The Giant New Trade Deal You May Not Have Even Heard About

That’s because the U.S. isn’t part of the massive international trade pact. But China is.

This is a graphic from a report by the biggest TV network in Japan. You don’t need to read Japanese in order to understand it.

We thought you might have already heard enough in the last 24-hours about how President Trump is trying to soothe his ego and save his ass, and overturn the results of an election he clearly didn’t win, abetted by cohorts in Congress who should know better, and are implicitly green-lighting stunts by local Republicans party officials and politicians in multiple attempts to undermine elections at the state level. Like refusing to certify election results in a county President-elect Biden won by several hundred thousand votes. Although a few hours later, the Republican members of the Board of Canvassers in Wayne County, Michigan, which includes Detroit, changed their minds. All this against the backdrop of Trump firing his head of election security at the Department of Homeland Security, for the “crime” of saying the President’s assertions of vote tally manipulation are “unsubstantiated or are technically incoherent“.

Friends, all we’ll say is this: be vigilant, not fearful. Our voices are louder than Trump’s, they already were when we voted him out of office. And we’ll probably be back to reporting on that tomorrow, since there’s just so much going on, and we’re entering such a crucial time for election certification. But for today, we thought we’d give you something different, which has barely been touched on by U.S. media outlets for understandable reasons we just laid out above, but could potentially be huge.

A new free trade partnership, signed earlier this week, called the “Regional Comprehensive Economic Partnership”, is the first ever that includes China, Japan, and South Korea. Australia, New Zealand, and nearly a dozen countries in Southeast Asia are also signed on. It’ll cover about 30% of the world’s population and economic value.

One of the biggest sticking points? Whether India would be part of it. It isn’t. Japan, and some of the other countries involved advocated long and hard for India’s inclusion, as a balance to China’s obvious increase in influence that would result from this deal. India was reluctant because of concerns the deal would hurt its domestic industries, especially since it’s a net importer of goods right now. So in short, China won.

With the new agreement, economies in Asia have swung so far toward China during the years Trump’s been in the White House. When before that, the momentum was really going the other way.

You’ll remember one of the first things Trump did when taking office was kill the U.S. involvement in the Trans Pacific Partnership. That multi-nation trade deal’s sole purpose was to exclude China and reduce its current and future economic dominance of the region, while increasing the influence of the U.S. It was a flawed deal, and could’ve led to a bigger suck of jobs away from the U.S., so Trump may have been right about being reluctant to participate in that part of it. Bernie Sanders hated it too.

At the same time, other countries in the region are also concerned about China’s outsize influence, and also China’s reputation for doing things like stealing intellectual property, and setting up domestic companies to compete with international partnerships, and then getting rid of the international partnership. So those other countries were more than willing to shift a lot of trade and economic development to the U.S. and its companies, because the U.S. is—or was—seen in the region as being more reliable, and on the up-and-up business-wise.

We always argue that Trump should’ve tried to renegotiate the finer points of TPP, instead of adopting his trademark unilateral approach of doing little one-on-one deals with individual countries instead of big ones involving many at once. There probably was some give there, since as we said, countries in Asia really would’ve preferred to enter into a long term deal with the U.S. than with China.

And we also always argue that one of the biggest flaws of the Trans Pacific Partnership may have been its clunky name. Had it been called the “Screw China Deal”, or something less crude but with the same message, we can see Trump, maybe, having been convinced to be on board.

The U.S. isn’t totally shut out of the region, and Trump did have some success carving out unilateral deals. He was able to cut a very good deal for the U.S. with South Korea, partly because South Korea wanted to support his efforts dealing with North Korea’s leader Kim Jong-un, which eventually went nowhere. But South Korea will do a lot to promote almost anything that might lead to movement in its aspirations for a unified Korean Peninsula. 

Trump saw opportunity there too. We really do think from the perspective of “what’s in it for me”, which is always the way Trump assesses everything, he really did believe Kim Jong-un would be willing to give up his nukes in exchange for a bright economic future, because why wouldn’t he? 

Anyway, now South Korea’s part of the new pact with China.

Trump also reached a partial agreement with China, mostly focused on physical trade. Because he wanted stuff that could be seen: soybeans loaded on to ships, etc. So he could point to it and be celebrated for it. Even so, he didn’t even come close to significantly closing the trade gap with China. And he did nothing about the biggest problem for U.S. companies doing business in China: theft of intellectual property. That’s harder to see, to show people improvement on, because you can’t really show people data and software; it’s kind of invisible. So the glory Trump might’ve brought to himself by accomplishing that would’ve been less easy to illustrate and visualize. It’s also a much knottier problem with which to deal. Because, for the reasons we just laid out, it’s much harder to build verification measures dealing with software than with soybeans, for instance. So he de-emphasized the piece of it that should’ve been the central piece of any trade deal with China from the beginning.

And on any broader regional deal, Trump’s said no. The TPP went ahead without the U.S., but with limited impact because U.S. involvement was kind of the whole point. And that deal will probably be eclipsed in terms of volume with by the latest deal because China has the power to make it so.

Under the RCEP, as it’s more familiarly known (also a terrible name!), countries are still able to protect some domestic industries. For instance, Japan will be able to protect its rice farmers and beef producers by keeping import tariffs high. But it will lower import tariffs on other products such as octopus and soy beans.

There are provisions in the deal aimed at protecting China from stealing intellectual property. Mainly by getting China to agree not to install servers in Japan and other countries, and not to require companies participating in the trade deal to provide proprietary operating information, which China generally does require as a condition of any deal to do business inside China. 

Of course it’s always harder to prove someone’s not doing something than they are. So this is going to be a real test of whether you can do a deal with China where it truly does back away from some of the more questionable business practices that were crucial to getting it to where it is.