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2016 Vol.3
Impacts of the Trans-Pacific Partnership (TPP) on Japanese business activity

2016/08/09

A basic agreement through the Trans-Pacific Partnership (TPP) negotiations was announced at the TPP ministerial meeting held in the U.S. city of Atlanta in October 2015. The TPP can be considered an agreement that adopts the balance-of-power concept, with the strong implication that the agreement will keep China in check by forming an economic bloc in the Asia-Pacific region. Based on economic and military might, it centers on the U.S., which aspires to maintain and expand the global standard of so-called free competition, to counter China, which aims for a global hegemony based on the Chinese standard as it approaches the centennial of its founding in 2049. Failing to maintain the global standard in the Asia-Pacific region risks the absence of a global counterbalance to China, which is attempting to permeate the Eurasian continent with the Chinese standard under the Asian Infrastructure Investment Bank and the Belt and Road Initiative. Because China’s global voice will gradually grow, potentially creating pressure for a change in the conventional global standard unless there is a counterbalancing voice, the TPP will likely be moved toward officially taking effect so long as no significant destabilization results from the U.S. presidential election, which will take place on November 6, 2016. The TPP officially taking effect would have three broad impacts on Japanese companies. In terms of benefits, it would expand the scale of business and reduce costs through a review of manufacturing centers. Despite this, it would be potentially disadvantageous if it leads to stiffer competition and a deterioration of profitability due to an increase in imports from overseas. While the specific impacts would vary by industry, the food industry is particularly vulnerable to this possibility. In the food industry five key products in the Japanese market, both upstream and downstream, would likely suffer deteriorated profitability with an increase in imports from overseas. This impact would, of course, be mitigated by a range of government assistance measures, but considering that Japan’s trade liberalization rate is low compared to that of other TPP member states even at the best of times, it will be important to seek to bolster medium-term competitiveness by shifting U.S. and Oceania production centers overseas and working to strengthen overseas supply centers, rather than waiting to see what capacity the government has to pass and fulfill proactive assistance measures.

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