What Is The Trans-Pacific Partnership (TPP)?
October 2nd, 2015
Updated March 17th, 2017
The Trans-Pacific Partnership, a monumental and somewhat controversial trade agreement between
twelve nations (including the United States, Mexico and Japan), has created no small stir since its recent passage in early October, with some analysts estimating that the terms of the new agreement could impact up to 40% of the entire world economy. Although the impact of the TPP reaches far and wide to industries as diverse as biotech and cheese production, the automotive industry in particular is feeling the impact of the expansive initiative, and not everyone is happy about it.
Much of the criticism being aimed at the TPP deals with the agreement's lack of teeth in terms of currency manipulation controls, which have often been cited as a major "thorn in the flesh" for U.S. auto manufacturers. For example, it is no secret that fellow TPP participant and automotive powerhouse Japan has often manipulated its currency as a means to gain a competitive advantage over its rivals in the industry. The lax terms of the TPP in regards to currency manipulation have been widely perceived as ill-timed due to the current strength of the U.S. dollar, which puts American automakers at a disadvantage in terms of their ability to compete with cheaply manufactured foreign cars. Several US automakers, and Ford Motor Company in particular, have aired their grievances before Congress, asserting that provisions for restrictions on currency manipulation should be an essential component of the agreement. The iconic Dearborn, Michigan-based automaker has found allies on both sides of the aisle in terms of voicing opposition to the potentially harmful terms of the deal.
It's not just the United States automobile industry that is being threatened by the TPP; Mexico has also expressed frustration with the agreement due to proposed changes being made to an important mandate of the North American Free Trade Agreement (NAFTA). Under the NAFTA mandate, vehicles must contain a minimum of 62.5 percent domestic parts in order to retain duty-free status. Mexico, which has seen a significant boost in its auto industry due to the NAFTA mandate, has pushed for that figure to be bumped up to 65 percent, while Japan is lobbying to have it reduced to only 45 percent. Should Japanese automakers get their way, major manufacturers such as Toyota would then have access to a bevy of lower-cost Asian suppliers, giving them the ability to buy cheaper parts from China to manufacture cars for export to the US, while still enjoying the reduced tariffs proposed under the TPP.
If passed, the Trans-Pacific Partnership would be the largest regional trade agreement in history, involving 12 countries on 4 different continents. The final vote on the TPP won't take place until at least 2016, but if current negotiations are any
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