Major RCEP trade deal goes ahead with China — and without the U.S.

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We all remember the Obama-era Trans-Pacific Partnership (TTP) trade deal, right? The trade deal the U.S. withdrew from in early 2017 after President Donald Trump called it a disaster for American workers?

Well, Australia, Japan, and nine other countries went ahead with it, lowering tariffs and bolstering trade within the region.

But, crucially, TTP did not include China. Part of the attraction for the Obama administration was that the deal strengthened the U.S.’s role in Asian regional trade at the expense of China.

Even so, the deal was also a source of puzzlement to participants at the time. The argument went, if it did not include China, then why was the U.S. so worried about American jobs (as TTP gave no privileges to China)?

Two years on and the region has just signed an even larger agreement.

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RCEP trade deal and worries over China’s dominance

The Regional Comprehensive Economic Partnership (RCEP) cuts tariffs on trade across a new trade zone larger than the E.U. in population. Gross domestic product of the zone represents some 30% of the global total, the Washington Post reports.

Unfortunately, America’s absence from this agreement has left the way clear for Chinese dominance.

The U.S.’s absence also contributed to the withdrawal of Asia’s third-largest economy India from the agreement.

There is still some trepidation, even among parties that have signed up, that without the counterbalance of the U.S., the agreement leaves China in too dominant a position.

Australian labor unions have questioned the deal. Singapore is concerned about the failure of RCEP to detail rules around issues like data privacy, IP protection, digital trade, and e-commerce. These are all issues the U.S. would have put at the top of its agenda.

Promoting trade

Nevertheless, the new trade deal is the first to collectively include big hitters like China, Japan and South Korea.

The resulting reduction in tariffs will undoubtedly promote trade in the region. Companies will find it more economical to import from low-tariff neighbors than from Europe or the U.S.

In a working paper, Peter Petri and Michael Plummer of the Petersen Institute said the two new Asian trade deals, TTP and RCEP, would raise trade among members by $428 billion and global GDP by $186 billion by 2030.

The trend toward trade within the region, rather than along the U.S.-China axis, could accelerate the decoupling of the East Asian and U.S. economies by lowering regional East Asian trade costs.

The Association of Southeast Asian Nations (ASEAN) region has already become China’s largest trading partner this year. Meanwhile, its trade with the U.S. and Europe fell 10% and 5%, respectively, during the pandemic.

It seems unlikely a Biden administration is going to jump into any trade deals in the short term. It won’t certainly won’t jump into one with this level of complexity and moving parts.

However, it does illustrate the growing fragmentation of the trade landscape resulting from the U.S.’s withdrawal from engagement.

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Comment (1)

  1. samir sardana says:

    RCEP is the 1st among a pack of aces fielded by PRC in COVID times for the struggling nations of the ASEAN ! RCEP has knitted the ASEAN into the PRC garment.dindooohindoo

    The PRC has identified for the world,the “gateway to enter PRC”, via ASEAN. As time passes,wage increases and the rise in cost of living,in urban agglomerations,will provide the impetus to outsource,and shift manufacturing,to ASEAN.Rising costs are a signal,of the obsolescence of the business model and technology – and the driver,to re-engineer the manufacturing value chain.

    This outsourcing to ASEAN,will soak up the entire manufacturing capacity of ASEAN,boosting profits and wages in ASEAN nations.Chinese can partake in this wealth creation,in the ASEAN nations,as under:

    Lending to ASEAN companies by Chinese Banks like CCB etc.
    VC and PE stakes in ASEAN companies,with exits on the HKEX or NYSE
    JV with ASEAN companies

    Hence,there will be a continuous pipeline of transfer of technology and products from PRC to ASEAN at a competitive cost,and with a stand-by financing from Chinese Banks.

    This will make the ASEAN people and the ASEAN governments DEPENDENT on PRC,and enable ASEAN to be partners in the PRC success story.Thereafter,excluding Nippon and South Korea,no other nation will ally with the Americans,and might also, not allow their ports,to be used by the US Navy – as the financial and economic loss,will be tangible and huge – with no ostensible strategic benefits,to the ASEAN nations.

    RCEP has knitted the ASEAN into the PRC garment.

    Meanwhile PRC companies can focus on AI,Robotics and Nano to drive up the manufacturing value chain – with collaborations with EU companies and keep the Chinese skilled workers at the cutting edge of change.

    Simultaneous with the above, the RCEP region (minus Nippon and Australia) can use the Yuan as the FX and even conclude agreements with OPEC or Saudis,and other Break Bulk Raw Material supply nations,to settle all purchases in Yuan (for the RCEP,as trading block).

    History,Geneaology,Providence,Culture and Geography,have destined PRC and ASEAN,to be an integrated block.

    What place does India have,in the block ?

    Nippon and Aussies bring in technical and management excellence (which India never had )

    Pakistan HAS to be given a choice to join RCEP,on the thesis that any SEZ of PRC,or a ASEAN owned SEZ o/s ASEAN, with an investment of,in excess of say,USD 35 Billion,can be DEEMED to be an EXTENSION,of the RCEP.

    POST RCEP, The Path for EU manufacturers is as clear,as the white sand on a black clay beach.German manufacturers have to relocate to ASEAN,for manufacturing,and THEN export to PRC,else they will lose tarriff and non-tarriff costs,of at least 5-10%.

    For those who complain about manufacturing regulations in PRC,and the costly and complex legal systems in PRC,the solution is to make in ASEAN,and seek legal redressal in ASEAN – and further,export their output to PRC.This will also secure the EU manufacturers,who wish to secure their assets,in democracies”.

    The inevitable crisis of AI,Nano and Robotics,will make most humans redundant,even in EU manufacturing.The least the EU can do,is to offshore production to ASEAN,to crash the costs for EU consumers – so that,if the EU has to feed 200 million people (after they are rendered redundant),they can be fed at the lowest cost.

    If the EU is PROTECTING its markets and industry, from the Chinese invasion,and thus,forfeiting unrestricted access for EU exporters to the market of PRC – that is a disaster -as the current manufacturing in EU,will ,in any case, become obsolete.

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