The symbolism of RCEP is important, standing as a counterpoint to former President Trump’s decision to pull the US out of the Trans-Pacific
Partnership in 2016, in almost his first act in power. It shows that the Asia-Pacific region can still see the importance in regional blocs even if the US is standing aside.
Towards growth in regional trade
The hope is that ease of cross-border trade aids productivity and stimulates growth, which in turn ought to create a positive medium-term outlook for equity markets. There should also be a greater capacity for Asia-Pacific borrowers to raise debt, deepening regional bond markets.
Getting into the minutiae, the picture is mixed. In terms of intellectual property protection, for example, not much changes, and in many cases the avenues for tariff reduction are in places where there weren’t many tariffs anyway, particularly among the Association of Southeast Asian Nations (ASEAN) which were already bound by free trade agreements (FTAs).
But the partnership does create incentives to develop supply chains across the region, and gives a considerable boost to intra-regional trade. Also, it’s a starting point: RCEP creates a foundation for deeper agreements, such as those relating to labour and the environment, to be built. Financial market integration, already underway in ASEAN, should be spurred more widely across the region by RCEP.
Who benefits most?
Market participants are trying to work out who benefits most from RCEP, and position themselves accordingly. In terms of tariff savings, South Korea will be the most positively impacted, since it has no bilateral FTA with Japan, its third largest trade partner. There has been no China-South Korea FTA previously either, so that again creates an obvious benefit.
Beyond that, there is the potential of the demonstration effect. India, initially part of the discussions for RCEP, eventually opted not to be involved, fearing the impact of cheap Chinese imports on its manufacturing sector. But if the trade deal appears to be delivering benefits elsewhere, the door is open to it.
And a Biden presidency is likely to be less volatile and confrontational than a Trump one: even if there seems little political support for the US joining trade networks today, there is the potential for closer engagement, if only because of suspicion of China leading the bloc.
It will take time for RCEP to bear fruit. But in years ahead it should move beyond symbolism into practical support for economic growth in Asia.