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RCEP – The Birth of The World’s Largest Trade Bloc

Posted: Wednesday, December 9th, 2020

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November 2020 marked the birth of the RCEP –(Regional Comprehensive Economic Partnership), the world’s largest trade bloc. With it, the world split into three main trading regions. On the one hand, we have the United States-Mexico-Canada Agreement, with a combined GDP of $24.73 trillion. On the other hand, there is the European economic area follows closely, with output close to $19 trillion.

However, the newly created RCEP has an output close to $26 trillion dollars. Moreover, it is home to 2.2 billion people, and the share of the economic output of the fifteen member countries is close to 30% of global trade.


RCEP – The Biggest Free Trade Deal In the World

The RCEP trade deal is nothing new – it is a project long-planned and designed to increase trade among its fifteen member countries. What is interesting is the fact that the new trade bloc has a surprising leader – China.

Furthermore, despite the fact that 2020 was marked by a pandemic, China managed to bring together the major Asian powerhouses. It did so despite the ongoing trade war with the United States.

This is important because the cost of the U.S.- China trade war is estimated to reduce world income by $301 billion by 2030 compared to pre-Trump policies. Now that a new administration comes at Washington, trade tensions will probably ease. However, no one should expect them to disappear altogether.

The decline in trade caused by the U.S.- China trade war consists mostly of transactions across the Pacific. Therefore, the new RCEP agreement aims at becoming a substitute for the loss of income.

The world, therefore, is split into three major regional trade blocs. As the pandemic signaled globalization’s slowdown, regional trade agreements are more effective.

India Withdrew at the Last Minutes

Surprisingly, India decided to withdraw from the RCEP at the last minute. In doing so, it left for China the unchallenged leadership position.

Estimates give China the biggest gain from the RCEP – approximately $100 billion, followed by Japan with $46 billion. In contrast, by not joining, the United States and India forgo a cumulative $200 billion in gains.

The way the new administration in Washington decides to approach international trade is key moving forward. With the growing role of China in the region, the United States will have to carefully choose its steps if it wants to trade at similar terms in the region.

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