China’s New Pacific Trade Deal

Ever since the collapse of the Pacific Pivot policy of the Obama administration, following President Donald Trump’s precipitous withdrawal from the US-led Trans-Pacific Partnership (PTT) free-trade agreement in 2017, the Asia-Pacific region has been operating in an economic wilderness, with US-China geopolitical competition hindering regional economic growth. This period of uncertainty ended in early November, when China and 14 other Asia-Pacific countries signed the Regional Comprehensive Economic Partnership (RCEP), a new free trade agreement that excludes the US. The signatory nations include the 10 countries of the Association of Southeast Asian Nations (ASEAN) along with China, Japan, South Korea, New Zealand and Australia. They have a combined population of over 2 billion and total GDP of more than $26 trillion, comprising about 30% of the world’s population and global economic output — which makes the RCEP the world’s largest free trade agreement. The RCEP is a geopolitical game changer. It thrusts China into the role of a regional economic superpower, supplanting past US leadership and fundamentally changing the dynamic of US-Sino relations.

Ever since President Richard Nixon took his groundbreaking trip to China in 1972, US-Sino economic engagement has defined the geopolitical map of the Pacific. It took some time for the long-time ideological foes to warm up to one another — diplomatic relations were normalized in 1978, and some halting steps toward the normalization of trade occurred during the Reagan administration. But it was not until 2000, during the Clinton administration, that the US Congress passed Permanent Normal Trade Relations (PNTR) legislation seeking to open trade between the US and China. This bill had bipartisan support due to the belief that trade with China was good for the US economy and would also open China to the world, enhancing human rights and the development of democracy in China. This bill was signed by President George W. Bush in December 2001, and was viewed as the culmination of nearly two decades of negotiations designed to bring China into a global, rules-based trading system in accordance with the World Trade Organization.

US proponents of the opening of economic relations with China believed that improved trade would promote democratic values and institutions in China, laying the foundation for peace and prosperity. At its core, this view was based on the 18th century Enlightenment belief that two democracies would not go to war with each other. One problems with this approach was timing — the opening of US-China economic relations should have been followed by a period of intense diplomatic oversight to ensure that the US objectives regarding the liberalization of Chinese society occurred hand-in-glove with the expansion of economic trade. Instead, the US was distracted by the Sep. 11, 2001 terrorist attacks, and its national focus became almost entirely centered on the Middle East and Southwest Asia, where it became embroiled in two major conflicts in Iraq and Afghanistan.

China’s Economic Boom

Meanwhile, China entered into the largest socioeconomic transition in history, creating the biggest middle-class population concentration in the world. Many in the West viewed this transition as exactly the transformation that was needed, believing that a prosperous middle class would increase demands for democratic reform. The US, distracted by the global “war on terror,” was taken by surprise by the rapid pace of China’s economic growth and missed out on any chance of trying to link this growth to political reform in China. This policy failure was noted in the 2006 National Security Strategy (NSS). That strategy stated that the US was “a Pacific nation with extensive interests throughout” the region. At the same time, it underscored the fact that the US focus on political and military engagements in Iraq and Afghanistan had led to the fraying of defense and economic partnerships in the Pacific and a corresponding expansion of Chinese influence. Of special concern was China’s expansive trade growth, including what the US assessed as policies designed to “lock up” global energy supplies and dominate regional markets through trade agreements that were done “without regard to the misrule at home or misbehavior abroad of those regimes.” China was effectively mirroring in trade relations its own disregard for domestic political reform.

One area of great concern for the US was Southeast Asia, which, like China, was undergoing a period of massive economic expansion. Multilateral institutions such as the ASEAN Regional Forum (ARF), a regular security dialogue among 27 nations, and the East Asia Summit (EAS), were increasingly looking to regional dialogues and trade agreements where China played a dominant role. US policymakers feared that future regional diplomatic and economic systems could develop in a way that would exclude the US. This concern was a major motivation for President Barack Obama’s so-called Pacific Pivot policy of 2012, and his emphasis on regional engagement centered around a trade pact called the Trans-Pacific Partnership (TPP), which by design excluded China.

Problematic US Pacific Pivot

The TPP was seen by the Obama administration as a perfect vehicle for containing Chinese economic influence in the region. It would allow the US to dictate the rules relating to international commerce while reducing the dependence of the other signatories (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) on China. This in turn would draw these nations closer to the US. The TPP was signed in February 2016. The agreement, however, was not without controversy, particularly on the domestic US political front, where it featured in the 2016 US Presidential election contest between Hillary Clinton, a proponent of the TPP, and Donald Trump, who was vehemently opposed.

Donald Trump ran on a platform that derided the TPP as bad for US jobs, and one of his first actions as president was to withdraw from it. The Trump administration’s effort to reforge some sort of Asian-Pacific regional consensus regarding free trade under the rubric of a “shared vision for a free and open Indo-Pacific” floundered, with the remaining TPP signatories regrouping to form a new trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), without US participation.

The magnitude of the RCEP as a policy disaster for the US is striking. For years, the Asia-Pacific countries had avoided locking themselves into a trade agreement with China that would solidify Chinese economic dominance. The collapse of the TPP, and the inability of the CPTPP to gain traction, however, when combined with the economic crisis brought on by the Covid-19 pandemic, made the RCEP attractive. Closer trade ties with China were seen as one of the best ways of rebuilding stricken economies.

A Day Late and a Dollar Short

The RCEP throws a monkey wrench into the plans of President-elect Joe Biden for relations with China and Pacific trade. As Vice President in the Obama administration, Biden was a proponent of the TPP, and as a candidate he indicated that he would seek to rejoin it. Biden’s plans, however, face an uphill battle in a US political climate that has made the TPP toxic. Moreover, the RCEP has filled the vacuum created by the collapse of the TPP. When it comes to positioning the US as a counter to China in the region, Biden finds himself a day late and a dollar short.

Biden will find it hard to offset China’s burgeoning economic position in the Pacific. The RCEP helps solidify the regional geopolitical objectives of the Chinese “Belts and Roads” initiative, further opening the economies of the Asian-Pacific region to Chinese-funded development projects and providing markets for the expansive Chinese middle class, which has grown from around 4% of China’s urban population in 2000 to over 76%, or some 700 million people, in 2020. This number is expected to reach 1.2 billion by 2027. The Chinese middle class has become an unstoppable commercial engine that dominates global economic trends, challenging and in many ways superseding the role previously enjoyed by the middle class of the US and Europe.

Of equal importance to the economic and geopolitical impact of the RCEP is the challenge that China’s middle class represents to Western ideas about the linkage between prosperity and democracy. This booming Chinese middle class has not brought with it democratic reform. China’s economic success represents a direct challenge to the rules-based liberal world order that has underpinned US global diplomacy since the end of World War II. The Chinese model of economic prosperity independent of Western notions of democracy provides the rest of the world with an alternative that directly competes with the US and Europe. At a time when the world is seeking to recover from the economic and social ravages of the Covid-19 pandemic, the US will find itself struggling to compete with China when it comes to providing nations with a path to renewed hope and prosperity.

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