China considers further economic integration of Northeast Asia in RCEP


When the Obama administration focused its efforts on a pivot to Asia, the Trans-Pacific Partnership (TPP) served as a key economic pillar of the strategy. The deal was set to become the largest free trade agreement in the world, encompassing the NAFTA economies, Australia, New Zealand, Peru and a range of Asian countries with one notable exception: China. That was undoubtedly the whole objective of the TPP: to reduce the dependence of the Asian economies on China and, in particular, of the Asian economies and to bring them closer to the United States.

Now that notion seems far-fetched after the TPP became a bipartisan punching bag during the 2016 presidential campaign. President Trump delivered the final blow in early 2017, removing the United States from the deal for good. Since then, trade unilateralism and protectionism have been the calling card of his administration, which has adopted tariffs that now average around 20 percent. Other Asian countries are doing the opposite through a number of potential free trade agreements, including a second iteration of the TPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

But it’s not the only major regional trade alliance currently in the works. The Regional Comprehensive Economic Partnership (RCEP) – which includes China – is nearing completion. This could have a huge impact on the United States and China.

What is RCEP?

RCEP is a trade agreement that would include 15 East Asian countries. While less comprehensive than the TPP would have been – the RCEP mainly lowers tariffs and does not include labor and environmental protection standards like the TPP did – the deal would still result in largest free trade area in the world when it is signed and goes into effect. The agreement also provides for new rules of origin for signatories, which would make regional supply chains less complicated.

A summit of RCEP leaders in 2017 (Wikimedia Commons)

Recall that while the TPP was a massive trade deal that excluded China and included the United States, the RCEP does the opposite. So what does the creation of this massive free trade bloc (or relatively free trade, at least) mean for China and the United States?

A catalyst for China’s diversification away from the United States

Despite the Phase 1 trade deal, the United States and China are likely to continue to recalibrate their relationship and decouple aspects of their economies. As Washington and Beijing market more soybeans or dairy products on the sidelines, China again saw tariff escalations last year exposing critical parts of its economy to uncontrollable external risks. If Beijing sees the United States as an unreliable trading partner, could RCEP be a catalyst to accelerate China’s diversification away from American sources?

In short: yes, but with a few caveats. While the effects of RCEP will be felt across the region in the form of slightly lower tariffs, the greatest impact will likely be seen in Northeast Asia. Given that the majority of RCEP members are also ASEAN and their merchandise trade falls under the ASEAN Trade in Goods Agreement, the benefits of trade within them are likely to be marginal at best. In the case of China and its northeastern neighbors, however, the adoption of RCEP is likely to have a greater impact. China already has a free trade agreement with ASEAN and a relatively shallow agreement with South Korea, but FTA talks with Japan and South Korea recently came to a halt due to tensions between Tokyo. and Seoul. It seems plausible that the RCEP will happen before any trilateral FTAs, as Beijing has announced plans to work with signatories to ensure the deal is signed before the end of the year.

The end result will be an increase in trade of over $ 400 billion over the decade following its enactment and a simultaneous reduction in trade of around $ 40 billion between non-RCEP countries.

The cocktail of relative geographic proximity, lower tariffs and common rules of origin could bring the region’s economies even closer together. With a formalized set of rules simplifying the transfer of components between China, South Korea, and Japan, building regional supply chains could become cheaper and more stable. The result? A substantial shift in trade to North-East Asia, and more generally the decoupling of East Asia and the United States, according to Peter Petri and Michael Plummer in an article in preparation which will be published shortly by the Peterson Institute for International Economics.

Petri and Plummer postulate that the end result will be an increase in trade of over $ 400 billion in the decade following its enactment and a simultaneous reduction in trade of around $ 40 billion between non-RCEP countries, which would include United States.

Yet another way to think about RCEP’s impact on China’s role in the region is to see the deal as a catalyst that would make China more productive, which in turn could make it more competitive in the markets. non-RCEP, according to Petri. .

More than dollars and cents

This increase in regional trade in Northeast Asia at the potential detriment of the United States can also be viewed through the lens of global trends swirling around US-China relations. The current trend of decoupling between the United States and China and the activation of RCEP could move the two countries further apart.

“If the RCEP comes to fruition, it will strengthen China’s good faith in the region. “

As hawks from both countries push for disengagement from high-tech and dual-use industries, middle powers in the Asia-Pacific region, including traditional allies of the United States, will be brought closer to China’s economic orbit. . Ali Wnye, researcher at RAND, wrote in a recent article that RCEP could become a “fulcrum of Indo-Pacific economic integration“, bringing current US allies closer to China. As Michael Plummer said, “If RCEP comes to fruition, it will strengthen China’s good faith in the region.”

Particularly in the case of Northeast Asia, this could further complicate efforts by the United States to prevent legitimate issues such as theft of intellectual property or unequal market access through controls on the market. export and blacklists.

In a self-imposed move, the United States effectively pulled pieces off the table by ending the TPP, while China simultaneously picked up the torch and continued efforts to further integrate the Asia-Pacific economy into the wider. As global multinationals and US companies seek to diversify their supply chains to other countries like Malaysia, Indonesia and Vietnam, they will face higher hurdles in selling the resulting products in the United States. only if the TPP had not been abandoned.

Conclusion

As we move into the next decade, rather than playing a more integrated economic role and shaping labor and environmental standards in Asia-Pacific as envisioned by the Obama administration, what we are seeing is this are the United States which has become markedly less internationalist. Some in the administration would go so far as to seek some sort of American autarky, in the name of relocating jobs for American manufacturing and industry.

But at the same time, China has done the opposite. By taking on the role the United States could have had as head of the TPP, Beijing has proposed a deal that places it firmly in a leadership role. Thanks to RCEP, the future of the wider Asia-Pacific economy is less important to the United States. Whether this development will be positive for the region is up for debate, but it is undoubtedly a boon for China and a blow to the United States.

Photo by Lemon Loco under CC BY 2.0

About Michael G. Walter

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