Today, through an Executive Order, President Trump formally withdrew the United States from the Trans Pacific Partnership Agreement (TPP) process. The TPP was negotiated under former President Barack Obama, but had not been ratified by the US Congress. As denouncing TPP has been a public pillar of the President's trade agenda, selecting TPP withdrawal as the topic of his first Executive Order on trade likely does not take importers by surprise.

The TPP would lower trade barriers amongst its 12, now 11, members (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam). While agreement was reached in October 2015, TPP requires ratification by the legislative bodies of the negotiating partners in order to take effect (at least six countries making up 85% of group's economic output must ratify the TPP by February 2018). Japan is the only country to have ratified the TPP thus far, and the future of the agreement is uncertain without US participation.

As to what US trade policy approach the President prefers, as compared to a multilateral agreement such as TPP, White House Press Secretary Sean Spicer stated today that bilateral agreements are in focus,

"We have existing relationships with many of the countries that were part of the 12 nation make up of TPP, and … we are going to continue to explore how we could in some cases strengthen those relationships or look for bilateral agreements with nations [where] we didn't have one … "

The US currently has bilateral trade agreements in place with Australia, Chile, Peru and Singapore. Mexico and Canada are trade partners under the North American Free Trade Agreement — which likely may be next on the President's trade agenda.

As compared to a bilateral agreement strategy, China has been actively involved in negotiating the Regional Comprehensive Economic Partnership (RCEP) agreement since 2012. Similarly, Vietnam is pursuing a regional and bilateral approach (as a member of Association of Southeast Asian Nations (ASEAN)) and has implemented or concluded free trade negotiations with many countries, including a pending agreement with the EU.

Implications

The actual impact of TPP withdrawal on the future of corporate operations will differ based on industry, supply chain organization and overall corporate strategies. However, the time for planning corporate trade strategy is now. With the new administration also signaling additional executive actions on trade later this week, companies should be looking ahead. An accurate understanding of trade flows using customs data better positions companies to assess and plan for any changes. Other planning techniques (involving supply chain design, employing duty reduction programs, such as First Sale for Export, Foreign Trade Zones, and the recently expanded US duty drawback program) should be front of mind.

———————————————