by Emma Parrott
On the 15th of November, a trade deal was signed between Asian states. Though the signing wasn’t covered heavily in print or on the news in the United States, the treaty was of global significance. After four years of unsteady leadership from the United States, a large committee of Asian economic powers have decided to no longer look to Washington for leadership in global economic affairs. Instead, the Chinese government brokered a deal between Asian powers that bypassed the United States. And it seems China was quite encouraged by the deal, as Premier Li Keqiang, China’s second-highest official after Xi Jinping, stated that the pact was “a victory of multilateralism and free trade.” One thing is clear about the deal—it is likely to increase Chinese influence over the region for decades to come.
The trade deal is notable for its sheer size - covering 2.2 billion people and 29% of global gross domestic product, as well as how it will affect the economic balance of power in Asia for years to come. Fifteen countries, including classic U.S. allies Australia and South Korea will benefit from eliminated tariffs and more efficient customs procedures. Set over a period of 20 years, the deal will replace or enhance a number of pre-existing bilateral agreements between member-states. These deals are largely more ambitious or binding than RCEP, but the deal signed this November focuses on creating a regulated floor for trade deals and customs procedures. This ambition seeks to make economic activity and trade between member states more easily accessible and cost-effective. The effects of such a trade deal are global, with some experts predicting that the agreement will likely benefit Japan, South Korea, and most of all China, more than other members. One notable vacancy in the deal is India, who pulled out of RCEP negotiations in July of this year. India’s attempt in discussions to form a broader and more binding agreement, that would include trade in services between members, was dismissed by the Chinese government. India appears to still be interested in being involved in increasing trade in Greater Asia however.
The trade deal works by eliminating existing tariffs on goods between member states as well as making customs procedures between members more efficient and cost-effective. Though these agreements have major ramifications for global trade, member states still keep the right to place tariffs on imports that may be deemed “important or sensitive”. This agreement essentially consolidates existing trade agreements into one set of procedures, and provides a plan to reduce or eliminate tariffs between members in the next 20 years. While RCEP may appear to be simple and unimportant in the functioning of the global economy and specific economies like the United States, it most essentially incentives members of the deal to do business with each other. As Deborah Elms of the Asian Trade Centre stated, “Firms (within member-states) can just build and sell across the region with just one certificate of origin paper and no more juggling different forms and rules,” she says. The scope of countries signed on and their relationship with the United States and its imports prove the deal to be one that could change the entire balance of global trade.
China's role in brokering the deal and involvement in the substance of the agreement prove that the Chinese government finds this deal to be one that could benefit them in the future. The adversarial role of China in American trade furthers the idea that RCEP could be a threat to American trade. In addition, the deal is seen by experts as a move by China to reinforce their role as the dominant trade player in Asia.
As China and members seek to incentivize trade by lowering tariffs, the United States is left reeling. Lower trade barriers in member states could “encourage global companies trying to avoid Mr. Trump’s tariffs on Chinese-made goods to keep work in Asia rather than shift it to North America” said Mary Lovely, a senior fellow at the Peterson Institute for International Economics in Washington. The move hurts the state of American trade, one already damaged by a tariff war that only left global companies shying away work in the United States. The rise of China in the world economy was first addressed by former President Obama when he proposed and signed the Trans-Pacific Partnership in 2016. This deal in its substance and its politics was meant to limit the Chinese government’s influence in the global economy and even in their economy. The partnership was expected to increase the American GDP by $131 billion each year (starting from 2030) and cost China $18 billion. President Trump’s decision to pull out of the pact in 2017 provided the opening necessary for RCEP to be formed—a deal that will instead increase the GDP of the United States by a mere $1 billion and most importantly increase the GDP of China by $85 billion. For the US, the RCEP deal proves to be a consequence of Mr. Trump’s isolationist (coined as “America First”) foreign policy. It’s also clear this misstep may cost the United States billions of dollars per year and limit the ability of American companies to export in a cost-effective manner, hurting the very industries that Trump claims he is seeking to protect.
As America is left to watch and feel the effects of the deal, there will be challenges in fully ratifying the treaty and putting it into action. While leaders of members agreed to RCEP, it is now in the hands of the legislatures of each country to ratify it before being put into action. There are challenges to this goal, as Nick Marro of the Economist Intelligence Unit noted, “"Ratification will likely be tricky in national parliaments, owing to both anti-trade and anti-China sentiment,". Nine nations in the deal are tasked with completing this ratification before the deal goes into effect. While a deal can be heavily supported, or even led by the leader of a country, legislatures must ratify it. Conflict between branches of government can and have occurred, like in 2016, when President Obama signed the TPP but Congress declined to ratify it.
As member-nations begin to debate ratifying RCEP in their own legislatures, the U.S. will look to the Biden administration for cues. President-elect Biden has remained uncommitted to attempting to join the international trade deal once he is in office. RCEP proves to be a roadblock in reversing President Trump's choice to withdraw from multilateralism and move to isolationism, however, so Biden’s decision may be a sign of how aggressive his administration will be in efforts to revert from a Trump-era foreign policy. What is known, however, is that the deal is accepted by experts to be detrimental to the American economy from past deals, and that it only emboldens the Chinese government further.
President Trump decided to fight his trade war with China out in the open, hurting Americans and their economy in the process. RCEP, brokered by China, proves to be yet another consequence of an ill-fated approach to foreign policy. In November, the American people voted in a new administration that campaigned on an anti-isolationist foreign policy. Biden’s decisions in regards to RCEP will prove to have effects that may last decades and determine the next generation of global economic leaders, as well as determine how closely he sticks to his campaign promises once in office.