust rules-based trading system in the Asian Pacific region, that would be a strong enough pull for China and possibly India to join on those very strong, rules based terms"

"No one," he added, "is going to lose access to markets. It's that they're not going to gain access to markets, and that's very hard to observe."

Medium Term: Accountants, Computer Programmers, Travel and Other Service Industries

One of America's biggest goals in the TPP was to open up the rest of the world to our service industry exports.

According to the International Trade Administration, approximately 68% of all export-supported jobs in the United States are within the service industries (although those still account for less than half of the value of U.S. exports). Many of these involve skilled professions, and a major goal of this trade deal was to create new markets for those industries.

Just as importantly, it was to prevent those industries from being crowded out in the long run.

"It's not that Vietnam is now not going to buy U.S. business services," Jensen said. "It's that in 10 or 15 years, they're going to buy business services from China because China is rushing to fill the vacuum. And a lot of the TPP partner countries are saying, 'well, if the U.S. isn't going to play ball, we'll do business with China."

"Japan is [now] not going to open up to our services and Malaysia is not going to open up to our services, and as Vietnam grows they're not going to open up to us," he added. "They're going to open up to China."

Over the next decade, that will show up in business lost and, ultimately, skilled jobs not created.

Medium Term: Young Entrepreneurs

This frame will have a specific effect on one group in particular: young entrepreneurs.

For established businesses, Trump's decision to withdraw America from the TPP is mostly about loss of future gain. New markets will now open more slowly and fewer new deals will come to the table. But this won't be a story of money lost. It will simply be the lost potential of money never made.

Young people looking to get a business off the ground, however, are in a different position. A new company needs new business to survive. For startups, again particularly in the kind of skilled service or digital production sectors that America increasingly exports, opportunities lost aren't just hypotheticals. Lost opportunities for new business can make or break a startup.

Companies getting off the ground will have fewer opportunities to expand and find new customers, and these are the businesses that have to think in 10-, 15- and 20-year terms. Who will keep the lights on tomorrow, and who will be the client base a decade from today?

Both of these questions would have been easier to answer under the TPP, which will mean life is about to get a little bit harder for the entrepreneurs.

Medium Term: Consumers

Over time, consumer prices will be slightly higher than they otherwise would have been. Again, America probably won't suffer immediate losses because of this decision. What will happen, however, will be twofold:

First, American companies will lose cheaper access to new markets. This would have made business across the board a little bit easier, and the price of consumer goods would have reflected that in most sectors.

Second, as America withdraws, China is almost certain to fill the void. This will mean increasing demand and competition for markets, factories and production chains across the region, and the United States will lose out.

With that loss will come slightly higher prices, or at least the loss of potentially lower ones.

"The real loss is that we're forgoing potential gains," said Kyle Handley, a professor with the University of Michigan's Ross School of Business. "One of the problems with these trade agreements is that benefits are dispersed to consumers as a whole, where everybody does a little bit better in terms of varieties of goods that are available at Target and Walmart and the grocery store at slightly lower prices."

"So for the U.S. consumer it probably would have provided lower prices on certain goods that are imported, or even things that people don't think of as imported goods, maybe, but that have a lot of parts and components that are imported. Those may have become cheaper. Now they won't."

Medium Term: Workers

Pulling out of the Trans-Pacific Partnership won't create jobs, because almost nothing about this deal would have affected the cost of labor.

"U.S. tariffs on goods are pretty low on an MFN (most favored nation) basis, and against most of the people and most of the potential trading partners in the TPP tariffs aren't very high," Jensen said. "Our globally competitive service firms are not going to gain access to a big market like Japan, and in terms of reducing tariffs, our tariffs were already really low so it's not like we were going to see a surge of imports from the TPP."

U.S. job loss overseas is driven by labor costs. Due to the strong U.S. economy and dollar, workers are cheaper in almost every other country than they are domestically. A trade deal which made imports noticeably cheaper could have exacerbated that, but that language wasn't in the TPP.

Long Term: China

The purpose of the Trans-Pacific Partnership was to create a bigger marketplace with established rules, one which would have been attractive enough to lure major trading partners like China and India into a market set on open terms. The reason for the Trans-Pacific Partnership was a recognition that if America doesn't lead the way, someone else will.

Now that the U.S. has abdicated that leadership, it's widely expected that China will fill the void.

"If we're not active in Asia trying to knit the region together through greater economic cooperation and promoting institutions like this, somebody else will," Handley said, "and that somebody else is most likely going to be China… If you're worried about China's rise in Asia and its effects on the United States, that's another potential loss."

"Who's going to devote the time and effort to negotiate a deal like the TPP with the us after we've just reneged?" Jensen added. "The next time we're going to get a bite at this apple, who knows. If you were Japan or Malaysia or Indonesia, are you going to want to negotiate with the United States for the next ten years? Probably not. So we're out of the game for 10tenyears, and in ten years how big is China relative to the United States?"