The Trans-Pacific Partnership (TPP), which has been in the making for more than a decade, is likely dead. It is still unclear how exactly a U.S. exit will impact equity markets, but changes are on the horizon.
Proponents of the TPP saw it as a way for the U.S. to liberalize trade with Pacific nations and bolster U.S. influence in the region. Our largest trade partner in Asia, China, was notably left out of the agreement. Opponents, on the other hand, saw the deal as a move to protect the interests of multinational firms at the expense of the working class. Some even viewed the agreement as the beginning of a European Union-style single market for the Pacific region.
In a large and complex agreement like TPP (the text is over 5,000 pages long), there is likely a grain of truth to each of these viewpoints.
The debate over TPP was actually quite refreshing as it was one of the few issues in 2016 that saw agreement from opposing party members. Donald Trump opposed it alongside Hillary Clinton and Bernie Sanders. John Kasich, Marco Rubio and President Barack Obama all advocated for U.S. participation.
Politics aside, it is likely that the accord is over. Who are the winners, and losers, from a U.S. exit from the TPP?
A May 2016 report from the U.S. International Trade Commission provides some insight as to where things are headed. This report showed projected winners and losers, over the next 15 years, assuming TPP was fully adopted by the 12 member nations. We can now invert these findings to imagine a world without the Trans-Pacific Partnership.
The winners
American chemical and drug providers
TPP was expected to reduce the U.S. chemical and drug industry by $2.9 billion over the next 15 years as the agreement would significantly increase the quantity of imports to the U.S. of these goods on an annual basis. As it relates specifically to pharmaceuticals, the agreement contained language that would have limited many pharma patents to just eight years, four years short of the 12 years currently allowed under U.S. law.
Technology providers
Companies like Google and Uber are heavily restricted from conducting business in a number of TPP member states. The agreement was expected to provide fresh access to Southeast Asian markets for both companies.
The losers
Retailers, wholesalers and clothing distributors
In 2016, Walmart (WMT, Financial), Dick’s Sporting Goods (DKS, Financial), Under Armour (UA, Financial)(UAA, Financial) and Zappos (acquired by Amazon [AMZN]) all signed a letter to Congress urging the passage of the TPP. The reason? The agreement was expected to significantly reduce tariffs on clothing imports from member nations.
Dairy farmers
In exchange for allowing more New Zealand dairy to enter the U.S., U.S. producers were expected to gain access to lucrative markets in Japan and Canada. This is now off the table and will need to be renegotiated.
Japanese automakers
Firms like Toyota (TM, Financial) and Honda (HMC, Financial) were expected to benefit from the deal, as tariffs on U.S. bound vehicles were expected to be slashed. The U.S. is the biggest importer of vehicles from both companies.
Disclosure: I do not hold any positions referenced in this article.
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