China’s new trade deal is bad for the US but not as bad as you heard

The RCEP is not another salvo in the US-China trade war – but it should be a wake up call to Washington.

Last month fifteen countries signed what could be the biggest trade deal in history. The Regional Comprehensive Economic Partnership (RCEP) covers a third of the world’s population and a corresponding third of the global economy. In many ways, the RCEP is historic: the first trade deal between China and Japan; first between China and South Korea; the first major regional trade partnership in Southeast Asia; and the formation of the world’s largest trading bloc. For many, it portends a shift in the global center of economic power and a symbol of America’s waning influence in the world economy. These worries are overblown, America may need greater multi-national engagement in the post-Trump era but the RCEP is not a threat to the US economy or its position in the world – all it does is make American customers and suppliers wealthier.

Firstly, the USA wouldn’t have been permitted to join. The RCEP is a “regional” agreement among south and southeast Asian nations and a few of their invited neighbors. All ten members of the Association of Southeast Asian Nations (ASEAN: Vietnam, Malaysia, Philippines, Singapore, Brunei, Indonesia, Laos, Myanmar, Cambodia, Thailand) plus China, Japan, and South Korea form the core of RCEP. Australia and New Zealand were both invited as was India.

The names not on the list are perhaps just as noteworthy. Taiwan was excluded as a precondition for China’s participation. North Korea is unable to meet the basic requirements for entry. In part out of concern for cheap foreign competition, India actually pulled out of RCEP negotiations in late 2019 although, as Nikkei Asia reports, they have an open path to return without penalty. Russia wasn’t invited, neither was Pakistan.

America’s absence from the RCEP is not merely conspicuous, it highlights the shortsightedness of US withdrawal from the Trans Pacific Partnership (TPP) and further feeds a narrative that China is not merely ascendant, she is stepping into a role than the US has willingly abrogated. China’s Belt and Road Initiative (BRI) has already funneled hundreds of billions in investment dollars into dozens of developing nations and many hundreds of priceless, visible, acts of good will and economic engagement have graced headlines in all of those countries. David Dollar, an economist with Brookings, says bluntly that “the combination of BRI and RCEP is pretty powerful as far as spurring growth and progress in Southeast Asia.”

The US exit from the TPP in 2017 and subsequent refusal to engage in anything but bilateral agreements is noticed by everyone and America’s role in the world is harmed by it. The day after the RCEP agreement was signed, the U.S. Chamber of Commerce issued a press release warning that they are “concerned that the United States is being left behind as economic integration accelerates across the vital Asia-Pacific region.”

In no small measure, the RCEP is a Chinese slap in America’s face just as the TPP was designed in large part to keep China penned in. The Obama administration may have, as Industry Week described it in 2016, “sought to play down any overt anti-China rhetoric” but the TPP was understood by everyone as way to “to counter the rising power of China.”

This is not an ideological trading agreement. Literal capital-C Communist countries have signed a free-ish trade agreement with monarchies and democracies. The RCEP is not another wealthy-countries-making-each-other-wealthy treaty. Half the countries involved are still struggling with development and actually got much better or at least more lenient terms than the larger nations. U Than Aung Kyaw, a director of the Myanmar Ministry of Investment, told regional news outlet The Irrawaddy that his country “will liberalize only 30 percent of our market, while the others have to liberalize 65 percent. We have more privileges than the other countries.”

The RCEP, as G Zero explains, isn’t as strong as the TPP but this is not necessarily a deficit. In fact, the former’s lack of the latter’s strong environmental, labor, and intellectual property protections is a kind of 3-D chess move by China that will put the US into a difficult place while also insulting the Americans. Environmental, labor, and IP protections were all important negotiating positions for the Americans. Weakening such protections, combined with the country-of-origin and lower tariff provisions in the RCEP, will put American regulators into a tough bind.

In a world in which American consumers are increasingly asking producers to provide environmentally or labor friendly products, the RCEP makes it harder for them to know the conditions in which their products are manufactured. The lax country-of-origin terms allow any of the 15 RCEP member nations to sell a product as domestically produced if at least 40% of said product was manufactured in any of the member nations. In a trend accelerated by the US-China trade war, and Trump’s related China tariffs, much of China’s assembly line production has already been moved out of China towards ASEAN nations like Vietnam and Cambodia, said Brandeis economist Peter Petri to Brookings. The RCEP allows China to do a much more full-throated run-around any current or future US tariffs.

There is little any future US administration could do to stymie China’s economic expansion through the RCEP. Most of the countries party to the RCEP are, ostensibly, US allies, like Australia and Japan, or preferred trading partners, like Vietnam and the Philippines. While the US has shown an unfortunate propensity for unilateral actions at the cost of their allies or partners, it will now face an East and Southeast Asia more than capable of immediately filling in any gaps created by American politicians and regulators. The already constrained ability of US regulators and China-hawks to prevent or delay Chinese-origin goods from entering the American market will be further handcuffed by the RCEP.

China is of course one of the major players behind the RCEP but it would be a mistake to think of it as a “Chinese trade deal.” Something like the RCEP has been planned or proposed by multiple regional actors over the years, this was inevitable. As a matter of fact, says World Politics Review, “China notably did not monopolize negotiations, instead letting ASEAN take the lead.” A harsh contrast with repeated reports of the Obama adminstration’s “bullying” tactics during TPP negotiations.

It seems equally inescapable that China will try to parlay the success of the RCEP into further gains. To underscore that point, a week before the signing of the RCEP Chinese President Xi Jinping delivered a speech at a Shanghai trade expo saying that China will “speed up negotiations on a China-EU investment treaty and a China-Japan-ROK free trade agreement.”

The largest trading bloc in history it may be but there is zero indication that the RCEP will translate economic relationships into political ones. The limited effects are immediately obvious with a glance at the current tensions between China and Australia. A cartoon from China may have caused the most recent row but relations between the two nations have been souring for years. Australia and China may now share a new economic relationship but that isn’t stopping Australian politicians from being racist or Chinese politicians from being children.

Southeast Asia might now be home to the world’s biggest trade agreement but it is also home to China’s infamous 9-dash line, that nation’s rather bold claim to ocean territory extending almost 2000 miles from its mainland, alternately frightening and infuriating countries like Vietnam, Malaysia, and the Philippines. The RCEP isn’t going to affect Filipino, North Korean, Vietnamese, and Indonesian fishermen who report aggressive and predatory practices by Chinese fleets, backed by the Chinese Navy.

To a limited extent, the RCEP will allow Chinese firms to skirt American and European taxmen. The deal does strengthen economic ties between America’s chief global rival and a region that the last two American presidents explicitly said they wanted closer ties with but have in many ways failed to accomplish. It is emboldening China to make even more ambitious deals; however, it isn’t a signal that America has been permanently supplanted in the Asia-Pacific.

Even if President-elect Biden wants to continue his predecessor’s tough stance on China, he will find it more difficult in a post-RCEP world. But China-boosters and America-lamenters are overselling what the deal can deliver for China; there is no evidence that making it easier for her regional partners to do business with China will translate into warmer relationships with those partners. The RCEP is the new world in which Americans have to do business, it won’t make it harder for them to do so. It will make China richer, not America poorer. Uncle Sam’s friends aren’t ditching him for China but the RCEP is a very stark demonstration of how far China is willing to go to engage with the developing world in a fair way.

Joe Biden and American politicians on all sides should take note.

*A version of this article was originally published in Human Events*

Thomas Brown is a history teacher and freelance writer. He runs The Swamp and is featured in Grunge, Quillette, Spiked, The Bipartisan Press, Human Events, among others. Follow him at his Medium page and argue with him on Twitter and maybe buy his new book: An Honest Man.

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