Trans Pacific Partnership deal signed - what does it mean?

The Trans Pacific Partnership (TPP) was signed in New Zealand on Thursday. It creates a free trade area that accounts for 40% of world trade and 800 million people.

Economists know that when trade barriers are reduced there will be more specialisation, more trade and higher real income. On the whole people will become better off. So why are there so many protests against the PTT?

The problem with removing protection from domestic industries (by removing tariffs in the case of the PTT) is that expensive domestic production is replaced by cheaper overseas production (known as trade creation). This is good for consumers, but bad for workers who earn their living in the previously protected sectors. While overall society is better off the pain of the deal is concentrated on a few.

There will be some losers outside of the TPP. Those who now find themselves uncompetitive because they continue to pay tariffs on their exports to TPP members. This 'trade diversion' is, according to studies, quite small.

The TPP is a significant change to world trade. The BBC page below links to a number of others that explore the new Free Trade Area, which includes Australia. The winners and losers are explained and the details of the deal are explored.

The BBC front page is here

This story is relevant to both IB and VCE Economics. 

VCE students should look at this and be able to explain the pros and cons of the deal and be able to explain how it will affect the standard of living in Australia.

IB students should be able to apply the theory of trade to the TPP. There are numerous opportunities to find good IA source material.