After eight years of planning and more than five years of mind-numbing negotiations, America and 11 other Pacific Rim nations representing 37% of the global economy finally reached an agreement on the largest regional trade accord in history – the Trans-Pacific Partnership (TPP).
The negotiating text alone consists of 30 chapters and thousands of pages covering more than just trade.
It touches on issues concerning wildlife protection, dispute settlement, intellectual property rights for movies, union reform, online commerce, and internet openness.
Countries as diverse as Canada, America, Chile, Peru, Malaysia, Australia, New Zealand, Japan, Singapore, and Vietnam completed this ambitious 21st century pact with the goal of supercharging trade and investment in the Pacific Rim.
Tariffs on over 18,000 products will be phased out. For example:
Japan will phase out big tariffs on U.S. exports of oranges and grapefruit.
Vietnam will drop a 20% tariff on cherries and a 70% tariff on U.S. automobiles.
America currently faces tariffs in the Pacific as high as 55% on wine, 35% on plywood, 30% on tractors, and 20% on beauty products. All these tariffs will be gone after the TPP goes into effect.
The TPP – More Than Just Trade
Aside from eliminating tariffs, the pact is important as a geopolitical gambit to offset China’s growing heft, as well as to highlight President Obama’s much-vaunted pivot to Asia.
Now comes the daunting political challenge of getting the pact through each country’s legislature.
In America, accomplishing this in the midst of a competitive presidential campaign will be especially challenging.
It’s a straight up or down majority vote in both the Senate and the House, and the stakes and pressures are equally high.
Passing these political hurdles is necessary to phase out thousands of import tariffs, as well as other barriers to international trade, such as Japanese regulations that keep out some American-made automobiles and trucks.
It’s also crucial in establishing uniform rules on corporations’ intellectual property and opening the internet – even in communist Vietnam.
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The issues covered in this historic TPP trade deal are deep and broad. For example, sensitive agricultural markets will be opened in Japan, Canada, and New Zealand.
Financial services reform means that foreign investors will have more opportunities to invest in fast-growing banks and consumer finance companies. And stronger intellectual property protection also means higher profits for pharmaceutical companies as well as the movie and music industries.
Lobbyists, CEOs, politicians, economic ministers, and industry mavens have descended on Washington, D.C., Tokyo, Sydney, and other capitals to plead for their special interests.
They know that just a paragraph, a sentence, or even a single word in the final documents can mean the difference between millions or billions of dollars in sales and profits gained – or lost.
Who Benefits Most From the TPP?
All the countries in the pact stand to gain in terms of exports and economic growth. Obviously, certain sectors will gain and others will lose, but it’s not a zero-sum game by any means.
For the United States, processed foods will be a big winner, particularly chicken and pork as opposed to beef, since both are more popular with Asian consumers and are less expensive.
As disposable incomes in these countries rise, the first thing families spend more money on is protein, with chicken and pork right at the bull’s eye.
Earlier this year, I recommended doubling down on American food company Hormel (HRL).
Hormel has roots going back to the 19th century; double-digit sales, profit, and earnings growth over the last decade; and almost 50 years of consecutive dividend growth.
Its top 30 brands garner the No. 1 or No. 2 spot in world markets.
International sales have tripled since 2005 and are up over 25% in the last year. Hormel itself is up 24.9% so far in 2015.
But more countries and companies stand to benefit than just Hormel. On Monday, check back with us to see which countries are positioned to come out ahead on the TTP deals.