Will The Scrapping of Trans-Pacific Partnership Impact UPS?

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The election of Donald Trump as the next U.S. president will have a significant impact on U.S. trade policies. In one of his first tweets after getting elected, president-elect Trump clarified that he would immediately pull out of  Trans-Pacific Partnership (TPP) after he takes office in January. [1]

The Trans-Pacific Partnership (TPP) was signed by twelve nations (Australia, Canada, Japan, Malaysia, Mexico, Peru, U.S., Vietnam, Chile, Brunei, Singapore, and New Zealand, which together account for roughly 40% of the world economy) in February 2016 and aimed at deepening economic ties between nations, promoting economic growth through job creation, slashing tariffs and fostering trade to boost growth. TPP would abolish about 18,000 taxes or tariffs levied on U.S. exports. The abolition of tariffs would allow better competition in lucrative partner markets, which would in turn benefit domestic producers in the U.S. and logistics companies.

The new government views TPP as a tool that would increase economic disparity and lead to wage stagnation. They believe that TPP would lead to a loss of jobs since it would be easier and cheaper for companies to manufacture products outside of the U.S. Pulling out of TPP would lead to complexities in trade, something that would impact logistics behemoths UPS (NYSE:UPS) and FedEx (NYSE: FDX). UPS’s global presence and logistical capabilities enable it to take advantage of such trade agreements. The company has been one of the vocal supporters of the TPP, and believes that free trade will help create jobs while also helping small-scale exporters boost revenues by opening up newer avenues for their products.

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Will Scrapping of TPP Impact UPS?

In the past few years, the booming e-commerce industry helped UPS drive revenues since it provides last-mile deliveries for online retailers. The growth in e-commerce has coincided with tougher times in export markets and global trade. With non-favorable exchange rates and slower-than-expected industrial growth, the company’s revenue share from international markets declined from 22.4% in 2013 to 20.8% in 2015.

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Going forward, e-commerce is expected to be the primary revenue driver for UPS. Currently, e-commerce deliveries contribute 46% of the total domestic packages that the company ships, and this is expected to rise to 51% by 2019. UPS is also taking adequate measures to ensure that it does not lose out on e-commerce growth.

TPP opens up new avenues for U.S. exporters, and subsequently UPS. In 2014, the U.S. exported goods worth $725 billion to the eleven participating nations. With TPP poised to improve the trade environment among the nations, this figure is likely to rise in the near future. The eleven participating countries provide 480 million potential customers for U.S. manufacturers, who can deliver products to them via companies such as UPS.

Hence, if the new administration pulls out of TPP, it would be detrimental to UPS’s growth opportunities in the Asia-Pacific market. At the same time, it would impact the 15 million jobs associated with the current trade agreement with the participating nations. [2]


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Notes:
  1. TPP: What is it and why does it matter?, BBC, November 22 2016 []
  2. How TPP benefits U.S. businesses, UPS []