East Asia Decouples from the United States: Trade War, COVID-19, and East Asia's New Trade Blocs

Abstract

The deepening US-China trade war and two new megaregional trade agreements, the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), are reshaping the landscape of East Asian trade. The CPTPP and RCEP are moving forward without the United States and India, respectively, which were once seen as critical partners. Using a computable general equilibrium model, we show that in the context of the US-China trade war these agreements will raise global national incomes by $121 billion and $209 billion annually by 2030, respectively, yielding especially large benefits for China, Japan, and South Korea and losses for the United States and India. These gains offset losses of $301 billion from the trade war globally, but not fully for the United States and China. The trade war increases the value of RCEP because it strengthens East Asian interdependence and will likely create regional ties similar to institutional arrangements proposed in the 1990s.