Image source:
What's going on?
It was supposed to be the biggest free trade deal in 25 years, but the US Congress will not approve the Trans Pacific Partnership (TPP) in the wake of Donald Trumps election (tweet this). While its not totally dead in the water, prospects for the wide-ranging accord do not look good.
What does this mean?
Free trade deals, which involve decreasing barriers to trade between countries, were largely blamed for the loss of manufacturing jobs in the US during the recent presidential campaign. The deal, which had been agreed by President Obama and 11 other Pacific Rim countries, requires approval by the US Congress. On Friday, officials made clear that Congress would not consider approving the TPP during the lame duck period prior to Donald Trump becoming President in January. Given his campaign rhetoric and the general political unpopularity of free trade at the moment, it appears unlikely that TPP will be ratified once Trump becomes President (although its possible that it could still be approved at a later date, perhaps after some changes are made).
Why should I care?
For you personally: Free trade typically lowers the price of goods.
One of the biggest benefits of free trade is that it tends to provide consumers with cheaper products: cars that are made in Mexico can be sold for less (in America) than cars that are made in Michigan (and this is true for many consumer goods). In a world of less free trade, prices of many things will almost certainly be higher than in one with more free trade.
The bigger picture: China is planning a rival free trade agreement.
From a geopolitical standpoint, one of the purposes of the TPP was to curb the influence of China in southeast Asia (China was excluded from the TPP). Therefore its perhaps not surprising that only two days after Trumps victory, Chinese officials suggested that China would aim to spearhead a replacement deal. Such a move could leave US companies (and consumers) without the supposed benefits of the deal and increase Chinas political clout in the Asian Pacific region.
Originally posted as part of the Finimize daily email.
The top 2 financial news stories in 3 minutes. Join over one million Finimizers
