China denounced protectionism, while America embraces it
The U.S. withdrawal from the Trans-Pacific Partnership (TPP) could be an opportunity knocking on China’s borders. Recently, at the World Economic Forum in Davos, Chinese President Xi Jinping denounced populism, protectionism, and de-globalization, likening it to “locking oneself in a dark room.”
Interestingly, after Donald Trump won the U.S. presidential elections with protectionist pledges as a major platform, populism has gotten yet another tailwind. So much so, that billionaire Ray Dalio sees it becoming the number one issue economically. Time will tell if Xi Jinping’s pro-globalization propaganda will gather steam.
With the US closing its doors to free trade, China (FXI) (ASHR) may just open its doors wider, in an attempt to establish itself as an economic anchor among Asian nations. China is already moving swiftly to establish and strengthen bilateral trade ties with Pacific and Middle Eastern nations.
China’s trade ties with Asian economies
China happens to be the forerunner for the establishment of the 16-country Regional Comprehensive Economic Partnership (RCEP). The RCEP would be the 10 ASEAN (Association of South-East Asian Nations) governments and their six FTA partners: Australia, China, India, Japan, New Zealand and South Korea. The next round of talks for the RCEP is due to be held next month in Japan. The Association of Southeast Asian Nations (ASEAN) nations include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam.
Notably, seven (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam) of the 11 nations that would see trade ties weakening with the U.S. (SPY) pursuant to America’s withdrawal from the TPP on January 23, would be part of the RCEP.
Once the RCEP goes through, it may become difficult for American manufacturers to break through supply chains between these regions, especially as China strengthens its trade ties with low-cost havens such as Philippines and Malaysia. With a regional deal in place offering more favorable terms of trade, the RCEP could also help these emerging market (EEM) (VWO) grab some market share from US’s exports to Japan.