The Future of Trade in the Asia-Pacific Region: Who Will Dominate- China or the US?

It is no secret that Trumpian US foreign Policy and that of the economic powerhouse of China are not a match made in heaven. But with the President elect Joe Biden poised to climb upon the all-American throne in the coming weeks, will 2021 mark the withering of four years of trade tensions between the two economic giants?

November last year, marked the signing of the Regional Comprehensive Economic Partnership (RCEP), marking it the first free trade agreement between China, Indonesia, Japan, and South Korea, which are the four largest economies in Asia. The agreement – that also included 11 other member states from across the Asia-Pacific region – was hailed as signifying the increasing decline of the dominance of the United States in international political affairs and of the rise of Asia once again as an economic centre of trade.

The new deal covers over 2.2 billion people which far outnumbers any previous regional free trade agreement and is likely to only further China’s reputation as the principal economic power in the Asia-Pacific region. Its creation notably followed a retreat by Washington from participating in all-encompassing trade deals that often reshape international relationships. In 2017 as part of what at the time seemed to be an early neo-mercantilist turn, President Donald Trump removed the US from the Trans-Pacific Partnership (TPP) – which is a broader deal than that of the RCEP – and was frequently considered the US’s response to China’s increasing dominance in previous years in the Asia-Pacific region.

So, the question remains to be seen – will 2021 mark the increasing absence of the US in Asian-Pacific trade and the rising dominance of China or will the president-elect Joseph Biden renegotiate Washington’s place within the Asian trade market? If the US continues to be absent from the key Asian trade agreements, it may put American exporters at a notable disadvantage within the Asia-Pacific markets. The lower trade barriers between members of the agreement may encourage global corporations to avoid American tariffs on Chinese-produced goods and keep their business within Asia.

Trump’s successor is yet to indicate whether he would be willing to negotiate with or join the RCEP in the coming years. Although Biden and his team have made it clear that they will not rush to immediately overturn all of Trump’s trade policies, they have declared an ambition to launch America back as a smarter and a more orderly challenger to their East Asian rival – China. Certain economists have suggested that the new presidential administration will be expected to offer their allies in the Asia-Pacific region alternative economic and soft-political instruments, else the seeming geostrategic importance of the US within the region will continue to be undermined by its absence from larger regional trade agreements like the RCEP. It could be suggested that the US will have to reverse its trend of neo-mercantilist protectionism seen in the last four years and instead take a more active and participatory role in the region in order to maintain its future economic interests

Without greater participation from the US in projects such as the RCEP, we may see this year see a continuation of patterns of increasing intra-East Asian trade and investment that will only enhance the dominant roles already played by both China and at times Japan in the region. The US policies under the Trump administration that have been aimed at blocking trade expansion and further investment opportunities surrounding China instead of helping encourage regional economic integration have caused tension between Washington and regional actors like Japan as well as with the ASEAN group. Therefore, it would be unsurprising if in 2021, Biden attempts to re-establish the US not only as an attractive ally in the region both economically and politically.

So, will 2021 be the year we see Washington change its recent ways and participate in the trend for integration and free trade spreading across the Asia-Pacific region or will the new American administration attempt to continue to resist cooperation with agreements that benefit Chinese competitors? Only time will tell.

“The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.”

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