China Wins, US Loses In New Regional Trade Deal

"America First" allows China to take economic leadership of East Asia.

China came out the biggest beneficiary of the Regional Comprehensive Economic Partnership (RCEP), the world’s newest and biggest regional trade deal. It was signed by 15 countries in the Asia-Pacific region on November 15, following negotiations that started during the 2012 Association of Southeast Asian Nations (ASEAN) Summit in Cambodia.

While China already has a number of bilateral trade agreements, this is the first time it has signed on to a regional multilateral trade pact. The RCEP includes 10 member states from ASEAN, as well as Australia, China, Japan, New Zealand and South Korea. India withdrew from the negotiations in November 2019 after six years of talks, citing concerns over opening its agricultural and manufacturing sectors.

According to Shuqiang Bai, a professor of economics at the University of International Business and Economics (UIBE) in Beijing, the RCEP should be viewed as the Chinese alternative to the (quasi-defunct) Trans-Pacific Partnership (TPP), which would have been the world’s largest free-trade deal had it gone through with the US.

“China deepened its integration with other states … partly as a consequence of US policies” Bai tells Global Finance, regarding China’s central role. “The US will need to recalibrate its economic and security strategies to advance its economic interests, including security goals.”

Some analysts dispute the view that RCEP is a proxy for China’s growing regional power. “It was not even dominated by China for a long time, even though China is the largest economy in the agreement,” says Michael Green, senior vice president for Asia at the Center for Strategic and International Studies. He names Japan and ASEAN members, including Singapore, as the drivers. According to ASEAN, RCEP states make up almost one third of the global economy and trade.

Yet Chinese sources aren’t shy about their nation’s role. “China has in effect responded to the American challenge, not through confrontation as the media sensationalize it to be, but through deepening its integration with others and staking out its trade future,” according to a November editorial on China Global Television Network (CGTV), owned by state-sponsored broadcaster China Central Television.

Peter A. Petri, a professor of international finance at Boston-based Brandeis International Business School, told Xinhua news agency that the RCEP will help China strengthen its relations with neighbors, rewarding eight years of patient negotiations “in ‘the ‘ASEAN way,’ which participants typically describe, with varying degrees of affection, as unusually slow, consensual and flexible.”

A common criticism of RCEP is China’s dominance within it, a fear that became much stronger when India pulled out. The deal gives China an important voice in setting standards for regional trade, enhancing Beijing’s soft power. “It’s potentially very good for China,” Petri told Xinhua news.

The RCEP includes multiple US allies—including Japan, South Korea and Australia—who struck a bargain with China in the absence of the TPP alternative, affirming that the world’s second-biggest economy will remain an indispensable economic partner for them, and providing a clear indicator of waning American influence in the Asia-Pacific region.

The US withdrew from the TPP in 2017 after President Donald J. Trump labeled it a “horrible deal.” Subsequently, Australia, Canada and the other 11 remaining countries—including Brunei, Chile, New Zealand, Peru, Singapore, Vietnam, Japan, Malaysia and Mexico—finalized and signed a new version of the TPP in 2018.

“The US retreated from the regional stage and pursued a trade policy based on unilateralism, allowing Chinese leaders to fill the vacuum left by the Trump administration to project China as the reliable partner of choice for trade, investment and economic growth,” says Kwame Owino, chief executive officer of the Institute of Economic Affairs (IEA), a think tank for sub-Saharan Africa based in Nairobi, Kenya.

Gareth Leather, a senior economist in the Emerging Asia team at UK-based research boutique Capital Economics, told The Diplomat, a current-affairs magazine for the Asia-Pacific region, that the accord was also a coup for Beijing. By far the biggest market in the region with more than 1.3 billion people, China was able to cast itself as a “champion of globalization and multilateral cooperation,” giving it greater influence over rules governing regional trade.