Resurrected trade deal will bring just 0.5% of real national income, economists say

This article is more than 2 years old

This article is more than 2 years old

The revived Trans-Pacific Partnership trade agreement will produce a “very small” benefit for Australia but the “symbolism” of the deal should not be underplayed, economists say.

Paul Dales and Katie Hickie from Capital Economics have written to clients saying the resurrected Trans-Pacific Partnership (TPP), announced by Malcolm Turnbull this week, will not produce the large benefits people think.

They say the boost to Australia’s economy will be “very small” and, of the 11 countries involved in the agreement, Australia will receive the smallest increase in national income.

Facebook Twitter Pinterest Part of Capital Economics’ analysis of the Trans-Pacific Partnership trade deal and its worth to Australia. Photograph: Peterson Institute

“The prime minister used data from the Peterson Institute to declare that the TPP will boost Australia’s real national income by $12bn by 2030,” they said.

“Now $12bn sounds a lot to you and me but, relative to the size of the economy, it’s not. It amounts to just 0.5% of real national income. That’s smaller than the projected boost to the incomes of the other 10 nations [involved in the trade deal].

“When spread over 12 years, the TPP may boost Australia’s economy by just 0.04% per year.

“A weakening in the Australian dollar from the dazzling high of US$0.81 would provide a bigger boost in the near term.”

Dales and Hickie also say the new TPP looks good – on the face of it – because it will open up Australia to economies whose GDP was US$9tn in 2016, or 12% of world GDP.

But if you take out Japan, with whom Australia already has a trade deal, the size of the TPP market falls to US$4trn, or 5% of world GDP, so the real opportunity is fairly small.

“After the US withdrew from the TPP this time last year, it’s hard to shake the ‘look at what you could have won’ feeling,” Dales and Hickie said. “The real incentive was easier access to the US$19trn US market, worth 25% of world GDP.”

Facebook Twitter Pinterest Capital Economics analysis of Trans Pacific Partnership trade deal (TPP) and its worth to Australia. Nominal GDP, 2016. Photograph: IMF

Labor has called on the Turnbull government to submit the revived agreement to economic analysis, saying the public has a right to know if it will actually benefit Australia.



James Pearson, the Australian Chamber of Commerce and Industry chief executive, has also called for the trade deal to be analysed properly.

But the treasurer, Scott Morrison, said Labor was stalling, and modelling was not needed to prove “economic common sense”.

“Labor would think you’d need economic modelling to decide whether you put your pants on one leg at a time,” he told Sky News on Thursday.

Turnbull said on Wednesday: “This is a multibillion-dollar win for Australian jobs. Australian workers, businesses, farmers and consumers will benefit.

“The government took a leadership role and worked hard to deliver the TPP because it will generate more Australian exports and create new Australian jobs.”

The original 12-country TPP had been on life support since Donald Trump withdrew the US from the deal a year ago, but the new and smaller 11-country deal will be signed in March.

The new agreement includes: Australia, Japan, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and Brunei Darussalam.