President Obama and other leaders hope to conclude negotiations for the Trans-Pacific Partnership (TPP) agreement with 11 other countries by the end of 2013. In addition, the U.S. just finished the second round of negotiations on the Transatlantic Trade and Investment Partnership (TTIP) agreement with the European Union. To put this in perspective, the U.S. currently represents 23 percent of global GDP while its current free-trade partners represent 10 percent of global GDP. The five TPP countries with which the U.S. does not already have an FTA (Japan, Brunei, Malaysia, New Zealand and Vietnam) embody an additional 9 percent of global GDP, while the EU accounts for another 17 percent. Once the TTIP and TPP are concluded, the United States and its free-trade partners will comprise a free-trade bloc worth 65 percent of global GDP. This means that U.S. producers will have duty-free access to more than half of the world’s purchasing power. This signifies an important milestone in international trade that will have significant global consequences.
To understand the consequences of the TPP and TTIP, it may be worth analyzing past free-trade agreements. The U.S. currently has 20 free-trade partners. The graphs below show the percentage of U.S. exports to the selected countries. Although current FTA partners represent only 10 percent of global GDP, they consume nearly half of all U.S. exports. This suggests that free-trade agreements play a crucial role in world trade patterns. If precedence holds and the U.S. does in fact ratify the TPP and TTIP in the next few years, U.S. exports should continue to enter these markets at the expense of the non-FTA countries. While this may only exacerbate the “spaghetti bowl” FTA syndrome, data clearly indicates that the U.S. is better off when signing these FTAs.
Further, according to International Trade Administration data and as seen above, the U.S. has reduced the number of trade deficits it carries with FTA partners by half. The U.S. had a trade deficit with 14 of its 20 FTA partners before their respective agreements came into force, but by 2012 that number had dropped to seven. While the total U.S. trade balance with FTA partners has reached a negative $70 billion, with large trade deficits carried with Mexico ($62 billion) and Canada ($31 billion), the U.S. also has large trade surpluses with Australia ($22 billion) and Singapore ($10 billion).
This data indicates that overall, FTAs have benefited the U.S. with respect to reversing previous trade deficits and increasing overall exports. With the TPP and TTIP on the horizon it is understandable why many in the government are anxious for these deals to be concluded to further expand U.S. exports.
Thanks again to our intern Justin Fisk for the research on this post.