They are calling this a “diplomatic coup.”
With the ink barely dry on the free trade agreement covering 15 Asia-Pacific nations, the big winner appears to be China.
The political rewards are likely to be immense for the world’s second-largest economy after signing on to the Regional Comprehensive Economic Partnership at a virtual summit in Hanoi last week.
“China has pulled off a diplomatic coup in dragging RCEP over the line,” Shaun Roache, the Asia-Pacific chief economist at S&P Global Ratings, told the Bloomberg news network.
“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,” he added.
‘Biggest free trade deal’
In an alphabet soup of acronyms, the RCEP was born out of the Trans-Pacific Partnership or TPP, championed by US President Barak Obama and dumped by his successor Donald Trump.
The fledgling group includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, the 10 members of the Association of Southeast Asian Nations or ASEAN.
Along with China, Japan, South Korea, Australia and New Zealand make up the planet’s largest free-trade bloc.
“RCEP will be the world’s biggest free trade area measured in terms of GDP [gross domestic porduct],” Rajiv Biswas, the Asia-Pacific chief economist at global business consultancy IHS Markit, told the AFP news agency.
The numbers are certainly staggering with the bloc home to more than 2.6 billion people with a combined GDP of US$25.8 trillion. When you add the combined trade value of $12.6 billion, the sheer scale of the deal is brought into sharp focus.
Foreign policy program
Eight years in the making, the agreement will give China a major say in drafting the rules of trade in the Asia-Pacific.
It will also help push the ubiquitous Belt and Road Initiative, Beijing’s flagship foreign policy program.
These New Silk Road superhighways will connect China to more than 100 countries and 4.4 billion people across Asia, Africa, the Middle East and Europe in a maze of multi-billion-dollar infrastructure projects, including a web of digital strands.
“The signing of the RCEP is not only a landmark achievement of East Asian regional cooperation but also a victory of multilateralism and free trade,” Chinese Premier Li Keqiang said at a media briefing.
But while this is a “diplomatic” masterstroke for President Xi Jinping’s ruling Communist Party government, the details of the accord illustrate the challenges in breaking down “trade barriers.”
The elimination of a number of tariffs has been agreed although they will be spaced out during the next 10 years.
Still, for US President-elect Joe Biden, the deal will increase the pressure to stop China from filling an economic policy vacuum in the Asia-Pacific region. In the past four years, the situation has deteriorated even further under Trump’s “America First” mantra and his abhorrence of multilateral trade agreements.
“The United States is missing from these agreements, having left the predecessor of the Trans-Pacific Partnership when President Trump took office,” Peter A Petri and Michael Plummer, of the Brookings Institution, said.
“These departures hand China potent leverage: It is by far the largest economy in a now regionally focused East Asian system,” they wrote in a commentary for the Washington-based think tank in the summer.
The Covid-19 crisis has also had a major impact on most of the members of the Regional Comprehensive Economic Partnership.
ASEAN states are looking to kickstart their economies after suffering intermittent lockdowns during the course of the year. In contrast, China has recovered relatively quickly from the pandemic after the coronavirus first surfaced in Wuhan at the end of 2019.
Most of its major trading rivals are still struggling to contain a second or third wave of the deadly SARS-CoV-2 pathogen, which has infected at least 54 million people globally and killed more than 1.3 million.
Official data released earlier this week showed that China’s industrial production jumped 6.9% in October from a year earlier while retail sales increased 4.3% during the same period.
“RCEP will contribute to the post-Coved pandemic economic recovery,” Vietnam’s Prime Minister Nguyen Xuan Phuc, who hosted the ASEAN video-linked summit, said at a media news conference.
Draconian political system
Yet for democracies involved in this trade juggernaut, there are warning signs that the biggest player in the bloc has no intention of abandoning its state-controlled economy or its draconian political system.
One of Beijing’s senior academics made that perfectly clear when reviewing Cold War-style “tensions” between the United States and its allies with China.
“From the Chinese perspective, two issues need to be addressed along with globalization. One is the political aspect. What they [the US and European politicians] wanted was not only the globalization of a market economy but also the Westernization of all political systems,” Fu Ying, of Tsinghua University, said.
“The latter has not been accomplished, obviously … [and is] now a source of tension. But the real issue is that the US attempt to incorporate political values [such as democracy] into globalization is wrong,” she wrote in a commentary for China-US Focus, an academic website.
Against that backdrop, calling the RCEP trade deal a “diplomatic coup” for Xi and the CCP elite will certainly resonate in Washington. The trillion-dollar question now is what will the incoming Biden administration do about it?