It appears highly likely that one of the big losers of the current election cycle is going to be the Trans-Pacific Partnership trade agreement (“TPP”), which has emerged as a target of bitter polemic attack from leading candidates of both parties.
While we’re still over seven months away from knowing the big winner of the 2016 U.S. presidential sweepstakes, it appears highly likely that one of the big losers of the current election cycle is going to be the Trans-Pacific Partnership trade agreement (“TPP”), which has emerged as a target of bitter polemic attack from leading candidates of both parties.
It was with much fanfare last October that the representatives from 12 Pacific nations (excluding China) announced they had finally reached agreement on the TPP after years of negotiations. But the Obama administration’s hope for securing Congressional approval seems farfetched in this lame duck year, especially now that Donald Trump, Hillary Clinton and Bernie Sanders have all voiced their opposition to it. Indeed, opposition to the TPP appears to be one of the few issues where there’s broad consensus, drawing sharp criticism from both the left and right end of the U.S. political spectrum, enough to cause even centrists (such as Clinton) who usually support the free trade agenda to back away from TPP.
The vocal opposition and dim prospects for TPP approval in the U.S. Congress come at a time when the global trade and investment flows are already encountering strong headwinds as a result of deteriorating economic conditions and sharp currency fluctuations in many emerging markets over the last year.
According to a recent research report from UBS’ analysts Paul Donovan and Sophie Constable, the problem is actually more severe with respect to global capital flows, which have actually dropped further and faster than global trade. You can read a fuller summary of the UBS report here.
While the fall-off in global trade has been much discussed, and largely understood as a secondary effect of the current slow down in China, according to the UBS’ analysts global investment flows shrank even more significantly in the aftermath of the 2008 financial crisis and have still not recovered to the same degree that global trade has. Donovan and Constable identify at least three major factors have contributed to the persistent sluggish pace of cross-border investment – heightened political risk, the increased frequency of central bank intervention in foreign exchange markets, as well as regulatory changes affecting global finance. The upshot is that international capital now appears harder than ever to come by, with laggard emerging market economies most vulnerable to the risk of capital starvation.
Recent news reports offer some further support for the UBS’ analysis, with the fate of emerging markets diverging based on perceived differences in political and currency risk. Whereas Bloomberg reports that foreign investment in Nigeria is approaching a standstill this year, as a result of heightened concerns of devaluation, it also reports Vietnam enjoyed record high foreign investment last year, thanks to liberalization of its foreign investment rules in anticipation of passage of the TPP.
No doubt, along with the diminished prospects for TPP’s passage in the current political climate, there are increasing pressures and obstacles to global investment flow, all of which weigh heavily on business growth around the world. But here at Aurigin (formerly BankerBay), with or without the TPP in place, we remain big believers in the significant benefits for investors and companies alike in increasing the awareness and opportunity for participating in global investment. While there is very little we can do to ameliorate political risk or currency devaluation, we are nonetheless strongly committed to solving an important part of global investment puzzle by simply removing the barriers to deal discovery and information flow. That’s a key part of our strategy as the preeminent deal platform where investors can discover the right investment opportunities around the world.