Fifteen Asia-Pacific nations including China aim to clinch the world’s largest free-trade agreement this weekend, the culmination of Beijing’s decade-long quest for greater economic integration with a region that encompasses nearly a third of the global gross domestic product.
The Regional Comprehensive Economic Partnership (RCEP), which includes countries stretching from Japan to Australia and New Zealand, aims to reduce tariffs, strengthen supply chains with common rules of origin, and codify new e-commerce rules. Its passage may disadvantage some US companies and other multinationals outside the zone, particularly after President Donald Trump withdrew from talks on a separate Asia-Pacific trade deal formerly known as the Trans-Pacific Partnership.
Following the withdrawal of India from RCEP negotiations last year, the remaining 15 nations sought to announce the agreement by the end of this week’s Asean Summit, which Vietnam is hosting virtually. Malaysia’s Trade Minister Azmin Ali told reporters the deal would be signed on Sunday, calling it the culmination of “eight years of negotiating with blood, sweat and tears.”
“China has pulled off a diplomatic coup in dragging RCEP over the line,” said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings. “While RCEP is shallow, at least compared to TPP, it is broad, covering many economies and goods, and this is a rarity in these more protectionist times.”
The impact may extend beyond the region. The deal’s advance illustrates how Trump’s move to withdraw from the TPP — now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — has diminished America’s ability to counterbalance China’s economic clout with its neighbors. That challenge may soon shift to President-elect Joe Biden if, as expected, he’s officially certified the winner of the November 3 election.
The question of whether RCEP changes the regional dynamic in favor of China depends on the US response, said William Reinsch, a trade official in the Clinton administration and senior adviser at the Center for Strategic and International Studies in Washington.
“If the US continues to ignore or bully the countries there, the influence pendulum will swing toward China,” Reinsch said. “If Biden has a credible plan to restore the US presence and influence in the region, then the pendulum could swing back our way.”
Even though RCEP isn’t as far-reaching as the TPP, its implementation could make it harder for US businesses to compete with a Chinese-backed partnership that encompasses 2.2 billion people with a combined GDP of about $26 trillion.
Biden and TPP
Still, many countries participating in the trade deal are also wary of becoming too economically dependent on China. Japan is among countries that have looked to reassess supply chains in China, and Beijing’s move to effectively ban key Australian exports after its government called for an investigation into the origin of the coronavirus underscored the risk of relying too much on the world’s second-biggest economy.
While it remains politically tricky for Biden to join the successor to the TPP, some analysts still see that as the best vehicle for the US to deepen economic ties with the region.
“The choice for Biden is clear,” said Mary Lovely, a Syracuse University economics professor. “Return the US to the Trans-Pacific Partnership to ensure access for US companies.