Signatories hope the landmark Trans-Pacific Partnership will bolster trade worldwide after a tepid recovery from the crisis.

After five years of diplomatic wrangling, 12 countries from Asia and America have signed a sweeping free trade accord known as the Trans-Pacific Partnership (TPP). The deal does away with many trade barriers and aims to establish international standards for the protection of intellectual property, labour and the environment.

TPP looks set to make waves in the calm waters of international trade. Cross-border trade experienced a downturn during the financial crisis and growth has remained has low key since – the mere scale of the trade pact is bound to change that.

According to data from the World Bank, the 12 participants account for 36% of global gross domestic product (GDP), making the TPP the most far-reaching trade agreement since the North American Free Trade Agreement in 1994 (see chart one). Unsurprisingly, a large chunk of the treaty’s bulk rests in the US, which on its own accounts for 22.4% of the global economy. However, it is bolstered by other large players, such as Japan and Canada, which account for 5.9% and 2.3% of the world’s economy, respectively.

In many cases the participants already have strong economic ties with other TPP countries – in both Canada and Mexico more than 80% of exports end up in the hands of future partners, in this case mostly the US (see chart two). This is somewhat less marked in Asia and South America, but even there every single member sends more than 30% of all exports to other TPP countries.

Trans-Pacific Partnership countries global trade

One expected feature of the deal is that it will allow the more developed members to tap into the growth potential of its partners. As chart three shows, Vietnam has shown breakneck growth in 2014, with both its exports and imports showing double-digit growth. Japan too, rising on the wave of Abenomics, showed notable growth in both exports and imports. Conversely, it is hoped the deal will aid the members that have been experiencing a downturn.

Trans-Pacific Partnership countries change in trade activity

Despite the growth that liberalisation of trade will unleash, the agreement has also been a source of anxiety for some members.  Some of the largest signatories – US, Canada and Australia – run trade deficits in excess of 2% of GDP, while others, in particular Japan, Singapore and Malaysia, are net exporters (see chart four). The concern is that these imbalances will be exacerbated by more free trade.

However, these countries could benefit even if the deal fails to tip the trade imbalance in their favour, according to an analysis by the Peterson Institute for International Economics; if the trade deficit stays the same, the exports will be boosted by $123bn and real incomes will rise by $77bn.

Trans-Pacific Partnership countries current account balance as share of GDP, 2014


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