ASEAN +5

Even before the Covid pandemic, and even before the Trump administration’s “America First” trade wars, globalization - the ever-more-open system of trade, foreign direct investment and the flow of people that emerged in the 1990s - was slowing. The share of trade in world GDP had risen between 1990 and 2008 from 39% to 61%. As these flows expanded, real GDP per person in emerging countries began to rise dramatically, doubling from 1995 to 2019. But this contribution from trade began to falter after the global financial crisis, and by 2019 was still well below its 2008 peak. This year, global trade will fall even further. It is forecast to drop by perhaps 9-12%. as the pandemic has slammed world growth, massively increased unemployment, and encouraged governments to protect and foster what they identify as their own strategic industries, even reviving, in countries such as China and India, interest in the old development strategy of import substitution. It would seem reasonable, then, to ponder an end to something akin to a golden age of trade and emerging market growth.

All the more remarkable, therefore, is a (virtual) signing ceremony that happened today in Hanoi. The trade ministers of ASEAN (the Association of Southeast Asian Nations) - a 53-year-old, 10-nation regional economic and political group, frequently rife with internal disagreement, and at times not far from the brink of irrelevance - joined with their counterparts from China, Japan, South Korea, Australia and New Zealand to form what will be the world’s largest free-trade bloc. The China-backed deal, called the Regional Comprehensive Economic Partnership (RCEP), noticeably excludes India (which had pulled out of RCEP negotiations but is apparently still welcome to join) and the United States. Readers will recall that the Trump administration exited the Obama-led Trans-Pacific Partnership in 2017, thereby creating a big-power vacuum in the world’s fastest-growing region. That vacuum appears now to have been filled by China, thus re-emphasizing the broader question of America’s role in Asia. RCEP will “soon be ratified by signatory countries…accounting for 30% of the global economy, 30% of the global population, and reach 2.2 billion consumers”, said Vietnamese Prime Minister Nguyen Xuan Phuc . Tariffs will be eliminated within the group, some immediately, others over 10 years, with the Agreement marking the first time the regional powers of China, Japan and South Korea are in a single free-trade bloc.

The incoming Biden administration will be rightly focused on slowing the spread of the pandemic and distributing new vaccines. However, it would be short-sighted indeed for whomever becomes the new Secretary of State to ignore Washington’s engagement in Asia, and for whomever becomes the new Commerce Secretary to ignore the perils of protectionism.