East Asian Trade Unites: The RCEP and the Rising Chinese Influence

Fifteen countries in the Association of Southeast Asian Nations (ASEAN) and five regional partners signed the Regional Comprehensive Economic Partnership (the RCEP) on November 15. The RCEP is arguably the largest free trade agreement in history and results in East Asian economies becoming more interconnected than ever before.

The RCEP will connect about 30% of the world’s people and has enormous potential to bring in massive gains for those countries involved. According to simulations recently published by the Peterson Institute for International Economics, the RCEP could add about $400 billion to world trade by as early as 2030. However, trade for countries that are not members will decrease by around $48 billion globally. The U.S. was originally part of the RCEP but pulled out early. To maintain current trade arrangements and foster new ones, the U.S. has now limited itself in terms of options. There is still time for the U.S. to join the RCEP, and under the Biden administration, this would be more likely though still not probable.

The RCEP also represents a considerable milestone in China’s battle with the U.S. for trade influence. After the Trump administration withdrew from the previous Asian trade agreement that excluded China, the U.S.’s trade influence in the region has weakened significantly. It seems that China has the upper hand once again, as it can set the terms for trade in the Asia-Pacific region. The RCEP’s fifteen members also outnumber the eleven members of the previous deal that China was locked out of.

Politics were a large issue in constructing this trade agreement as the two largest members, China and Japan, were too politically volatile to construct the plan. Instead, ASEAN took on creating the RCEP back in 2012 in a deal that also added India, Australia, and New Zealand. India has since left the RCEP due to decisions made by Modi’s administration. The U.S. also pulled out due to security and economic policies put in place by the Trump administration. The RCEP is quite aware of its participants’ political sensitivity, but it was the U.S.’s own internal conflicts that kept it out of such a beneficial deal. Though the RCEP tackles a smaller range of issues than some other trade deals, the broad unification of countries makes the RCEP such an important agreement.

Southeast Asia will also greatly benefit from the RCEP, though less directly than Northeast Asia, as it already had free trade policies with many RCEP members. Indirectly, the RCEP might result in other free trade agreements that would benefit Northeast Asia. Japan’s Ministry of Foreign Affairs agreed to open negotiations with China and South Korea about a potential trade deal if the RCEP goes into effect. This trilateral trade agreement has been stuck for a while now due to quarreling between countries. The RCEP deal will also likely provide access to Chinese Belt and Road Initiative funds, which will increase market gains by strengthening transport, energy, and communication links. Alongside increased market gains, the RCEP will also attract foreign investment.

With the growing unity and trade regulations in East Asia, China is clearly rising in power and influence over trade. Considering that the U.S. is currently in a trade war with China, staying out of the RCEP deal might lead to a shift in power. The approach of isolating China and cutting off supply chains might not be economically viable anymore as China is one of the central powers in the RCEP. Another solution to this situation for the U.S. would be to integrate itself into various trade deals, including the RCEP, while maintaining a smaller range of policies that wouldn’t inhibit foreign trade as much. This would increase the strength of the U.S. and also buy it time and the position from which to formulate more aggressive trade plans. If the U.S. can get a foot in the door with the RCEP or any of these other East Asia trade deals, this position would almost certainly help it set up future negotiations and deals with various Asian countries.

By Charlie Benjamin