China and 14 other Asia-Pacific countries signed a mammoth trade agreement covering one-third of global GDP on Sunday — a move that extinguishes any hope for the viability of former Vice President Joe Biden’s China trade policy.
The signing of the Regional Comprehensive Economic Partnership (RCEP) creates the world’s largest trading bloc, a market of 2.2 billion people and GDP of $26.2 trillion. Most analysts agree that it will strengthen China’s political and economic standing in the region and around the globe.
It also highlights a critical weakness in the trade policy Biden advocates. On the campaign trail, Biden repeatedly criticized the Trump administration’s approach of unilaterally imposing tariffs and demanding trade reciprocity. But he insisted he would not accept the pre-Trump status quo either.
“China is stealing intellectual property. China is conditioning being able to do business in China based on whether or not you have 51 percent Chinese ownership. That’s got to end,” Biden said in an interview with NPR’s Lulu Garcia-Navarro in August.
Instead, Biden said he would work with our allies and the rest of the world to put pressure on China.
“We make up 25 percent of the world’s economy, but we poked our finger in the eyes of all of our allies out there,” Biden said, most likely referring to the tariffs we placed on steel and aluminum produced by allies and rivals alike. “The way China will respond is when we gather the rest of the world… That’s when things begin to change. That’s when China’s behavior is going to change.”
But that only works if the rest of the world goes along with the plan. And the RCEP shows us that the world has its own ideas.
— Lulu (@lourdesgnavarro) August 5, 2020
The Biden plan was always a tall order. Why would the rest of the world put pressure on China if it were unwilling to do so during the eight years during which Biden was vice president under Barack Obama? What sort of pressure could the world put on China that did not include trade restrictions and tariffs? What evidence is there that the rest of the world would bear the costs of decoupling economies from China to create pressure? Most importantly: why would China give in to that pressure?
The RCEP makes clear that Biden’s trade policy is likely stillborn. The non-Chinese signatories have decided to move ahead with a trade deal that guarantees they will not be part of a coalition to contain or reform China.
Far from holding China accountable for its predatory past, the RCEP vindicates it. China will now have its economic status bolstered by a set of countries at its peripheries who will see China’s fortunes as inexorably linked to their own. And the deal does not include any of the climate change or labor protections that Biden and other Democrats have urged the world to demand of China in exchange for market access.
“The Center for Strategic & International Studies notes that the RCEP includes no environmental or labor rules. And its sections on disputes settlement, competition, services, and investment are relatively weak,” Mike Bird of the Wall Street Journal pointed out on Monday.
But it does create a regional manufacturing hub that will draw jobs and investment from the rest of the world while making it harder for outsiders to challenge China. Here’s the CSIS assessment:
One of the most significant changes under RCEP is the creation of common rules of origin for the entire bloc. Once implemented, RCEP countries will only require a single certificate of origin. This will allow companies to easily ship products between RCEP countries without needing to worry about specific rule of origin criteria in each country or for each manufacturing step. A common rule of origin for the RCEP bloc will lower costs for companies with supply chains that stretch throughout Asia and may encourage multinationals that export to RCEP countries to establish supply chains across the bloc.
That could help China avoid tariffs or other trade restrictions in the future by complicating what is made in China and what is made by other countries in the RCEP bloc. It also gives China a chance to argue that restrictions on Chinese made goods will hurt the economies of its neighbors who sell into the supply chain.
In short, this new trade deal should shake loose the last of those still clinging to Biden’s always implausible policy of forming a world-wide alliance against China. It’s not going to work.