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.
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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