The world’s largest economic cooperation has been established, and the United States can only watch from the coast

The world’s largest free trade agreement is in force

Over the weekend, a historic free trade agreement was signed with 15 countries in Asia and Oceania, creating the world’s largest economic cooperation bloc. Total market of countries participating in the Regional Comprehensive Economic Association (RCEP)

About 38% of the world economy, the combined GDP of the 15 countries in 2019 totaled about $ 33.340 billion.

This will result in economic cooperation far greater than any trade agreement between the European Union or the United States, including the USMCA partnership between Canada, Mexico and the United States.

In addition to all the ASEAN countries, China, Japan, South Korea and New Zealand are part of the agreement.

Negotiations on the deal lasted eight years and until the summer of this year, India also appeared to be a signatory, but was withdrawn from the negotiations due to deteriorating diplomatic relations with China.

What does the agreement contain?

The RCEP is nowhere near as comprehensive and close as, say, the Trans-Pacific Partnership (TPP), which has been rejected by the EU or even President Trump, and is primarily about setting tariffs and cutting red tape. Most of his points have more to do with expanding existing trade agreements and securing them with new ones.

The parties agreed, among other things, that

• certain tariffs will be abolished, so that, for example, around 86% of the industrial goods exported from Japan to China will be duty-free,
• the establishment of uniform rules to determine the place of origin of certain goods, which is an important issue for duty-free treatment,
• the privileged position of duty-free products is taking shape under some previous agreements; This is important because, for example, around 70% of trade between ASEAN countries is already duty-free, according to Capital Economics, and this cooperation is now reinforced by another agreement,
• formulates customs, environmental and occupational safety regulations.

Analysts who told CNBC described the deal as

it is a matter of modesty and years in which it can have a visible effect.

So perhaps the concessions now being made are not the most important to RCEP, but rather

it could be a cornerstone of the agreement for the further deepening of cooperation between the Asian and Oceanian countries concerned.

The agreement leaves room for the possibility of expanding cooperation, so it is possible that many other trade agreements, new tariff reductions and technology sharing agreements will be based on RCEP in the future.

A big slap for America

The agreement is a great argument for the United States in many ways. Not only have they been left out of the RCEP, but the convention also weakens the weight of US action against China.

Thanks to RCEP, China will need less and less of the US market, so the weight of sanctions, tariffs and bans imposed by the United States will also affect the Chinese economy less.

And in the longer term, China may also have access to technologies from RCEP countries that it cannot get from the United States. South Korea and Japan, for example, are technologically advanced countries where a lot of Western achievements are used.

Citi analysts have called the RCEP a “Chinese coup,” whose “political message is as important as the economic message.” They write that

• Asia will continue to reap the economic benefits of trade integration if the United States participates in them, if not,
• shows that, contrary to the opinion of many analysts, China is not preparing to “turn” to the domestic market, but to continue its economic and political expansion in the region,
• and it makes clear that even America’s allies, such as Australia, Japan, or South Korea, are unwilling to choose between China and the United States.

Incidentally, Citi analysts note that India is also isolating itself by not joining RCEP, as this will make it a less attractive manufacturing market for active players in the region than the RCEP countries.

By the way, the negotiations on the RCEP started in 2012 and the inclusion of the United States was never considered, so the TPP, which excluded China, was concluded by the United States, which would have meant even closer economic cooperation than the RCEP. Then, in January 2017, when the presidential seat hadn’t even heated up under Trump, the Republican politician left the TPP.

As president, Joe Biden is likely to pursue less protectionist economic policies than Donald Trump and his negotiating techniques will be very different than his predecessor, but one professor says that Bident’s Democratic comrades will prevent him from returning to the TPP, viewing them as “ even more protectionist than Republicans. “

It is possible, of course, that Biden will seek, during his presidency, multilateral cooperation that isolates China in a way that also provides favorable trade conditions for the United States.

Cover image: Getty Images