Boon or Bust: What will TPP Deliver to U.S. High-Tech?

As the electronics industry seeks to shape the contours of its global supply chain for the next quarter century and beyond, several key organizations representing high tech companies say the Trans-Pacific Partnership (TPP) trade agreement will provide fertile ground for new market growth while, at the same time, offering a counterbalance to China’s growing influence in several countries that are part of the Pacific Rim.

At a time when the Chinese government continues to blacklist the use of foreign-made technology in sensitive areas of the economy such as government agencies and the banking sector, and many companies including Cisco Systems, Inc., and IBM Corp., face stiff competition from Chinese companies selling similar technology to Chinese customers, the quest to support a trade deal that excludes China and opens new markets in the region has become more appealing to high tech companies.

“It is clear that [the Chinese] are not operating to the full spirit of free and open markets. This continues to remain a challenge,” said Devi Keller, director of global policy at the Semiconductor Industry Association (SIA). Keller noted that the TPP will significantly impact the high tech industry because it represents an opportunity to set new rules for TPP members in areas such as encryption and intellectual property.

“Having these new rules will be an important precedent for other nations that are not part of the TPP such as China,” Keller said.

Scott Belcher, CEO of the Telecommunications Industry Association (TIA), which represents manufacturers and suppliers of global communications networks, echoed Keller’s sentiments.

“I see the TPP as both a sword and a shield,” Belcher said. “I know that China is interested in being a part of the Trans-Pacific Partnership, but that cannot happen unless they completely reform how they treat foreign companies, and the way they treat intellectual property.”

In his assessment of China and its role in high tech development, Belcher points out that while the Chinese manufacture technology equipment, new product development and innovation is coming from the United States, Japan and Europe.

He also said China is facing its own set of problems, as wages increase, environmental concerns become more profound and the backlash from foreign governments over China’s isolationist policies continue to cause unease.

Many in the electronics industry believe that completing the TPP will strengthen the scope, depth and breadth of high-tech manufacturing and expand global value chains which rely on innovation, research and development, manufacturing, distribution and the free flow of information across the globe.

Research from the Peterson Institute for International Economics shows that the TPP agreement could yield annual global revenues of as much as $295 billion. The numbers suggest that it is worthwhile for the electronics industry to unlock the trade potential that exists among the 12 TPP nations – Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, Vietnam, Canada, Mexico, Peru and Chile and the U.S.

Breaking the numbers down further, several segments of the high tech sector will benefit from increased adoption of technology in many TPP member nations. In a recently published document from the Telecommunications Industry Association (TIA) entitled: TIA’s 2015 to 2018 ICT Market Review and Forecast, figures show that the Asia-Pacific region is the world’s largest telecommunications market at $1.8 trillion in 2014, followed by the U.S with $1.3 trillion and Europe at $1.2 trillion.

Delving deeper into particular segments of the telecommunications market, the document found that this year there will be an increase in spending on mobile broadband access as 4G networks and growing smartphone penetration take hold. Last year, smartphone penetration rose 66 percent in Australia, 57 percent in Japan and 60 percent in New Zealand.

The TPP group of nations also hold significant market prospects for chip manufacturers. Figures from the SIA indicate that U.S. exports of semiconductors to TPP countries totaled $17 billion in 2014 and accounted for 41 percent of total U.S. semiconductor exports to the world. U.S. semiconductor exports to the broader Asia-Pacific region totaled $36.5 billion in 2014, representing 85 percent of total U.S. semiconductor goods exported globally.

Keller said the semiconductor industry cannot reach its full potential unless it enjoys free markets that will allow companies to locate research and development projects around the world, establish facilities close to customers, and build manufacturing plants in locations that allow companies to generate profits.

With regard to China’s stated goal that it wants to be a leader in chip manufacturing by 2030, Keller said China will have to move away from isolationist policies if it wants to realize the full benefits of its efforts. She also believes the TPP will reinforce high tech’s global ecosystem and will, therefore, have an impact on China’s semiconductor plans.

“The TPP will play an important role in creating strong rules that support the global semiconductor industry and that could have a strong impact on China,” Keller said. “No global supply chain is complete without China. It’s an important market, but it’s not the only market,” Keller added.

She also said the TPP weakens the argument that China can disengage from a supply chain that is highly globalized and highly integrated.

“The message that we want to continue to get across to China is that as they develop their own industry they need to integrate with the global system and not try to build their own soup to nuts industry,” Keller added.