Everything you need to know about the largest trading bloc in the world

Everything you need to know about the largest trading bloc in the world
Source: Athit Perawongmetha, Reuters
The 15 countries forming the new “Regional Comprehensive Economic Partnership” (RCEP) represent the world’s largest free-trade bloc and a sign that American influence in the Asia-Pacific region has largely slipped away in the era of “America First.”

15 countries in the Asia-Pacific region recently signed the world’s biggest regional trade deal, which supporters say will spur on increased trade among the signatories and hasten the recovery from the coronavirus pandemic.

Why is this such a big deal? Because the United States isn’t involved.

Having pulled out of the Trans-Pacific Partnership (TPP) by executive order in 2017, President Donald Trump’s administration has sought to fulfill that now-familiar campaign pledge of “America First.”

Trump, both in his 2016 campaign and during his presidency, had pledged to renegotiate “unfair trade deals” that he believed were “killing” the US.

But though the US has turned away from or otherwise disputed a number of international trade deals, the world has not paused to wait.

The 15 countries forming the new “Regional Comprehensive Economic Partnership” (RCEP) represent the world’s largest free-trade bloc and a sign that American influence in the Asia-Pacific region has largely slipped away in the era of “America First.”

World’s biggest bloc

The RCEP has been years in the making.

Planning and negotiations have been ongoing since the early 2010s, with the eventual trading bloc aiming to strengthen ties between China and members of the Association of Southeast Asian Nations (ASEAN).

In mid-November, the deal was finally announced. Involving some 15 member nations, the trading bloc encompasses a total population of some 2.2 billion people and has a combined gross domestic product (GDP) of US$26.2 trillion.

Some benefits of the deal include the elimination of tariffs on at least 92% of traded goods among participating countries, modernization in areas such as e-commerce and the promise of hastening the region’s recovery following the COVID-19 pandemic.

Analysts have predicted that the immediate economic benefit of RCEP may be modest and could even take years to fully materialize. The deal is not as wide-ranging as the TPP and many of the nations involved, especially the ASEAN member nations, already had little to no tariffs on trade.

Further reductions of tariffs may take years to implement, especially as the deal itself may also take years to be adopted by member nations.

Despite this, the deal represents a big symbolic win for China.

It’s the first time the country has ever joined a regional multilateral trade pact and unlike the TPP, the RCEP does not require member nations to take steps to liberalize their economies or make commitments to certain rights or standards, such as labor rights or environmental standards.

For Stanley Chao, Managing Director for All In Consulting and author of “Selling to China,” RCEP has big implications for China’s influence in the region.

RCEP solidifies China’s “stronghold on Asia, and blocks any possibility of the US to make inroads in Asia,” Chao told TMS.

Furthermore, alongside other priorities pursued by China such as the Belt and Road Initiative, China’s involvement in RCEP “will secure its position in the world and [among] allies,” even as the US seeks to “decouple” from the country economically, escalating geopolitical tensions.

According to Citi Research, “the diplomatic messaging of RCEP may be just as important as the economics.” That China has reached out to establish this new trading bloc and, with it, influence over the region, filling the space left behind by America’s withdrawal from its international commitments is a “coup for China.”

China is not alone in celebrating the deal. Various signatories have hailed the new trading bloc as signaling a brighter future for trade in the region as well as hastening the recovery from the coronavirus pandemic.

Australian Prime Minister Scott Morrison has hailed the new bloc as providing “better export opportunities” for Australia. With “one in five Australian jobs reliant on trade, the RCEP agreement will be crucial as Australia and the region begin to rebuild from the COVID-19 pandemic,” Morrison claimed.

Vietnamese Prime Minister Nguyen Xuan Phuc has stated that the new trading bloc will contribute to “developing supply chains that have been disrupted due to the pandemic as well as supporting economic recovery.”

India is one notable exception to the deal. Prime Minister Narendra Modi withdrew India from negotiations in November 2019, citing concerns that the deal failed to adequately protect Indian service workers and farmers.

Had it joined, India’s GDP was projected to grow by 1.1% by 2030. A clause to the deal allows India to rejoin the bloc, should it decide to do so.

US excluded

While its signatories are celebrating the new trading bloc and the opportunities it potentially offers, the US has been forced onto the sidelines.

During his 2016 presidential campaign, then-candidate Trump pledged to make the renegotiation of trade deals that he believed to be “unfair” toward the US a priority in his first term.

Among those deals that came under attack by the president were the North American Free Trade Agreement (NAFTA), the TPP and an assortment of trade deals America had made in the past with China.

In January 2017, the president followed up on a campaign pledge by signing an executive order withdrawing the US from the TPP, which he argued had been a “potential disaster for our country.”

According to Jennifer Hillman, a senior fellow for trade and international political economy at the Council on Foreign Relations, the formation of the RCEP shows that the rest of the world will not wait “until America gets its house in order” as it continues to struggle to deal with the pandemic and postelection political turmoil.

Consequently, the incoming administration of President-elect Joe Biden has big decisions to make.

For Chao, Biden will likely balance the need to “clean up the America First campaign started by Trump” as well as “unite America’s allies against China.”

Whatever path the Biden administration takes, Chao told TMS, RCEP does not take away the fact that the world is turning into “a bifurcated world – technically, geopolitically and economically.”

As nations choose between engaging with China or joining in America’s efforts to decouple and penalize it, Chao explained, the world is “heading into unchartered waters, and possibly dangerous times.”

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