As I wrote in my weekly global markets summary last week, the 12-country trade deal, known as the Trans Pacific Partnership (TPP), finally reached agreement last week in Atlanta. The big players include the U.S., Japan, Canada, and Australia, and the biggest impact from the deal stems from the multilateral agreements with developing economies in Asia, like Vietnam, Singapore, and Malaysia. Ultimately, the TPP will apply to 40% of the world’s economy and, for American exporters alone, 18,000 individual tariffs will be reduced to zero.
Sounds great on paper, but there are still questions and concerns about the deal in the U.S, and most of them are political. As far as this column is concerned, we want to concern ourselves with what the market impact could be and what the longer term economic implications are. Examining both can influence what sectors and industries may come into favor as a result.
3 Key TPP Insights
The TPP agreement has 30 chapters in it so far, so to dig into granular details about trading policies for Canadian dairy or Japanese beef would be onerous and beside the point. The four key takeaways below describe what the deal really signifies for the U.S., the global economy, and stocks.
The second reason is related to the first, again having to do with China. The thinking is, if we can get this deal on the books and start to have legitimate economic influence in the Asia region, then China will ultimately back its way into the deal. The ideal outcome, in my opinion, is to create an agreement that has the U.S. and China working together to be the ‘honchos’ of all things economic in the Asia-Pacific region. That would give us the ability to share the throne, so to speak, that China is currently gunning for.
Bottom Line for Investors
For all the fanfare about the deal, the reality is that the reached agreement still has big hurdles to jump before it’s activated. It has to clear all 12-member countries’ governments, and that could take years. For now, investors should shelve the story and watch from a distance how it unfolds.
If a deal gets done, there could be material investment opportunities for industries that can operate more freely in the Asian-Pacific. Additionally, it could notably drive global growth if the U.S. and China work together for regional stability and emphasize commerce. It never hurts to keep your eye on longer-term macro developments, and this is certainly one of them.
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