The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies.
CANADA – The Trans-Pacific Partnership (TPP) promises to have a modest impact on Canada, according to research from the C.D. Howe Institute. In “Better in than Out? Canada and the Trans-Pacific Partnership,” authors Dan Ciuriak, Ali Dadkhah, and Jingliang Xiao, find that some sectors will benefit from the TPP, while for others, the TPP will not go far enough. However, Canada would forgo any gains, and experience additional modest losses from not ratifying the TPP.
“Canada, along with Malaysia and New Zealand, make tangible gains in terms of exports resulting from the TPP,” state the authors. “However, as a trade deal, the TPP mainly benefits the United States, Vietnam, and Japan. These three parties account for about 87 percent of intra-TPP export and 91 percent of intra-TPP import gains,” they add. For the remaining parties, which notably include all the Latin American parties, the deal is essentially a wash in trade terms.
Through implementing a ground-breaking methodology, the report analyses elements of the TPP that can be measured with reasonable precision. It finds that, if ratified, the TPP would:
- Boost Canadian household income by C$485 million in 2018, measured in 2016 dollars, rising to about C$3 billion, in 2035, when the full impacts of the TPP have been realized.
- Increase real GDP by about 0.02 percent in 2018, rising to about 0.08 percent in 2035, driven by an increase in two-way trade with TPP partners of about C$4.3 billion as of 2035.
- Increase foreign direct investment by about C$1.3 billion by 2035, driven mainly by the TPP’s income effects as the agreement implies minimal change to an already highly open investment regime.
- Result in major gains in trade for agricultural produce, meat products (mainly pork and beef), and downstream food products.
- Affect Canada’s trade sensitive sectors, the dairy and automotive sectors: both experience a relatively large decline in total shipments, although these are small in terms of the total percentage of shipments of each sector.
- Negatively impact industrial sectors, including textiles and apparel, the chemicals-plastics-rubber complex, and metal products. Wood products and transport equipment buck this trend and make gains.
- Produce gains in business and financial services in TPP export markets, although the major expansion in services is in the non-traded sectors through indirect income effects.
The authors also test the implications if Canada does not ratify the agreement. They find that:
- The welfare cost to Canada would be minor in the short term – about C$290 million in the first year of implementation – but would rise to about C$1.7 billion by 2035 when the full impacts of the TPP would have been realized.
- The real GDP impact would be a negligible -0.006 percent in the first year, rising to about -0.026 percent in 2035.
- The main sectors that would lose in trade terms would be beef and canola crushing, as well as the financial services and business services sectors, which would see exports to the TPP partners reduced.
- For a number of sectors, such as automobiles, the losses predicted under the TPP cannot be avoided by Canada staying out.
“The question we put to the TPP text is: show us the money. There is some money in the TPP for Canada but the trade gains are relatively modest and the income and welfare impacts are commensurately modest as well,” state the authors, adding, “What our analysis suggests is that even ambitious, so-called deep and comprehensive agreements like the TPP have limited traction in what is an already highly open global economy, which features many parallel processes chipping away at irritants to trade and investment.”
