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Whilst President Trump’s dumping of the Trans Pacific Partnership (TPP) is a blow to the Australian government, the move wasn’t unexpected – and media reports suggest the focus could now shift to including China as a centerpiece to a post-TPP multilateral trade bloc.

Whilst this perhaps makes sense from a trade perspective – after all, China accounts for 26% of Australia’s total imports and exports (2015/16) – the political challenge will be to ensure Australia does not become the “meat in the sandwich” in any potential US / China trade war.

Trade Minister Steven Ciobo said the government was willing to work with the other 10 participating countries (Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam) to find a way forward for the TPP, and Prime Minister Malcolm Turnbull has suggested China could replace the USA in the TPP.

Minister Ciobo also said Indonesia had expressed interest in involvement in the TPP – and that a reformulated agreement (without the US) would create enhanced market opportunities into markets like Canada and Mexico.

“It also, of course, would reduce the cost of compliance, and that’s really important for Australian small to medium enterprises, who want lower barriers to trade,” he said.

From a market perspective, President Trump’s move to withdraw from the TPP so far appears to have had limited impact, with the Australian stock market and Australian Dollar showing minimal direct reaction.

But what has been the opportunity cost for Australian SMEs?

For Australian goods exporters, the TPP would have eliminated more than 9% of tariffs in the TPP region. In terms of industry sectors, Agriculture would have been the big winner with commodities such as beef, sugar, rice and dairy all receiving preferential access through new quotas and tariff reductions. Sugar producers in particular would be frustrated with the POTUS as they were being promised new access to the US market for the first time in 20 years. Trump would also be on the nose for our cheese makers who were expected to benefit from the cutting of tariffs to Japan and increased access to the States.

Service exporters were also set to benefit from the agreement with a promise to “liberalise key barriers and provide more transparent and predictable operating conditions in TPP countries”. With the end of the mining boom, the TPP could have been just the shot in the arm companies servicing this industry needed. Vietnam had promised to open its mining investment regime and level the playing field for foreign suppliers to its growing mining, oil and gas sectors. Large state owned enterprises were also to be held to account ensuring Australian goods and services providers could compete fairly for contracts.

But not everyone is unhappy with the demise of the TPP. The Investor-State Dispute Settlement (ISDS) clause has raised alarm bells in some quarters as it was seen as an overly powerful vehicle to advocate on behalf of corporations seeking compensation for future losses resulting from legislative change or court decisions in foreign countries. There were also concerns that the TPP would keep cheap generic drugs locked out of Australia for longer, although Prime Minister Turnbull had quashed this suggestion on many occasions.

So, while Trump’s executive order “trigger finger” may have cost SMEs in terms of potential access, it appears that the greater threat in the short term may be regional stability and becoming collateral damage in any trade war.

See also: What does Trump’s victory mean for trade?, Will the US withdrawal from the TP affect us?

About the author

Ian Smith is the CEO of CargoHound, an online marketplace for international freight that enables importers and exporters to source competitive freight pricing from ‘community rated’ service providers. Since launch in July 2015, the Sydney-based company has signed up over 1050 importers and exporters and received aggregate freight quotes totalling more than A$5.5 million.

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