THE WORLD IS NOT WAITING FOR TRUMP

The Regional Comprehensive Economic Partnership (RCEP) is not yet a household name. Chances are, you haven’t heard that the RCEP is a proposed free trade agreement between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, Australia, China, India, Japan, South Korea and New Zealand. The RCEP until a week ago played second fiddle to the Trans-Pacific Partnership (TPP) until Mr. Donald Trump pulled the U.S. out, possibly killing this agreement after 8 arduous years of negotiations. With this move, the RCEP, under China’s leadership and without any U.S. participation is bound to now become the quintessential free trade agreement of the 21st century, a title previously held by the TPP. A tell-tale example of the U.S. relinquishing relevance and strategic positioning in the world.

The prospect RCEP accounts for 3.4 billion people (about 47% of the total world population) and a combined gross domestic product (GDP) of USD 21.4 trillion (about 30% of the world’s GDP). The RCEP will link for the first time in history the world’s two most populous countries, China and India, while also pairing Asia’s two largest economies, China and Japan. Next month the RCEP partners will come together and they are expected to push ahead for the completion of this mega-regional economic pact this year.

The RCEP has received an enormous boost following the U.S. formal exit from the TPP on January 23, 2017. The TPP is an ambitious trade agreement pioneered by the former U.S. President Barack Obama and currently awaiting congressional approval, between Australia, Brunei, Canada, Chile, Japan, Malaysia, Peru, Singapore, the U.S. and Vietnam. The TPP was a smart strategic move by the former U.S. administration to ensure that China would not get a free pass to continue with its plans for domination in Asia and the Pacific. With a stroke of his pen, Mr. Trump has now presented China with a golden opportunity to solidify itself as a regional and world power. A move that has been eagerly embraced by Beijing. Anticipating Mr. Trump’s TPP exit, the Chinese President, Mr. Xi Jinpeng according to the Australian Broadcast Corporation promised at the Asia-Pacific Economic Cooperation (APEC) in November 2016 that: “China will not shut the door to the outside world, but will open it even wider and be fully involved in economic globalization”.

The inwardlooking and protectionist new U.S. President, Mr. Donald Trump has kept his campaign promise to withdraw from the TPP because it: “would undermine the U.S. economy and independence”. No question that the TPP has received a major blow when Mr. Trump decided to walk away from it. But is it dead? Some TPP signatories, including Australia and New Zealand have already indicated to be willing to consider a ‘reworked’ TPP without the U.S. Especially Japan seems eager to fill the void the U.S. has left. There may be good reasons for Japan to want to assume this role since it is eager to compete with China for more geopolitical influence in Asia and the Pacific. Some observers have hinted that China may eventually consider to join the TPP now that the U.S. has walked away, but that probability is small according to me. A much weaker TPP will probably mean a better opportunity for a successful completion of the China-led RCEP. India, another big player in world trade, never happy to having been left out of the TPP, will likely see Mr. Trump’s action as an opportunity to now push forward with the RCEP negotiations after dragging its feet during the previous negotiation rounds.

The RCEP is directed at tariff reduction (or elimination) and services liberalization between the signatories. This means that trade between China, Japan and South Korea, which are major trading partners with the U.S., will become more attractive than bilateral trade with the U.S.. Consequently it will put the U.S. at a disadvantage since it is not part of the RCEP. Had the U.S. not pulled out of the TPP it could have offset some of the disadvantages (trade diversion) of not belonging to the RCEP. Time will tell, but everything indicates that pulling out of the TPP will eventually prove to be a self-inflicted wound.

Mr. Trump’s action has also revived the interest in a China-led Free Trade Area for the Asia-Pacific (FTAAP). Anticipating the U.S. President’s move on January 23, 2017, Russia’s President Mr. Vladimir Putin and China’s President Mr. Xi Jinping who met in November 2016 during the above-mentioned APEC meeting in Lima, Peru, promised to push for a free trade area of Asia and the Pacific, an idea that was launched for the first time in 2006. Additionally, an old idea that has been talked about for more than 15 years, a free trade agreement between China, South Korea and Japan, may also make a comeback after what happened with the TPP.

While it is unclear what the future will hold regarding the ever growing regional trade agreements in the world, (300, including those still being negotiated) one thing will become obvious: the world is not going to wait for Trump on trade matters as the U.S. turns to protectionist and inward-looking policies. Increasingly, Asia’s growing intra-regional integration is going to be providing a buffer against a protectionist U.S. be it the RCEP or other regional trade agreements. In this, China has been presented with a huge opportunity to swoop in and fulfill the void. In fact, I have argued before that these actions by Mr. Trump will surely hasten the passing of the superpower relay baton to other nations eager to fill the vacuum left behind. https://alexdavidrosaria.blog/2016/12/24/foreign-affairs-transformed-beyond-washington-national-capitals-and-the-hague/

Author: alexdavidrosaria

Alex Rosaria is from Curaçao. He has a MBA from University of Iowa. He was Member of Parliament, Minister of Economic Affairs, State Secretary of Finance and United Nations Development Programme Officer in Africa and Central America. He is an independent consultant active in Asia and the Pacific.

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