Asia’s Geocentric Future

By Frank-Jürgen Richter

January 30, 2025

Asia is at the forefront of global trade and is second only to the European Union in terms of trade integration. Over the last three decades, Asia’s importance in global trade has grown steadily.  

The Regional Comprehensive Economic Partnership (RCEP) is a Free Trade Agreement between the Association of Southeast Asian Nations (ASEAN) and the plus three countries – China, Japan, and South Korea – and Australia and New Zealand. The Free Trade zone accounts for almost 30% of the world’s GDP, population, and global trade in goods and services. It came into force in January 2022.

In GDP terms, the RCEP is larger than existing trade agreements – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the European Union, the MERCOSUR trade bloc, and the United States–Mexico–Canada Free Trade Agreement. It is also the first multilateral agreement which includes China, Japan, and South Korea. 

The RCEP is a trade deal which establishes trade relations in Asia for Asian economies. The agreement is aimed at eliminating tariffs on more than 90% of the goods over the next decade. Additionally, the agreement includes rules on investment and intellectual property to facilitate free and fair trade. 

Being the largest trading bloc, the RCEP will create deeper economic integration among members. The agreement provides momentum to pursue free and inclusive trade and investments to shape the post-pandemic recovery. Regional supply chains will receive a boost from the RCEP and the trading bloc will drive trade in significant volumes. 

RCEP and Global Trade

The RCEP is tipped to change the composition of global GDP. While it currently accounts for 30% of global GDP, by 2050 it is expected to make up nearly 50% of the global GDP. The agreement could potentially add $209 billion to global income and $500 billion to world trade by 2030. 

Given that the RCEP will create stronger integration between member nations, trade volumes are expected to grow between members and decline with non-member countries. India and Taiwan are among the non-member countries to lose from closer integration of RCEP members. 

European nations will benefit from the RCEP’s harmonizing of Rules of Origin. This results in cost benefits for supply chains across the region. An increase in trade of goods and services among Asian member nations may result in decrease in imports from European and other nations. A trade diversion is likely to reduce the competitiveness of European products. To reduce potential losses, the EU should enhance economic cooperation with RCEP nations. 

The reduction of non-tariff barriers, uniformity in information requirements, and local content standards creates a stable environment for European businesses. Stronger regional integration provides an attractive market for European companies looking to benefit from resilient supply chains, lower transaction costs, and exporting to RCEP countries. By 2030, Europe is expected to gain by an annual increase of net income worth $13 billion. 

The increase in trade among RCEP member nations will impact trade with non-member nations. Exports from Africa to the RCEP members was projected to reduce by $11 billion while exports to non-RCEP countries was tipped to increase by $8 billion. The EU and the US were expected to see an increase of $1.5 billion and $2.5 billion respectively from Africa.  

With China among the members of the RCEP, the return of Donald Trump as US President could potentially hurt trade volumes between the US and the RCEP. The proposed tariffs war, export bans amid escalating trade-tech war between the two major superpowers may prove as stumbling blocks to economic interactions. 

America Remains Vital to Global Trade

The economic integration among RCEP member nations offers Asian economies a promising opportunity to recover from the effects of the pandemic. Deeper integration can lead to inflows of FDI leading to trade and income gains. The RCEP will prepare members to be more resilient in the face of economic shocks by improving regional cooperation, reducing trade costs, and diversifying economies. 

The return of Donald Trump as the US president has wider implications. India’s exclusion from the RCEP gives a perception that the trade bloc is largely China-led. If the US imposes tariffs, it will eventually hamper free trade. Import tariffs could drive up prices and increase inflation.

Trump’s previous stint focused on a Free and Open Indo-Pacific vision. However, the US administration then attempted to isolate China from regional economic networks and prioritized security. Replicating the same blueprint in the region could lead to RCEP member nations making risky choices and negatively impact the working of the trade bloc. 

As Asia continues to influence global trade and contribute significantly to global GDP, it will be prudent for economies to engage with each other to ensure favorable and prosperous outcomes.