What the TPP means for trade in Latin America

These are turbulent times for international trade. The massive economic crisis that unfolded in 2008 has not only intensified political tensions within several countries but has also had an impact on an international scale, which is being reflected in, among other things, a shifting global trade map. The resurgence of nationalism has prompted various countries to dust off the flags of trade protectionism, led mainly by the government of Donald Trump in the United States and Teresa May in the United Kingdom.

Just as trade protectionism is being highly debated, globalization is not dying down and new business opportunities are arising, which is quite intersting for countries in Latin America. In early March, 11 countries signed the Trans-Pacific Partnership Agreement (TTP 11) in Santiago, Chile. This agreement, in which Canada, Mexico, Chile, Peru, Japan, Vietnam, Malaysia, Singapore, Brunei, Australia and New Zealand are participating, will eliminate between 65% to 100% of tariffs among member countries over time.

The United States did not take part in the agreement despite having been one of its major proponents as part of its strategy to counteract the rise of China in the Pacific. Trump has not only removed the U.S. from the TPP, but he has also paralyzed negotiations of the Transatlantic Trade and Investment Association (the well-known TTIP) with the European Union and threatened the rip up the North American Free Trade Association (NAFTA) with Canada and Mexico. Meanwhile, the countries of South East Asia, including China, continue their internationalization.

Even without the United States’ participation, the TPP represents one of the most far-reaching regional agreements and is the world’s largest free trade pact currently underway. The11 signatories represent around 500 million people and 15% of world trade. An analysis by the Peterson Institute estimates that the treaty could generate some USD 147 billion and thousands of new jobs in the signatory countries. But beyond the figures, the treaty is a sign that many countries are in favor of international alliances at a time when some leaders are questioning them.

This new agreement includes three Latin American countries: Chile, Mexico and Peru, for whom it represents a huge opportunity for trade. For Mexico, just as its northern neighbor and main trading partner is turning its back, the TPP opens up an alternative route to diversifing its export destinations and attracting foreign investment from countries other than the United States. For Peru and Chile, the treaty marks a big step toward making the most of their geographic positions as Pacific-facing countries, now a region of focus in world trade.

The expansionist aim of the TPP may also lead to future opportunities for other Pacific-facing countries in Latin America. One such country is Colombia, which is in a peculiar situation of being part of the Pacific Alliance with Mexico, Peru and Chile, but is not part of the TPP as the other three countries are. The hope is that in the future Colombia, Ecuador and several Central American countries can also benefit from this transoceanic trade agreement.

latinoamerica21_logo.jpgDavid Castells-Quintana, professor in economics at the Autonomous University of Barcelona, specializes in international economics, urban economics and economic development.

Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: En Chile se firma el acuerdo Transpacífico mientras en EEUU se inicia una guerra comercial.

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*Guest blog posts do not reflect the views of FocusEconomics. 

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Date: March 19, 2018

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