Newly signed deal to create the largest trading block in the world
The Trans-Pacific Partnership (TPP) has been approved on a provisional basis by its 12 members after a gruelling session in Atlanta. Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S., and Vietnam will lower tariffs to create a market of 800 million consumers accounting for nearly $30 trillion in economic activity. The TPP membership strikes a balance between developed and emerging markets. There is still work to be done as the approval was the first step and negotiators must now go back to their respective countries and seek to ratify the deal domestically.
The TPP agreement has been gathering momentum over the past two years. From an original list of 4: Brunei, Chile, New Zealand, and Singapore in 2006, membership grew to the final 12 in 2012. After three years of tough negotiations, a deal was reached on October 5, 2015. The healthy balance of developed and emerging nations means that there is an opportunity for consumer demand to grow in all members as tariff reductions translate into lower prices from everything from milk products up to heavy machinery.
Here are three cases of benefits to Emerging Market economies:
Malaysia to Benefit from Drop in Technology Tariffs
Low commodity prices have impacted Malaysian exports, but the TPP offers the South Asian economy a way to increase exports of technology to members as well as reduce the cost of integrated circuits from partners Japan and the U.S. 40% of Malaysian exports are destined for TPP member nations; this number is bound to rise as tariffs make Malaysian products more attractive with partners new and old.
Mexico’s Heavy Machinery Sector to Attract Investment
The top four Mexican exports are vehicles, electronic equipment, machines and oil. Mexico was able to transition out from a low value added manufacturing nation into a specialized producer of autos and heavy machinery. No stranger to international trade agreements, the North American Free Trade Agreement (NAFTA) has transformed the face of Mexican manufacturing and has provided a bridge for Asian nations to build near shore capabilities to serve the vast U.S. market. The TPP agreement will boost Mexico’s profile as an investment destination for medium to long-term projects in the auto industry and heavy machinery manufacturing.
Vietnam to Diversify Export Destinations
Vietnam’s trade has expanded in Asia, but outside of the U.S. it does very little in North America. The TPP opens the door to an expansion of trade with Canada and Mexico beyond current levels. Australia is another export market that should jump up to a double-digit tier for Vietnamese products after the TPP finally gets under way.
Excel funds is your expert on policies and investing in the emerging markets of the world. This new agreement is sure to spur economic growth worldwide. For those interested in getting involved, we have the Excel Emerging Markets Fund.