The election of Donald Trump as the next president of the United States seems to have sealed the fate of the Trans-Pacific Partnership. The president-elect has promised to withdraw the United States from this 12-nation trade deal on his first day in office, and the Congressional Republican leadership will not bring the TPP to a vote in the lame-duck session. The priority for establishment Republicans is to repair relations with Trump, not to alienate him on a defining issue of his candidacy—trade-bashing—which so powerfully mobilized Trump’s supporters. The TPP’s death certificate appears ready to be stamped and mailed. To be sure, the TPP’s only future is a renegotiation, but a renegotiation that during the Trump presidency will most likely not include the United States. The day the United States withdraws from the TPP, the remaining 11 members need only change one clause to give the TPP a new lease on life. They could simply amend the enactment rules so that U.S. participation is no longer required for implementation of the trade deal. Obviously, the original TPP is a carefully calibrated package, and TPP parties agreed to many politically sensitive concessions with the calculus that they would be compensated by improved access to the vast American market. But the trading world changed with the American election, and those gains are no longer on the table as of November 9. We should not jump to the conclusion, however, that a TPP without the United States is without value for the remaining members. In fact, a relaunched TPP could be the best vehicle for these countries to adapt to the new—and harsher—reality of international trade in a world increasingly consumed by populism, especially considering that Trump may feel compelled in the early stages of his tenure to deliver on the disruptive elements of his trade agenda: withdrawing from the TPP, threatening to terminate NAFTA to force a renegotiation, naming China a currency manipulator, and possibly imposing punitive tariffs on Chinese imports. In this new world of resurgent protectionism, the value of the TPP rises significantly. In this new world of resurgent protectionism, the value of the TPP rises significantly. Consider the following benefits for Japan, in particular, but also for the other members: First, in the medium to longer term, Trump has hinted he would like to revert to trade bilateralism, negotiating trade agreements with one nation at a time, and with terms that are tilted in favor of the United States. Japan has a much better chance to negotiate a trade agreement that serves its own economic interests if it has alternatives to a no-deal—a longstanding insight of negotiation dynamics. Hence, a relaunched TPP strengthens Japan’s hand in future trade negotiations. Second, a revived TPP will also help Japan position itself more effectively vis-à-vis China in the on-going negotiations to create an East Asian trade grouping, the Regional Comprehensive Economic Partnership (RCEP). The day after the election, China announced its intention to re-energize these negotiations, which until now had been slow-moving. Asia then is ready to move on, but at China’s direction. By restoring the TPP, Japan and the other countries will salvage a trade and investment rule book (the first of its kind in two decades) needed to galvanize the global value chain, and in so doing they will ensure that low-standard liberalization does not become the dominant template for Asia and the world. Third, as export-oriented economies, Japan and many other Asian economies in the TPP have an interest in recharging international trade at a time when it has experienced its most significant slowdown in fifty years. One of the reasons for the weakness in trade growth is the lack of liberalizing initiatives. An implemented TPP —with fresh gains from reduced trade costs—would have a salutary effect, and will also encourage more liberalizing outcomes in RCEP. Fourth, by refusing to bury the TPP, Japan and the remaining countries will also keep open the option for a future American return to the trade grouping. American companies stand to benefit from the implementation of TPP standards in the region that strengthen IP protection, the free flow of data, and improve competition law, to name a few. But they will also suffer from the pinch of trade and investment diversion that comes from exclusion, creating a powerful incentive to seek entry. Moreover, the American public may become disenchanted with the false promise of protectionism to fix our national problems as a recession and job losses could well materialize. When populism loses its shine and the United States is ready to re-engage on trade diplomacy, seeking accession to an existing trade framework that embraces our standards will be far easier than starting negotiations from scratch. The Trans-Pacific Partnership should go back to the original spirit of its predecessor agreement, the P4: a smaller trade grouping but with an unrivaled The Trans-Pacific Partnership should go back to the original spirit of its predecessor agreement, the P4: a smaller trade grouping but with an unrivaled level of ambition in tariff slashing and codification of next generation rules. Such a trade grouping can be a beacon of light at a time when the prospects for a liberal economic order are uncertain. But the ultimate success of the TPP will rest on leadership from Japan—the largest remaining economy in the TPP. The Japanese government has already taken the first step by ratifying the TPP; it should now take the second step by seeking a renegotiation that allows the agreement to come alive.

Read the closing case “The Trans Pacific Partnership (TPP) Is Dead; Long Live the CPTPP!” Discuss the case from the perspective of the following questions:

(a) What were the proposed benefits of the TPP?

(b) What were the potential drawbacks of the U.S. entering the TPP? What would be the drawbacks to other nations?

(c) Why do you think that Donald Trump was so adamantly opposed to the TPP

(d) Why do you think the 11 remaining signatories went ahead with a revised deal after the United States withdrew? ? Is the CPTTP a threat to American economic interests?

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$1,000 nt, 29 percent, and s the stocks period. ? on the given cent of uted, the y that y 3 A Job at Hillsdale Inc. you recently graduated from university, and your job search led you to Hillsdale Inc. Because you felt the company's busi- was taking off, you accepted a job offer. The first day on ness the job, while you are finishing your employment paperwork, Shane Shillingford, who works in Finance, stops by to inform you about the company's defined contribution (DC) pension plan A DC pension plan is a retirement plan offered by many companies. Such plans are tax-deferred savings vehicles, meaning that any deposits you make into the plan are de- ducted from your current pre-tax income, so no current taxes be $80,000 per year. If you contribute $4,000 to the DC pen- are paid on the money. For example, assume your salary will sion plan, you will pay taxes on only $76,000 in income. There are also no taxes paid on any capital gains or income you withdraw money at retirement. As is fairly common, the company also has a 5 percent match. This means that the company will match your contribution up to 5 percent of your salary, but you must contribute to get the match. The DC pension plan has several options for investments, most of which are mutual funds. A mutual fund is a portfolio of assets. When you purchase shares in a mutual fund, you are actually purchasing partial ownership of the fund's assets. The return of the fund is the weighted average of the return of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee, paid to the fund manager. The management fee is compensation for the man- ager, who makes all of the investment decisions for the fund. Hillsdale Inc. uses TD Canada Trust as its DC pension plan administrator. Here are the investment options offered for employees: h MINI CASE Company Stock One option in the DC pension plan is stock in Hillsdale Inc. The company is currently privately held. How- ever, when you interviewed with the owner, Kevin Cooper, he informed you the company stock was expected to go public in the next three to four years. Until then, a company stock price is simply set each year by the board of directors. Financial Mario Canada. The fund is managed by Margot Richie and has out- performed the market in six of the last eight years. The fund charges 2.23 percent in expenses. TD Canadian Index Fund This mutual fund tracks the S&P/ the fund are weighted exactly the TSX Composite. Stocks same as the S&P/TSX Composite. This means the fund return wp.com is approximately the return on the S&P/TSX Composite, mi- nus expenses. Because an index fund purchases assets based on the composition of the index it is following, the fund man- ager is not required to research stocks and make investment decisions. The result is that the fund expenses are usually low. The TD Canadian Index Fund charges expenses of 0.84 per- cent of assets per year. TD Canadian Bond Fund This fund invests in long-term cor- porate bonds issued by Canada-domiciled companies. The fund is restricted to investments in bonds with an investment-grade credit rating. This fund charges 1.05 percent in expenses. -Calf Study (Jan 20 TD Canadian Money Market Fund This fund invests in short-term, high credit-quality debt instruments, which in- clude Treasury bills. As such, the return on the money market fund is only slightly higher than the return on Treasury bills. Because of the credit quality and short-term nature of the in- vestments, there is only a very slight risk of negative return. The fund charges 0.92 percent in expenses. QUESTIONS What advantages do the mutual funds offer compared to the company stock? TD Canadian Small-Cap Equity Fund This fund primarily. invests in small-capitalization stocks. As such, the returns of the fund are more volatile. The fund can also invest 10 percent of its assets in companies based outside Canada. This fund charges 2.42 percent in expenses. 5 TD Canadian Blue Chip Equity Fund This fund invests pri- marily in large-capitalization stocks of companies based in Assume that you invest 5 percent of your salary and re- ceive the full 5 percent match from Hillsdale Inc. What EAR do you earn from the match? What conclusions do you draw about matching plans? Assume you decide you should invest at least part of your money in large-capitalization stocks of companies based in Canada. What are the advantages and disadvantages of choosing the TD Canadian Blue Chip Equity Fund compared to the TD Canadian Index Fund? The returns on the TD Canadian Small-Cap Equity Fund are the most volatile of all the mutual funds offered in the DC pension plan. Why would you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also has the highest expenses. Does this affect your decision to invest in this fund? A measure of risk-adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard devia- tion. The standard deviation and return of the funds over the past 10 years are listed in the following table. Calcu- late the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of the com- pany stock will be 18 percent and 70 percent, respec- tively. Calculate the Sharpe ratio for the company stock. How appropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio? 10-Year Fund TD Canadian Index TD Canadian Small-Cap Equity TD Canadian Blue Chip Equity TD Canadian Bond Annual Standard return (%) deviation (%) 6.42 5.44 4.33 6.17 13.75 17.05 11.55 3.03 Source: theglobeandmail.com/globe-investor/funds-and-etfs/funds/ What portfolio allocation would you choose? Why? Ex- plain your thinking carefully. $1,000 nt, 29 percent, and s the stocks period. ? on the given cent of uted, the y that y 3 A Job at Hillsdale Inc. you recently graduated from university, and your job search led you to Hillsdale Inc. Because you felt the company's busi- was taking off, you accepted a job offer. The first day on ness the job, while you are finishing your employment paperwork, Shane Shillingford, who works in Finance, stops by to inform you about the company's defined contribution (DC) pension plan A DC pension plan is a retirement plan offered by many companies. Such plans are tax-deferred savings vehicles, meaning that any deposits you make into the plan are de- ducted from your current pre-tax income, so no current taxes be $80,000 per year. If you contribute $4,000 to the DC pen- are paid on the money. For example, assume your salary will sion plan, you will pay taxes on only $76,000 in income. There are also no taxes paid on any capital gains or income you withdraw money at retirement. As is fairly common, the company also has a 5 percent match. This means that the company will match your contribution up to 5 percent of your salary, but you must contribute to get the match. The DC pension plan has several options for investments, most of which are mutual funds. A mutual fund is a portfolio of assets. When you purchase shares in a mutual fund, you are actually purchasing partial ownership of the fund's assets. The return of the fund is the weighted average of the return of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee, paid to the fund manager. The management fee is compensation for the man- ager, who makes all of the investment decisions for the fund. Hillsdale Inc. uses TD Canada Trust as its DC pension plan administrator. Here are the investment options offered for employees: h MINI CASE Company Stock One option in the DC pension plan is stock in Hillsdale Inc. The company is currently privately held. How- ever, when you interviewed with the owner, Kevin Cooper, he informed you the company stock was expected to go public in the next three to four years. Until then, a company stock price is simply set each year by the board of directors. Financial Mario Canada. The fund is managed by Margot Richie and has out- performed the market in six of the last eight years. The fund charges 2.23 percent in expenses. TD Canadian Index Fund This mutual fund tracks the S&P/ the fund are weighted exactly the TSX Composite. Stocks same as the S&P/TSX Composite. This means the fund return wp.com is approximately the return on the S&P/TSX Composite, mi- nus expenses. Because an index fund purchases assets based on the composition of the index it is following, the fund man- ager is not required to research stocks and make investment decisions. The result is that the fund expenses are usually low. The TD Canadian Index Fund charges expenses of 0.84 per- cent of assets per year. TD Canadian Bond Fund This fund invests in long-term cor- porate bonds issued by Canada-domiciled companies. The fund is restricted to investments in bonds with an investment-grade credit rating. This fund charges 1.05 percent in expenses. -Calf Study (Jan 20 TD Canadian Money Market Fund This fund invests in short-term, high credit-quality debt instruments, which in- clude Treasury bills. As such, the return on the money market fund is only slightly higher than the return on Treasury bills. Because of the credit quality and short-term nature of the in- vestments, there is only a very slight risk of negative return. The fund charges 0.92 percent in expenses. QUESTIONS What advantages do the mutual funds offer compared to the company stock? TD Canadian Small-Cap Equity Fund This fund primarily. invests in small-capitalization stocks. As such, the returns of the fund are more volatile. The fund can also invest 10 percent of its assets in companies based outside Canada. This fund charges 2.42 percent in expenses. 5 TD Canadian Blue Chip Equity Fund This fund invests pri- marily in large-capitalization stocks of companies based in Assume that you invest 5 percent of your salary and re- ceive the full 5 percent match from Hillsdale Inc. What EAR do you earn from the match? What conclusions do you draw about matching plans? Assume you decide you should invest at least part of your money in large-capitalization stocks of companies based in Canada. What are the advantages and disadvantages of choosing the TD Canadian Blue Chip Equity Fund compared to the TD Canadian Index Fund? The returns on the TD Canadian Small-Cap Equity Fund are the most volatile of all the mutual funds offered in the DC pension plan. Why would you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also has the highest expenses. Does this affect your decision to invest in this fund? A measure of risk-adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard devia- tion. The standard deviation and return of the funds over the past 10 years are listed in the following table. Calcu- late the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of the com- pany stock will be 18 percent and 70 percent, respec- tively. Calculate the Sharpe ratio for the company stock. How appropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio? 10-Year Fund TD Canadian Index TD Canadian Small-Cap Equity TD Canadian Blue Chip Equity TD Canadian Bond Annual Standard return (%) deviation (%) 6.42 5.44 4.33 6.17 13.75 17.05 11.55 3.03 Source: theglobeandmail.com/globe-investor/funds-and-etfs/funds/ What portfolio allocation would you choose? Why? Ex- plain your thinking carefully.

Answer rating: 100% (QA)

a The TransPacific Partnership TPP was a proposed 12nation trade deal that would have reduced trade barriers and increased economic cooperation between the member countries The TPP was also seen as a ... View the full answer