New TTP a boon for Australia

The TPP should make it easier for financial, legal, and other professional services.

The government must be crossing its fingers Australians are more sophisticated than Americans when it comes to trade. US President Donald Trump swept to power in 2016 promising to torpedo the Trans-Pacific Partnership, the 12-nation trade pact Japan and Australia have, somewhat impressively, now managed to revive.

Australians’ ascent up the living standards league table since the 1980s has occurred at the same time as governments have slashed trade barriers. We have the world’s highest take-up rates for new technology, which is typically developed overseas.

We shouldn’t need modelling to tell us that larger markets and more consistent rules make for a more favourable environment for competition, innovation, specialisation, which should ultimately foster higher living standards.

Even without the US, the TPP is a significant economic and political achievement, giving Australian firms better access to famously closed Japan — still the world’s third biggest and in some areas most advanced economy — and 130 million Mexicans, who might be looking to shift their trade to other developed nations.

It also strikes a blow against protectionism, coming at a time of rising trade barriers and a worrying slowdown in global trade growth.

It’s naive to worry about the damage this TPP-lite might do to traditional manufacturing industries — that horse has bolted. Its biggest and most beneficial impact, especially in countries like Australia that slashed tariffs decades ago, will be felt in services, which make up the bulk of jobs and have been exposed to relatively little international competition.

While light on details, the TPP should make it easier for financial, legal and other professional services, perhaps even medical, to do business in each other’s markets.

Overall, the biggest winners will be the poorer signatories, such as Vietnam and Malaysia, who stand to reap the biggest benefits from potential infusions of foreign know-how.

It’s hardly paradise though. Conventional economics might laud freer trade but it’s contentious for a reason: it creates losers, especially in the short to medium term. Access to cheaper goods and services might not be enough compensation for lost incomes and dignity for those whose jobs vanish.

“Those who believe that (the TPP), like the previous ones, would have provided lopsided benefits had ample reason to be concerned,” writes Danie Rodik, a top trade economist, in his new book, Straight Talk on Trade.

He argues that economic models’ predictions have not reflected the facts, especially in the US.

In any case, the government would be wise to dwell on specific examples of changes that will concretely benefit Australian firms, or cause lower prices of goods and services at home, not on the theory. In a climate of sluggish wage growth, perhaps trade reform that lowers prices could even be popular.