Will the Trans-Pacific Partnership Help the Dollar?

A far reaching trade deal is in the works. The Trans-Pacific Partnership of a dozen Pacific Rim nations will be the largest regional trade accord in history when it is finalized. From the Forex point of view, will the Trans-Pacific Partnership help the dollar or drag it down due to trade imbalances? A recurring complaint about such pacts is that cheap labor in foreign country will take jobs away from U.S. workers. This was the argument against NAFTA and a trade deal with Canada and Mexico. In this regard The New York Times reports that Vietnam agrees to U.S. terms regarding labor rights.

The Communist government in Vietnam has agreed to American terms to grant potentially far-reaching labor rights to the country’s workers, including the freedom to unionize and to strike, in return for expanded trade between the former adversaries, according to the newly released text of a vast Pacific trade agreement.

Those terms were disclosed early Thursday, along with all 30 chapters and side agreements that make up the Trans-Pacific Partnership, a pact reached a month ago by12 Pacific Rim nations that would be the largest regional trade accord in history. The agreement would end most tariffs and other trade barriers among countries that account for 40 percent of the global economy.

To the extent that Asian nations in the agreement pay their workers fair wages, allow collective bargaining and allow labor unions it protects U.S. jobs and protects the USD. But we are getting ahead of ourselves. Just what is the Trans-Pacific Partnership? The Times says that its members would comprise 40% of the world economy.

Trans-Pacific Partnership

The office of the United States Trade Representative (USTR) provides a wealth of information about the trade deal. Since the Obama administration wants the deal to pass the U.S. Senate the site provides many arguments in favor of the trade deal that will include Australia, Canada, Japan, Malaysia, Mexico, Peru, USA, Vietnam, Chile, Brunei, Singapore and New Zealand.

The Trans-Pacific Partnership (TPP) writes the rules for global trade-rules that will help increase Made-in-America exports, grow the American economy, support well-paying American jobs, and strengthen the American middle class.

TPP will make it easier for American entrepreneurs, farmers, and small business owners to sell Made-In-America products abroad by eliminating more than 18,000 taxes & other trade barriers on American products across the 11 other countries in the TPP-barriers that put American products at an unfair disadvantage today.

Many businesses are pleased to see Japan in this agreement because Japan is infamous for making it difficult for US companies to operate there and sell there. A well written trade deal will help the US in trade with Japan and help the US dollar. As the USTR website says, the deal will eliminate tariffs on US made products that are currently as high as 59% thereby making US products more competitive and the dollar stronger.

Twelve Nations Now and More to be Added Later

The U.S. News and World Report reports that the trade deal will support open digital trade and that several nations are ready to join at a later date when invited.

In the vital area of digital trade and rules for the Internet, the verdict is in: The agreement is a triumph for both the United States and the future of an open, competitive digital-trading system for the nations of the Asia-Pacific region.

First, the Trans-Pacific Partnership includes nations that encompass about 40 percent of the world’s gross domestic product, and almost one-third of world trade. With the successful conclusion of the negotiations, a number of other nations stand ready to join in coming years: Expressions of high interest have come from Korea, the Philippines, Thailand, Indonesia and Colombia, among others. Thus at a minimum, the trade deal will set the rules for nations bordering the Pacific, with wide-ranging ripple effects throughout the wide world-trading system.

Second, for the United States particularly, the establishment of precedent-setting free market rules for digital trade and the Internet is vital to future economic growth. Bolstered by new trade and investment models, seven of the top 10 Internet firms are based in the United States, and U.S. firms are the world’s biggest producers of information technology goods and services. In 2011, the U.S. International Trade Commission estimated that digital trade increased U.S. annual GDP by $517 to $710 billion (3.43 to 4.8 percent).

The opinion of the business community is that the trade deal will be good for U.S. business and that the Trans-Pacific Partnership will help the U.S. dollar.