By Ho-fung Hung
This past weekend saw the signing of the Regional Comprehensive Economic Partnership (RCEP), a free trade pact among ASEAN, China, Australia, Japan, New Zealand, and South Korea. China took the lead in the negotiations leading to its launch, while India withdrew from RCEP in 2019, and the United States was never part of it. In a world of protectionism and tariffs, spearheaded by President Donald Trump’s termination of trade deals and his initiation of trade wars against U.S. allies and foes alike, RCEP looks like a restart of globalization under China’s leadership, after the U.S. surrendered the helm.
Compared to other regional trade agreements in place, like the United States-Mexico-Canada Agreement (USMCA) or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor of the ill-fated Trans-Pacific Partnership (TPP), RCEP is seen as limited in breadth and depth. But it no doubt can serve as a baseline for further liberalization of trade and investment within the bloc. Such further liberalization is not guaranteed, however, as many participating countries in Southeast Asia are already wary of becoming too dependent on China, the group’s biggest economy. Many of these countries have territorial disputes with China in the East and South China Seas. They are well aware of China’s propensity to weaponize its market and use it to bully its trade partners.
Many countries in the region also fear that deepening economic ties with China would allow Chinese goods and investment to pour into their countries. In contrast, access to the Chinese market could remain limited. The fear of a dumping of Chinese manufactured goods and the deteriorating trade deficit is a primary reason why India opted out. Twenty years after China’s accession to the WTO, many find their home markets inundated by Chinese goods and capital, while China had not yet opened up its market to the extent that it has promised.
To China, globalization means opening up new markets for Chinese products and Chinese capital. China-led globalization does not necessarily mean China will grant its trading partners more access to its market, however rosy the trade agreements’ promises. On the contrary, much evidence shows that China’s market is becoming less welcoming to foreign companies, and China’s market reform has regressed in recent years. China’s vision of globalization is very different from the U.S.-led version, which involved the opening up of the country’s huge consumer market as a lure for other countries to join trade pacts. For many countries, joining a U.S.-led free trade order meant gaining access to a huge market for their exports. That was true for Mexico when it joined NAFTA in 1994 and China when it joined the WTO in 2001.
The United States ushered in the current phase of globalization in the 1980s and fomented decades of free trade expansion and prosperity among emerging economies, above all China, which were strong in export-oriented manufacturing. The resulting hemorrhage of manufacturing jobs in the U.S. to its trade partners created an anti-trade backlash that helped Donald Trump get elected in 2016, and saw the rise of anti-trade factions represented by Bernie Sanders in the Democratic Party. This led to Trump’s withdrawal of the U.S. from the TPP in 2017, during his first days in office.
The Obama administration had emphatically pushed the TPP as a free trade pact between the United States and major Asia-Pacific economies, in which China was pointedly not included. As President Obama put it, “The TPP would let America, not China, lead the way on global trade.” It was supposed to pressure China to improve its intellectual property protection and market access should it want to join. Despite compromises that Asia-Pacific countries need to make to U.S. corporations (regarding intellectual property protection issues, for example), many Asian countries were enthusiastic about the TPP, which would have meant a further opening of the U.S. market to them.
When anti-trade politics in the U.S. killed American participation in the TPP, the original participating countries went ahead and launched the renamed CPTPP in 2018. Without the participation of the U.S. as a huge export market, however, the trade pact has become less significant. The hope is still that the United States will change its mind (again) and rejoin the agreement.
With the launch of RCEP this week, the incoming Biden administration faces a dilemma for its trade agenda with Asia. Some suppose that anti-trade sentiment in the U.S. will make the revival of U.S. participation in any major free trade pact politically infeasible, at least in the early days of the Biden administration. The incoming administration will need to tackle a lot of urgent domestic issues, such as fighting the coronavirus pandemic and containing its economic fallout. But now that RCEP has become a reality, with the potential of expanding and deepening further in the future, Washington’s leadership in writing trade rules in Asia could be lost forever. As most U.S. companies have no choice but to participate in the Asia-Pacific market, an RCEP without the U.S. means these companies will have to relocate more of their operations to RCEP countries to take advantage of the lower tariffs within the bloc. This, in the end, will cost American jobs.
As such, the signing of the RCEP will change American calculations on both the TPP and the question of jobs. The U.S.’s continued absence from the TPP will no longer mean the protection of American jobs, but rather their loss. Biden himself indicated he was open to the possibility of a renegotiated TPP during his campaign. To lessen the opposition to rejoining the TPP from the anti-trade forces in Congress, a renegotiated TPP would need to have stronger labor protection clauses. It is absolutely doable. After Trump terminated NAFTA, Washington managed to renegotiate the USMCA with new labor and regional value content rules that protect or even lift the wages of both American and Mexican workers. In the end, the U.S. Congress certified the USMCA with endorsement by major labor organizations and unions.
Faced with a choice between a free-trade pact dominated by China as a relatively opaque and inaccessible market and a free-trade pact led by the U.S. as a much more open and larger market, Asia-Pacific countries would undoubtedly prefer the latter. The new U.S. government should renegotiate and rejoin the TPP as soon as possible, for the sake of U.S. leadership, free and fair trade in the Indo-Pacific, and the creation and safeguarding of American jobs.
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