Alongside the General Agreement on Tariffs and Trade - a multilateral agreement regulating international trade - and the World Trade Organization, the Trans-Pacific Partnership (TPP) was one of the three most significant trade and investment pacts negotiated by the US since World War II.
After eight years of strenuous and often rocky multilateral discussions, the proposed pact that emerged in February 2016 created an 800-million-person free-trade zone containing $28 trillion of economic activity, roughly 40 per cent of the global economy.
US President Trump, in one of his first acts in office, issued an executive order cancelling US participation in TPP, signalling that his position on free trade agreements would be implemented. Leaving aside the threat of import tariffs and potential trade wars, the demise of TPP will have adverse effects for both Vietnam and the US.
While Vietnam should continue to enjoy export growth as well as continued GDP expansion even without TPP, the growth will not be as dramatic.
And what about the US? US losses imposed by this cancellation are large:
lThe stringent intellectual property protection contained in TPP will not come into effect. This will impose both continued risks and losses in particular on both Silicon Valley and Hollywood, as well as on US pharmaceutical firms.
lAs import duties will remain in place, going forward consumer prices in the US will be higher than they would have been under TPP, causing further erosion of US buying power.
lWith major tariffs and non-tariff barriers still in place with our partners, American export growth will not surge. There was much hope, for example, for growth in the export of agricultural products.
In the case of Vietnam, the prospective negative outcomes are potentially larger, as the share of Vietnamese exports to the US and other partners is such a huge percentage of the country’s GDP. Vietnam’s losses entail the following:
lTPP would have enabled Vietnam to increase its annual exports to the US alone by a third over the next decade, from $16 billion today to over $20 billion.
lThis rapid expansion of Vietnamese exports to the US facilitated by TPP would have made Vietnam the biggest winner of the 11-nation deal, increasing its GDP by 11 per cent, or $36 billion, over the same period. Correspondingly, it would also have added to its foreign exchange reserves.
lThe Vietnamese, already price competitive against China, could have achieved this export and economic growth by leveraging TPP to significantly expand their exports to the US at the expense of China.
lWithout the trade deal, and despite the incentives to do so, Vietnam is no longer required to continue its labour reform and the reform of its IT laws, although it has economic incentives to implement structural reforms even without TPP.
lThe environmental protection provisions embedded in TPP will be lost at a time when the Vietnamese ecosystem faces ever more difficult challenges (although Vietnam could still choose to implement these protections of its own volition).
lMany investors were waiting for TPP in order to move forward with their investment plans for Vietnam, in part to satisfy TPP’s “yarn-forward” requirements, but now these requirements are no longer important.
TPP offered a win-win to the US and Vietnam. The termination of the trade pact constitutes a lose-lose for both our countries.
However, we should not lose sight of the fact that Vietnam continues to perform very well economically, with GDP having grown at more than 6 per cent a year for the last decade without a trade engine like TPP. And US exports to Vietnam continue to grow quickly as well. Over the next five years, they will likely increase to $15 billion annually, which will result in the creation of 35,000-40,000 high-paying American jobs.
Vietnam is growing at one of the fastest rates in Asia and continues to attract investment from around the world. Even with significant tariffs on garments and footwear, Vietnam is a large exporter to the US.
President Trump has repeatedly stated his preference for bilateral trade deals over “mega-deals”. This leaves open the possibility that American and Vietnamese trade negotiators could take all that is best in TPP and transfer it into a bilateral agreement, which would also keep incentives for the structural reforms and this is in Vietnam’s best interests.
Another alternative, and one that will preserve some benefits, is for Vietnam and the other 10 signatories of TPP to move forward and enact a regional trade pact without the participation of the US. This would also preserve some of the benefits for Vietnam.