As Trump era ends, massive new Asian trade deal leaves U.S. on the sidelines

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On Sunday, 15 countries, led by the Association of Southeast Asian Nations bloc and joined by China, Japan and others, announced they had struck the world’s largest trade deal, covering about 30 percent of the global population and a similar share of economic output, after eight years of negotiations.

The accord, known as the Regional Comprehensive Economic Partnership (RCEP), would cut tariffs on everything from Japanese auto parts to Malaysian palm oil and solidify supply chains within a sprawling new trade zone that would be larger than the European Union in population and gross domestic product.

It is the second major pact in two years that excludes the United States: In 2018, Australia, Japan and nine other countries salvaged a version of the Obama-era Trans-Pacific Partnership (TPP) that Trump had rejected as a “disaster” for American workers.

Taken together, the two overlapping deals illustrate how Asian governments are looking to bolster regional trade — rather than looking toward Washington — at a moment when protectionist sentiment is rising in much of the world, including the United States.

“The U.S. vacated the rulemaking and leadership role it previously aspired to, and the region has gone on to writing the rules in the absence of the U.S.,” said Stephen Kirchner, director of investment and trade at the University of Sydney’s United States Studies Center.

Although the United States is eligible to apply to join the RCEP, it’s not clear that it would anytime soon.

On the 2016 campaign trail, presidential candidates including Trump, Sen. Bernie Sanders, and former Secretary of State Hillary Clinton all criticized Obama’s TPP as a threat to American manufacturing jobs. In this year’s election cycle, President-elect Biden has not committed to a position on whether he would opt in or out. Biden has said he would prioritize first strengthening American worker competitiveness and infrastructure before considering entering trade deals.

India, Asia’s third-largest economy, also pulled out of RCEP last year amid fears that some domestic industries would be ravaged if it lowered tariffs on Chinese products.

But the new deal has been toasted by several Asian leaders, none more than Chinese Premier Li Keqiang, who praised the signing as “victory for multilateralism and free trade” and “a ray of light and hope amid the clouds.”

Across Asia, reactions were more mixed. In Japan, where industries from cars to sake would likely see tariffs slashed, the Keidanren business alliance cheered while security analysts fretted about the implications of Beijing’s growing regional clout and the absence of the United States or India — counterweights to China.

“It is feared that the departure by India and leniency in terms of rules could create problems in the future,” the Nikkei newspaper wrote in an editorial. “We hope to see continued efforts in order to develop RCEP further, including the expansion of the membership and the deepening of the pact.”

In Australia, labor unions questioned whether the deal would benefit the country given that Chinese regulators were already squeezing Australian export industries, such as wine and beef.

Analysts say the RCEP does not lay out immediate or groundbreaking rules that will govern countries on thorny issues like intellectual property, which limits its significance. Many details of the agreement — and when some items will begin to be enforced — are not yet known.

“If we’re just talking about eliminating tariffs, then that’s low-hanging fruit that’s already been picked by existing trade deals,” said Alexander Capri, a senior fellow at the National Unviersity of Singapore. “But data privacy, IP protection, digital trade and e-commerce, how deep does it really get into that? And even if it does get into details, when will they be enacted, given that there’s such huge disparity among the countries in RCEP?”

Still, many say the deal will cement accelerating international trends — the binding of the Northeast Asian economic powers with each other and with fast-growing Southeast Asian hotbeds like Vietnam, which increasingly provides manufacturing for electronics and presents enormous market opportunities. The new agreement will be the first multilateral trade deal that includes China, South Korea and Japan, and it will incentivize companies to source parts from other countries within the trade zone.

In July, Chinese officials announced that ASEAN countries cumulatively became China’s largest trading partner after China’s trade with the United States and the European Union fell 10 percent and 5 percent, respectively. State media highlighted the statistic as evidence that China’s economy was diversified and faring well in the face of a bruising trade war with Trump, icy relations with Europe, and the shock of the coronavirus pandemic.

Other international experts have offered a similar outlook. A simulation by the Peterson Institute for International Economics this year found that the two new Asian trade deals would raise trade among members by $428 billion and global GDP by $186 billion by 2030. The trend toward trade within the region, rather than along the U.S.-China axis, could be accelerated by the pandemic and the trade war, the authors projected.

“By lowering East Asian trade costs, RCEP will accelerate the decoupling of the East Asian and U.S. economies, arguably the most productive regional partnership in economic history,” wrote Peter Petri and Michael Plummer.

Evan Feigenbaum at the Carnegie Endowment for International Peace said the problem was deeper for U.S. leadership in the region. U.S. power in East Asia had long been premised not only on security but also on its economic role as a driver of demand.

But the United States is “walking away from that role” as a “standard-setting nation and a driver of liberalization,” he wrote on Twitter, “and doing the walking away against the backdrop of a shrinking relative economic role overall.”