Last week, the Trans-Pacific Partnership (TPP) was finally signed. What does it mean for the global economy and the gold market?

After 19 rounds of negotiations spanning 5 years, the Trans-Pacific Partnership agreement was signed on October 5, becoming the most important economic news in the last week. This trade agreement between 12 Pacific Rim countries looks like a great deal for global economy, since it will eliminate more than 18,000 taxes and other trade barriers. This is why it is sometimes called “a new gold standard for global trade agreement”.

However, in fact, it has nothing to do with promoting free trade, but – like all other trade agreements of its type – it was designed to serve the strategic interests of the governments involved. The TPP is an American plan to impede China’s expansion into the Asia-Pacific region. Thus, it is not about trade liberalization, but about geopolitics and trade regulation. Free trade does not require interstate cooperation, as it can be introduced and expanded unilaterally. In other words, the TPP is the agreement to manage its members’ trade and investment relations – on behalf of business lobbies – and to hit China.

How could the signed agreement affect the global economy and the gold market? Well, its impact may be large, since it is the biggest trade pact in two decades encompassing 40 percent of the world economy. However, the closed nature of negotiations means that it remains impossible to gauge the full ramifications of the deal's passage. Additionally, the deal must be ratified by each country's legislature and tariffs are due to be lowered only gradually, which means that it may take many years before the economic benefits are actually felt. We can say that there may be increased trade and investment flows across the Pacific, which should be positive for the GDP in the countries involved. On the other hand, the TPP would further intensify the struggle between the U.S. and China, and hamper the economic growth by stricter trade regulations and enhanced protection for pharmaceutical drugs. On balance, its impact on the gold, if any at all, should be rather negative, as the agreement would support the U.S. (especially pharmaceutical and entertainment companies) at the expense of other countries.

The bottom line is that the TPP agreement was signed. It is not about trade liberalization, but trade regulation and the weakening of China’s influence in the Asia-Pacific region. Any possible positive effects of trade liberalization will be small and they will appear only after some time, thus the TPP’s impact on the gold market should be minimal, if any. The more intensified competition between the U.S. China could increase geopolitical concerns and led to some safe-haven demand for the shiny metal, but the improved position of Uncle Sam in the Asia-Pacific region may increase the credibility of the U.S. economy and, thus, exert some downward pressure on price of gold.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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