Dive Brief:

• The eleven remaining parties to the Trans-Pacific Partnership (TPP 11) began negotiations on a similar deal last week, to see if the countries could salvage the agreement despite the U.S. withdrawal, Nikkei Asian Review reports. 
• In an effort to model the benefits of such a deal, the CanadaWest Foundation is set to publish a study next month, which POLITICO reports found economic gains for all signatories. However, the study found that the TPP 11 could lead to a $3 billion export loss for the U.S., compared to its projected $12.7 billion export gain under the original agreement.
• The biggest beneficiaries of such a deal would be Western Hemisphere countries, as well as automotive and business product exporters, who would benefit from free trade prices with both the U.S. and the TPP 11 region.

Dive Insight:

The TPP seemed doomed when, within days of taking office, President Donald Trump formally withdrew the U.S. from the controversial agreement.

Since then, however, Japan has taken the lead in salvaging the agreement — and appears to be largely succeeding. Nikkei Asian Review claims Japan expects a new deal this year, which, if the study reported by POLITICO holds true, would dole out harsh economic punishment to the U.S. for not being a part of the deal.

The development adds a new complication to an already unpredictable future trade environment and could throw a further wrench into planned negotiations with existing trade partners. In other words: If the NAFTA talks align in timing with the TPP 11 talks, then the U.S. may be stuck in a multi-level trade discussion where gains made through NAFTA could ultimately become losses through TPP 11.

Most importantly, supply chains are at the core of this multi-level game. After all, rules of origin — or what can be classified as a domestically-produced good — are expected to be a key topic discussed in upcoming NAFTA renegotiations.

Ideally, strict rules would encourage more domestic production. However, by lowering tariffs the TPP 11 countries could actually nullify any incentives gained from shifting production to the U.S. through lower intermediate costs. In other words, an auto supplier with an assembly plant in Mexico could be taxed more at the U.S. border, but pay fewer import costs for goods from Japan, Vietnam, Malaysia and Australia. And, with fewer finished good tariffs, auto makers can take advantage of lower export costs to those same markets.

That is just one possible example of the myriad changes that could happen in the long-run as both deals are negotiated. At the end of the day, it is important to remember months or even years full of uncertainty and rumors can elapse before any trade deal is ratified. 

However, the news reinforced the need to keep a watchful eye on the upcoming trade negotiations and stretch supply chain mapping muscles so when trade changes come knocking, no one is caught by surprise.