Economic Impact of the United States withdrawal from Trans-Pacific Partnership on Canada: A Computable General Equilibrium Based Analysis
Journal of Applied Business and Economics
Canada has recently concluded negotiations on Trans-Pacific Partnership (TPP) with 11 major Pacific Rim countries. The TPP's provisions for market access include elimination of barriers to trade and investment among various member countries. The TPP would have a potential economic impact on its member countries (including Canada). The United States (U.S.) is the largest trade partner for Canada, as it represents more than 80 and 90 percent of Canadian imports and exports, respectively, from and
... pectively, from and to the TPP region. Thus, in spite of the United States (U.S.) withdrawal from the TPP region, one may expect the agreement to still have an impact on the Canadian economy through changing trade dynamics with currently closed and large trading partners, such as Japan. In this study, we built a Computable General Equilibrium (CGE) model based on the Global Trade Analysis Project (GTAP) model and database to assess the economic impact of the U.S. withdrawal from TPP agreement on the Canadian economy. Our model included 13 regions, 15 sectors, and three factors of production. Three scenarios were simulated to capture the economic impact of the U.S. withdrawal from TPP on Canada: One, Baseline scenario, where we developed a growth projection model to simulate the economic and trade growth among the TPP member countries and the rest of the world in 2030 without the TPP. In this scenario, we accounted for the natural growth for all the regions based on past performance in terms of population, labour force, and capital. We also accounted for other Free Trade Agreements (FTAs) between TPP members, which may be implemented over the coming decade. Two, In the second scenario, TPP12 scenario, we assumed that the TPP would be fully implemented by 2030 assuming that the U.S. is a part of the agreement. We eliminated all the remaining tariffs on the agricultural and non-agricultural sectors between the TPP member countries to capture the actual impact of TPP on Canadian economy. Three, In the third scenario, TPP11, we assumed that U.S. had withdrawn from the TPP and the other 11 country members (including Canada) do business in spite of it. The study showed that both TPP12 and TPP11 will generate long-term economic gains for Canada. If the TPP is fully implemented in the absence of the U.S. (Scenario TPP11), the impact on Canada will be similar to TPP12 scenario, although it will generate major trade diversion from the U.S. toward other TPP member countries. Total Canadian imports and exports are projected to decrease by 0.26 (1.6 billion USD) and 0.35 (2.7 billion USD) percent, respectively. This net change is a combination of trade creation with TPP11 region and Rest of World (RoW) and diversion of trade flows from the U.S. On the agricultural side, Canada total agricultural imports from TPP11 and RoW will increase by 20.75 (834 million USD) and 25.34 (2.6 billion USD) percent, respectively, while it will decrease by 18 percent (6.4 billion USD) from the U.S. leaving Canada with 6.11 percent (nearly 3 billion) decrease in its net total agricultural imports. Canada agricultural exports, will experience increases to TPP11 region by 8.57 percent (1.6 billion USD) and decrease to the U.S. and RoW by 3.86 (1.4 billion USD) and 1.61 (523 million USD) percent, respectively relative to TPP12 scenarios.