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US Left in Cold on Asia Trade Pact
China-led RCEP a monument to Trump’s folly
The final chapter of US President Donald Trump’s MAGA plan for Asia ended in political, diplomatic, and economic stupidity on November 15 with the signing of the 15-nation Regional Comprehensive Economic Partnership. The United States is not among the 15 nations that signed the document in a virtual ceremony from Hanoi.
The RCEP, as it is known, is led by China, which is happy to fill the growing void left by the US’s lack of international leadership. The pact includes the 10- member Association of Southeast Asian Nations plus South Korea, Japan, Australia, and New Zealand and is to become the world’s largest free trade bloc when it goes into effect in 2022, cutting tariffs and other barriers to the trading of goods between the partners. The combined signatories have a collective gross domestic product equivalent to US$26 trillion.
The signing freezes out the United States, which, if the incoming Biden administration wants to join, must apply through ASEAN. With two months to go before the now-defeated President Trump leaves office, the US will be left isolated in Asia on trade, especially because the president, in almost his first act as president, signaled that his country would not be a part of the 12-nation Trans-Pacific Partnership, an omnibus trade bill that was 11 years in the making when negotiations began under then-President George W. Bush. Although nobody said so aloud, the measure was designed to ringfence China as a rising economic power.
Today, it is China that is the dominant power and the United States that is ringfenced. More isolation may follow. The 27-nation European Union is pursuing trade negotiations, which would add 450 million people to the 2.2 billion already covered by the RCEP.
The agreement isn’t nearly as comprehensive as the TPP, which in its original form not only cut tariffs between member nations but contained provisions relating to environmental protection, worker safety and protection from exploitation, intellectual property protection and called for government procurement between countries. It also called for limitations on state-owned or linked companies, a shot across the bow of China’s giant SOEs.
Some 20 of those protections, most of them put in place by the Obama administration, were eliminated by the 11 countries that ultimately signed the agreement in 2017 after the US bailed out.
The RCEP allows countries to keep tariffs in important or sensitive sectors, although that wasn’t enough to keep India in the pact. Prime Minister Narendra Modi pulled India out earlier this year over fears that it would result in a flood of imports from China, with which India already has a massive trade deficit, and other protectionist issues. It allows for a common set of rules of origin to qualify for intra-pact tariff reductions, simplifying procedures for the movement of goods and is designed to encourage multinationals to build supply chains and distribution hubs. Unlike the TPP in its original form, it doesn’t deal with legal, accounting or other professional services nor does it deal with intellectual property rights, a sore point in Asia where “reverse engineering,” as it is known, is a way of life. Nor are there protections for organized labor, another sore point in the United States.
The question is where the US goes from here. Not only is the US starting from zero if it wishes to rebuild its trade links, but President-elect Biden is also no free trader. Other than a vague protectionist tint acquired from organized labor, an important influence bloc, he has given little indication of how he would deal with international trade. He echoed Trump’s “Buy American” mantra on the campaign trail.
He is also hampered by shifting sentiment away from globalization. Ratification of the TPP in 2016, if Trump had sought it, was hardly a sure thing, with organized labor suspicious of it and joined by a coterie of leftists suspicious of the effect of international trade on the environment and assumed exploitation of workers in third-world factories. It is unlikely he will stampede immediately too far from Trump’s animosity for China, which in any case has earned antagonism in its own right by its treatment of Uyghurs, its crackdown on Hong Kong, its belligerence in the South China Sea and its mercantilist trade policies.
Biden also faces a monumental problem in putting together a domestic agenda, hampered by having to deal with the Covid-19 pandemic, which has broken loose from all constraints and appears almost impossible to stop, with new cases averaging more than 150,000 per day and deaths running more than 1,000 per day because of monumental mismanagement by the Trump administration. So far, the virus has killed more than 250,000 Americans. In the meantime, China, which acted in draconian fashion to control the outbreak last December, has had 86,000 cases and 4,600 deaths, if their statistics can be believed.
The new administration faces a recalcitrant US Senate, with the Republicans likely to be in charge, and with Senate Majority Leader Mitch McConnell already signaling a lack of cooperation. The new administration must act on infrastructure spending, which President Trump announced as a top priority four years ago but never bothered to act upon. Although Biden has announced he would begin reversing the executive decisions Trump put in place the day he takes office, there are some issues, including tariffs on Canadian, Chinese and other goods, that will take time to reverse, if indeed Biden wants to.
At least it can be assumed that there will be some dramatic vote-faces away from current policy. Biden is expected to rejoin the World Health Organization, which President Trump quit in dramatic fashion last May in a fit of pique over his belief that the WHO’s director-general, Tedros Adhanom, was favoring China.
It can also be assumed that the US will pay more attention to the 150-member World Trade Organization, which the Trump administration simply ignored in any rulings that went against the US, refusing to allow the appointment of a new director-general, who by tradition doesn’t come from the US. But there has been long-standing aggravation on the US’s part almost since 2001 when the US facilitated China’s entry into the organization because of the WTO’s failure to deal with China’s mercantilist trade practices including its abuse of intellectual property rights and other issues. In any case, the signatory nations to the WTO have been trying in vain to conclude the Doha Round of negotiations on agriculture, services and intellectual property for 19 years this month.
Biden on the campaign trail backed away from any new trade negotiations with so much on his plate. It seems unlikely that the US can improve its position in Asia by very much, even if Biden were in a position to try. After all, the International Monetary Fund says China’s GDP growth will accelerate t0 8.2 percent in 2021 after being the only major economy in the world to record positive growth in 2020. The IMF expects the aggregate other economies to contract by 5.8 percent.