Thanks to the Economist for the title inspiration.
On November 15, the Regional Comprehensive Economic Partnership (RCEP) was formed by 15 Asia-Pacific nations. RCEP constitutes “the world’s largest free trade bloc.” Its formation is being touted as a “geopolitical victory for China,” which is a member, but the country’s role is being overstated in some media reports. As Brookings clarified, “RCEP, often labelled inaccurately as ‘China-led,’ is a triumph of ASEAN’s middle-power diplomacy.” Underscoring this, the agreement was signed on the margins of an ASEAN summit, in a meeting chaired by the Vietnamese prime minister.
RCEP is not as far-reaching as other trade deals, with former Australian PM Malcolm Turnbull describing it as a “really low ambition trade deal.” At the same time, “getting an agreement that could successfully navigate the domestic constraints and starting points in all 15 countries is an important accomplishment.” In addition, RCEP could provide a catalyst for closer economic integration between subsets of members.
The United States is not a member of the RCEP, which is not surprising, given it “likely believes the RCEP trade standards are too low with the inclusion of China and developing countries.” In any case, it is not clear if an invitation was ever extended.
What the United States did do, however, was pull out of the more ambitious Trans-Pacific Partnership (TPP) in the early days of the Trump administration. Prior to the U.S. withdrawal, RCEP was seen as a poor sister to TPP: a second-rate response by China to its exclusion from the party. It was seen as proof that, when it came down to it, the United States was the preferred partner for countries in the region. However, after Trump’s spurn, TPP lost much of its oomph (although it did not die completely, surviving as the repackaged Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)). Meanwhile, RCEP became the biggest show in town.
There are important takeaways from the RCEP’s establishment for the United States. First, it underscores the folly of having left TPP in the first place—and should serve as a warning against future protectionist temptations: a real risk for a Biden administration that will be pressured from its own party’s left flank and an opposition that developed a taste for economic nationalism. For U.S. allies in the region, the logical result of a combination of American apathy and growing economic interdependence with other Asia-Pacific countries will be less concern for U.S. priorities.
Second, the participation in RCEP of strong U.S. partners like Australia, Japan and South Korea highlights China’s importance to them as a trading partner, despite disagreements on security and other issues. As the American Enterprise Institute’s Michael Mazza mordantly pointed out, “Not a single one of the 14 other countries involved said, ‘You know what, I’m not going to sign an FTA with China while it’s undertaking a genocide. Thanks, but no thanks.'” Clearly, there there are limits to what America can expect from its allies in terms of confronting China, even under the best of circumstances.
Going forward, the United States should prioritize joining—well, rejoining—the CPTPP. The Biden administration will likely face opposition to this, including from within the Democratic ranks; heck, even Biden himself has expressed misgivings about TPP. However, what is at stake is nothing less than America’s ongoing relevance in Asia-Pacific.
Whatever the United States does though, RCEP will give rise to new opportunities for companies in Asia-Pacific. We will be looking at the specifics of the deal in a coming post.