When the Trans-Pacific Partnership died, it brought down with it many potential opportunities for middle-market companies. That shouldn’t stop midsize business from pursuing new markets for their goods and services, however.
The TPP was negotiated among 12 countries that border the Pacific Ocean: the United States, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. The pact’s goal was to deepen economic ties, slash tariffs and promote trade. These 12 nations represent roughly 40 percent of world trade. President Donald Trump withdrew the U.S. from the deal just three days after his inauguration on Jan. 20.
The death of TPP is a blow to the U.S. middle market, says Joe Brusuelas, chief economist at RSM US LLP. “The TPP represented the first multilateral treaty that put at its heart small and medium enterprises,” he says. Section 24 of the agreement, in particular, contained specific provisions that provided the middle market with opportunities “to participate in the global trade game for the first time in history.”
Yet, most companies had not taken specific actions to prepare for it. “I don’t think any companies had prepositioned themselves with the expectation that TPP would happen,” Brusuelas says.
“The death of TPP is a blow to the U.S. middle market. The TPP represented the first multilateral treaty that put at its heart small and medium enterprises.”
Joe Brusuelas, Chief Economist, RSM US LLP
The TPP offered middle-market companies opportunities to expand their markets, to streamline and lower costs of their supply chains, and to shift production to other markets, according to Kati Suominen, founder and CEO of Nextrade Group LLC, a consulting firm on leading-edge issues in world trade.
In a June 2016 survey of 400 C-level middle-market executives, more than one-third said they were considering new markets for expansion or contemplating reconfiguring their supply chains as a result of the TPP. In the survey, conducted by The National Center for the Middle Market, Fedex and Nextrade Group, 58 percent of respondents were “two-way traders,” participating in both export and import. Survey respondents ranked NAFTA as the most important trade agreement, with TPP coming in second. Some 51 percent expected TPP to increase their exports and 92 percent expected it to help them expand to new markets outside the United States.
“The TPP offered middle-market companies opportunities to expand their markets, to streamline and lower costs of their supply chains, and to shift production to other markets.”
Kati Suominen, Founder & CEO, Nextrade Group LLC
The Most to Lose
The industries that would’ve benefited most from TPP include digital pure-play companies (such as e-commerce), automotive and agriculture, Suominen says. In particular, the TPP included sophisticated digital trade provisions that could have given digital firms in the U.S. the lead in “setting global rules for the digital economy,” she says.
Geographically, Japan was the big prize in the TPP. The TPP would have opened up the country to more suppliers in the automotive supply chain—including many middle-market companies—and to agricultural companies.
The TPP would’ve cut out much of the complexity middle-market companies face in international trade, says Thomas A. Stewart, executive director of the National Center for the Middle Market at Ohio State University’s Fisher College of Business. “Complexity is a higher hurdle for middle-market companies than it is for big companies,” he says, because they can’t afford large staffs of trade analysts and customs experts.
“The TPP would’ve cut out much of the complexity middle-market companies face in international trade.”
Thomas A. Stewart, Executive Director,
The National Center for the Middle Market at
Ohio State University’s Fisher College of Business
One middle-market executive sorry to see the TPP go is Roy Paulson, president of Paulson Manufacturing Corporation, a Temecula, California-based supplier of industrial safety equipment with about $20 million in annual sales. A vocal advocate of the TPP, Paulson viewed the opening of the Japanese market as one of the pact’s biggest benefits. Ironically, Japan was late in joining the treaty, which in turn caused a two-year delay in ratification by all parties and possibly contributed to its demise, he says.
Nevertheless, Paulson remains hopeful. The Trump administration has indicated it favors bilateral agreements, and Paulson thinks it may pursue such an agreement with Japan that could include some of the TPP provisions, sort of a “TPP 2.0.” Because Japan had already agreed to the provisions in TPP, a new bilateral agreement could be easy and quick to negotiate. “We’re not starting at zero,” he says.
But Paulson says companies shouldn’t wait for another trade agreement. Rather, start building business relationships with Japan now. “Why wait for a trade agreement?” he asks. “It pays to get there first.”
In addition, there are other free trade agreements in place that companies can leverage, particularly the North American Free Trade Agreement, which for now, at least, remains intact. President Trump’s rhetoric on NAFTA and other trade issues (such as building a wall and placing tariffs on Mexican imports) has riled countries south of the border. Paulson says one of his customers has put a very large order on hold, saying it wanted to wait and see what the president does.
“The middle market is an engine of job creation and economic growth. It needs these agreements.”
Kati Suominen, Founder & CEO, Nextrade Group LLC
RSM’s Brusuelas, however, thinks rumors about what Trump might do to NAFTA are a bit overblown. He notes that Wilbur Ross, incoming secretary of commerce, said in his congressional testimony that the administration wants to modernize NAFTA by making some changes in the way incoming goods are taxed, he says.
Meanwhile, Suominen of UCLA urges middle-market companies that stood to benefit from the TPP to speak out and make it clear how important the middle market is in international trade. In fact, while the middle market represents only about 3 percent of all U.S. companies, it accounts for more than one-third of U.S. private sector GDP and jobs, according to the NCMM survey report. “The middle market is an engine of job creation and economic growth,” she says. “It needs these agreements.”
Tam Harbert is an award-winning journalist specializing in technology, business and public policy.