Authors: Peter Drysdale and Adam Triggs, ANU
The world view of populist politicians has been in the ascendancy, characterised by isolationism, protectionism and nationalism. The path to prosperity, they argue, is one where economies are closed. Trade is restricted. Markets are managed. Foreign investment is blocked. Immigrants are expelled. Economic cooperation is for the weak.
The protectionist, isolationist economic model of the populists has been nothing short of a catastrophic failure, associated with a collapse of global confidence and investment that threatens global jobs and growth. Global GDP growth is falling, trade growth has halved since 2017, foreign investment has fallen by almost a third since 2017 and supply chains are unravelling at dangerous speed, threatening a sharp rise in production costs and a sharp fall in already anaemic productivity growth.
The leaders of the ASEAN+6 group — which includes the 10 ASEAN countries plus Australia, China, Japan, South Korea, New Zealand and, hopefully soon, India — are poised to sign the Regional Comprehensive Economic Partnership (RCEP) agreement, comprehensively rejecting the flawed economic model advocated by political populists.
In signing RCEP, Asia has chosen openness over protectionism, regionalism over nationalism, cooperation over confrontation, and solidarity over suspicion. They have sent a clear and unambiguous signal to the world: that Asia remains very much open for business, committed to the open regionalism that has seen East Asia’s share of global GDP soar from 15 to 30 per cent since 1980, while South Asia’s remains stubbornly has not budged, stuck around 3 to 4 per cent.
RCEP was hard fought, but a choice made easier by the calculation that Asia needed to push back against protectionism even as the United States chose that path.
For countries seeking new sources of growth, increased living standards and fresh productivity growth, regional cooperation was the answer. Analysis by Australia’s Productivity Commission presented the options in stark detail: choose protectionism, and ASEAN+6 GDP would fall by more than 8 per cent. Choose openness, and ASEAN+6 GDP would rise by up to 4 per cent.
Asia has made the right choice. The path of protectionism is costly. Almost 100 per cent of President Trump’s tariffs have been paid for by American citizens, plunging the poorest Americans into an even deeper poverty. President Trump’s misguided desire to reduce the US trade deficit has seen the deficit blow-out by more than a third. His trade war has forced the US Federal Reserve to cut rates in a desperate effort to ward off what the yield curve and financial markets are overwhelmingly predicting: a looming US recession.
The same protectionist, isolationist model is being implemented by Boris Johnson in the United Kingdom. The results do not surprise. Johnson’s desired hard-Brexit is forecast to break-up the United Kingdom and plunge it into recession. So desperate was he to become the Prime Minister of the United Kingdom, there’s a chance that Johnson may now be its last.
The countries pursuing this protectionist model have never been more divided. The global economy is suffering as a result.
The path that Asia has chosen to take could not be more different. RCEP is the green shoot in the otherwise deserted field. As the world divides, Asia has come together. To focus on the economic numbers — as impressive as they are — misses the point. RCEP is not just a trade agreement. RCEP is an economic cooperation arrangement. It brings together a group of countries some of which previously had no free trade agreement that linked them. It brings the region together in their common pursuit global interests and goals.
Even the holdout country, India, is a source of hope. India was slow to grasp the strategic significance of RCEP. But like ASEAN, Japan and other countries, it has now elevated RCEP as a strategic priority and an opportunity to boost its lacklustre growth. While India is yet to sign on, RCEP remains open to India and the likelihood of its joining in the future is high as the costs of staying out increase. Unlike TPP11, RCEP is open to new entrants. Commitments under RCEP are implemented gradually, allowing countries the flexibility they need to ease domestic adjustments and manage concerns.
RCEP is vital for Australia. RCEP delivers a direct boost for demand, a kickstart to GDP, more productivity growth and cheaper goods and services for stretched household budgets. It is a remarkable outcome for the trade minister, Simon Birmingham, who has established himself as one of the highest-performing, strategically-focused ministers in Prime Minister Scott Morrison’s Cabinet. More importantly, it shows the critical role Australia can play in helping to nudge the region towards beneficial, cooperative outcomes.
But RCEP is not just about the economy. It is about political stability and security. RCEP contributes significantly to shared prosperity and political security in the Asia Pacific by building political certainty and trust. The political foundations of cooperation arrangements in East Asia and the Pacific were founded on shared ambitions for regional economic development and appreciation of its different levels of development.
In a world that is splintering, RCEP offers a beacon of hope. It shows that the countries in what is still the most dynamic, fastest growing region of the world remain committed to cooperation and openness. That provides the best defence of Asian prosperity and security in a world where others have retreated from it substantially. If only the rest of the world can be encouraged by the conclusion of RCEP to return to the same fold.
Peter Drysdale is Emeritus Professor, Head of the Asian Bureau of Economic Research (ABER) and Editor-in-Chief of East Asia Forum.
Adam Triggs is Research Director of ABER at the Crawford School of Public Policy in the College of Asia and the Pacific at The Australian National University.