There is no lack of trade agreements in the world. Last week more precisely, on Sunday, China and 14 other countries signed the world’s largest trade agreement. This deal will further strengthen China’s political and economic influence in the region.
The signing cemented the Regional Comprehensive Economic Partnership (RCEP) as the world’s largest trading block. People should take into account that 2.2 billion people in the countries that signed this agreement, with a global output of $26.2 trillion. Importantly, that accounts for about 30% of the population worldwide, as well as the global economy. This is not the end of the story, as it is also larger than what’s covered under the U.S.-Mexico-Canada Agreement and the European Union.
According to analysts, the economic benefits of RCEP are modest. Moreover, it would take years to materialize. However, the trade deal is a geopolitical victory for China. This agreement comes at a time when the world’s largest economy appears to be retreating from Asia-Pacific, given President Donald Trump’s “America First” foreign policy.
Importantly, it is also not clear whether the country will negotiate any mega-trade deals with economies in the region, under President-elect Joe Biden.
Trade agreement and interesting details
Let’s have a look at the countries that signed the world’s largest trade agreement. Interestingly, the 10-member Association of Southeast Asian Nations signed the mega-deal with the region’s top trading partners China, South Korea, Australia, New Zealand, and Japan.
As a reminder, ASEAN consists of Indonesia, Singapore, Thailand, Malaysia, the Philippines, Brunei, Vietnam, Cambodia, Laos, and Myanmar.
It is worth noting that RCEP was launched in November 2012. Interestingly, at a time when talks for another major trade pact, the Trans-Pacific Partnership (TPP) led by the Obama administration, were underway.
Donald Trump pulled the U.S. out of this trade pact in 2017. However, the remaining 11 countries in the TPP went on to renegotiate the pact. They signed the Comprehensive and Progressive Agreement for Trans-Pacific (CPTPP) in 2018.
However, RCEP is a weaker trade deal in comparison to the CPTPP. As a reminder, tariffs among many member countries that are part of the RCEP are already low thanks to bilateral or smaller multilateral trade deals among them. Consequently, at the moment CPTPP offers more economic benefits than RCEP.
However, this trade agreement lays the foundation for deeper cooperation among member countries in the future. Moreover, this deal is even more important for countries that don’t have existing bilateral trade deals.