The relationship between the United States and China is destined to be increasingly fractious. The two countries occupy geopolitical tectonic plates, the movement of one unavoidably generating friction with the other. It is an open question as to how much the world economy, where the market has largely determined trade flows to date, will be reshaped to reflect geopolitical forces.

Global trade figures in gross terms do not reflect the growing geopolitical rivalry.

Despite being strong allies of the United States, for Germany, Japan, and Korea, China is the largest trading partner. In this still undivided world economy, the US, EU, Japan, and the Republic of Korea accounted for 42% of Chinese merchandise exports in 2021. In 2022, the EU, Taiwan, the Republic of Korea, Japan, and US supplied 43% of Chinese imports. Not even the invasion of Ukraine by China’s closest friend, Russia, has caused the trading system to divide into two camps – one led by Beijing and the other by Washington.

The overall numbers tell only part of the story. While the volume of trade between the US and China remains high, bilateral strategic decoupling is proceeding. This is a US-China bilateral phenomenon. It is reflected in the trade of others only selectively. For America’s allies, the US-China trade war had been a spectator event only. Two exceptions began to occur – one for supplying geostrategic-relevant goods, services and technology, and a second the result of identifying sources of geostrategic relevant supplies. Where the US pressed Japan and the Netherlands to join in restricting exports to China of semiconductor production equipment, they have done so. Separately, learning from the European experience with excess dependency on Russia for fossil fuels, Western capitals have begun planning the diversification of sourcing of critical minerals, to avoid dependency on a single country, particularly China.

Any decoupling that does occur between China and the West will likely be substantially “made-in-China”, that is caused by China’s own policies. US preaching in favor of supply chain resilience would fall on deaf ears were there no concerns generated by China with respect to its reliability as a supplier of critical materials.

The general trade policies of the two rivals will also shape trade flows. China is aggressively moving to lower barriers to its trade with others, first through RCEP and then applying to join CPTPP. The United States has moved in the opposite direction, failing to deepen economic relationships with even its avowed friends. In fact, through its recent trade measures it has tended to alienate these trading partners.

Other factors, not traditionally the subject of trade agreements, will contribute to fragmenting the trading world. The contest over global standards has yet to play out – setting standards regarding 5G telecommunications, internet protocols, privacy, AI, electric vehicles and other products at the frontiers of technology may divide markets. Potential effects on trade can be expected as a result of the debt owed to China by the beneficiaries of the Belt and Road Initiative (BRI) and China’s other development programs. For example, the need to repay debt has enabled privileged Chinese access to raw materials, a phenomenon just beginning to be witnessed. The exponential growth of Chinese overseas investment, which will affect trade, is likewise at an early stage. Another factor is the RMB perhaps taking on a more central role as a global currency. All of these economic and financial variables may play a part in shaping world trade. 

None of the aforementioned influences may prove to be as consequential for world trade as the deterioration of the multilateral trading system itself. The immense increase in global economic prosperity made possible by international trade over the last three-quarters of a century has depended in very large part on the certainty provided by the rule of law. As the two largest trading countries begin to ignore the existing structure of rules, this could become a tipping point, seen in retrospect as the end of an era and the beginning of another, a darker one. If the rules are increasingly ignored, the new age would more likely than not be characterized by slower economic growth and fragmented trade.

This is not to suggest that either of the two contesting powers have a conscious plan to discard the current trading system. Neither appears to have reached the conclusion that an end to the multilateral trading system would be in its interest. It is possible that neither is fully conscious of the spreading damage caused by their acting at cross purposes with the current rules. But their conduct is telling. In the case of the US, the departure from the international rule of law is demonstrated by ending binding WTO dispute settlement by blocking Appellate Body appointments, applying tariffs at odds with its contractual commitments (tariffs on trade with China in general and embracing a national security rationale to restrict steel and aluminum imports from all sources), and unapologetically subsidizing domestic industries without regard to any international rules. China’s departure from the rules is at one and the same time more overt and more opaque. China uses trade measures for purposes of coercion and denies that market forces must govern competitive outcomes as it increases the role of the state and the Communist party in its economy.

Neither Washington nor Beijing has declared an end to its adherence to the WTO-administered multilateral trading system. The reverse is the case. Perhaps current conduct at odds with the system is an aberration. US officials state that there is no general policy of decoupling from the Chinese economy. China’s policy of working towards “dual circulation” has not been accompanied by it announcing a retreat from global trade. What is clear is that each wishes to be less reliant on trading with the other. The world has seen nothing like this in inter-hemispheric trade since US measures toward the Empire of Japan in 1940-41, and no analogy with the past is a sufficient guide to the future.

The game changers for the global trading system consist of the adoption by the United States and China, for domestic reasons, of economic nationalism as a controlling factor in formulating their foreign economic policies. In the US the Trump Administration embraced economic nationalism primarily with rhetoric. The Biden Administration made the rhetoric reality in its major economic legislative initiatives. For China, nationalist policies were evident in its statements about achieving dominance in key industries of the future and the episodic deployment of trade measures for purposes of coercion. China’s domestic concerns for regime stability and its contest with the United States led it to support Russia during its invasion of Ukraine. Its priorities blinded it to the inevitable Western reaction. Neither nation has room in its current world view for actively supporting multilateralism.

Most other countries continue to steer an uncertain, non-aligned course, which may increasingly be governed by ad hoc determinations of self-interest. The world’s largest trading bloc, the European Union, has called for a policy of “strategic autonomy”. Whatever this turns out to be, it is not a vote to join Beijing or Washington in a trading bloc, nor is it a declaration in favor of the multilateral trading system. As for some of the others, one would not expect to hear from India nor South Africa that adherence to the existing multilateral trading system is a national priority. Neither are there any indications whatsoever of any country, including these two, aspiring to join a trade bloc.

The bottom line: world trade is not at present coalescing into two trading blocs, but the center, the multilateral trading system, is under stress. The question increasingly asked in academic symposia is whether it will hold.

Alan Wm. Wolff is a distinguished visiting fellow at the Peterson Institute for International Economics. He was Deputy Director-General of the World Trade Organization, Deputy US Special Representative for Trade Negotiations (USTR), and USTR General Counsel. He was a principal draftsman for the administration of the Trade Act of 1974, which provided the basic US negotiating mandate for future US trade negotiations. His book, Revitalizing the World Trading System (Cambridge University Press), is being published this month.

To read the full paper, please click here.

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This brief attempts to assess the feasibility of geopolitically-driven efforts to reorient supply chains. It reflects on the character of supply chain disruptions before and after the outbreak of COVID-19 to understand how geopolitics has become a major driver of such networks. It reviews the prospects of the economic fundamentals of supply chains aligning with the geopolitical push. It argues that efforts to reorganise supply chains by multi-country coalitions such as the Quadrilateral Security Dialogue (Quad) will encounter challenges as they try to reconcile geopolitical imperatives with economic efficiency.

To read the full issue brief from the Observer Research Foundation, please click here.

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ASEAN’s success as a manufacturing hub would not have been possible without both an openness to trade and the presence of regional supply chains that favorably position Southeast Asia as an essential supplier of raw materials and key components for final assembly in China. At the same time, however, it is becoming more difficult for ASEAN to navigate the uncertainties spilling into the investment environment from three areas often outside its control: geopolitics and decoupling, deglobalization, and climate change. In this essay, Vasuki Shastry, Associate Fellow in the Asia-Pacific Programme at Chatham House, examines both the tailwind trends behind ASEAN’s success in becoming a leading region for FDI and the headwinds that threaten to slow its ascent.

To read the full report from The Hinrich Foundation, please click here.

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A major new bill on China policy is on the horizon. In a way, Congress has been preparing for a grand debate on China for years. Comprehensive bills have been filed. The U.S.–China Economic and Security Review Commission and the Congressional-Executive Commission on China are veritable idea factories. In addition, there are the almost 300 individual stand-alone measures that were introduced in the past Congress. This Backgrounder offers its own guidelines and recommendations. It is time to put as many existing ideas as possible to the legislative test and construct a China policy that will give direction to the present and future Administrations.

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2020 may well go down in history as a great global inflection point. It is thus worth looking back to examine what happened and why and to reflect on where we may be headed in the decade ahead. The Avoidable War: The Decade of Living Dangerously, the third volume of ASPI’s annual Avoidable War series, does precisely that. It contains selected essays, articles, and speeches by Asia Society and ASPI President the Hon. Kevin Rudd that provide a series of snapshots as events unfolded over the course of 2020 — from the COVID-19 pandemic, through an implosion of multilateral governance, to the impact on China’s domestic political economy.

Finally, it concludes with a discussion of the growing challenges the world will face as the escalating contest between the United States and China enters a decisive phase in the 2020s. No matter what strategies the two sides pursue or what events unfold, the tension between the United States and China will grow, and competition will intensify; it is inevitable. The Chinese Communist Party is increasingly confident that by the decade’s end, China’s economy will finally and unambiguously surpass that of the United States as the world’s largest, and this will turbocharge Beijing’s self-confidence, assertiveness, and leverage. Increasingly, this will be a “decade of living dangerously” for us all. War, however, is not inevitable. Rudd argues that it remains possible for the two countries to put in place guardrails that can prevent a catastrophe: a joint framework he calls “managed strategic competition” that would reduce the risk of competition escalating into open conflict.

To read the full report by The Asia Society Policy Institute, please click here. 

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Yet amid these muddied dynamics, the search for clarity is more important than ever. From the existing global system to relations between preeminent powers, the status quo may be irreparably shaken. What lingers in the air is a palpable sense that an era of creative destruction is upon us. It is an unfolding drama where the ending has yet to be written. 

The starring role that China plays in this drama makes understanding its general trajectory—from the economy to domestic politics and technology development to energy policy—of immense interest and import to the world, and particularly for its peer competitor the United States.  

So what kind of China should be expected by 2025? That singular question animated this effort to forecast the country’s path forward over the medium term. 

Our simple answer: A China that will be near-majority middle class for the first time, with increasing technological parity with Silicon Valley and a less carbon-intensive energy landscape, all under the aegis of a stronger Xi Jinping and his vision of governance. Achieving these outcomes will require trade-offs, in this case a China that will likely redouble on domestic priorities and moderate its appetite for global adventurism.

This view of a more capable yet more outwardly cautious China is based on a composite of four scenarios across specific functional areas, bounded by the timeframe through 2025. It is also predicated on several macro assumptions and key factors that are likely to determine China’s behavior over that time period. In other words, this forecast exists within a defined scope, the elements of which are explained below.    

WHY 2025?

We decided on a medium-term time frame for several reasons. First, conditions can change on a dime, but we believe five years, relative to a 10- or 20-year forecast, is a more manageable timeline to provide relatively concrete and specific scenarios for the future of China’s political economy.

Second, the five-year cycle also coincides with China’s own 14th Five-Year Plan (FYP, 2021-2025) that essentially sets the parameters on what to expect in terms of priorities and key agendas. In addition, the time period also overlaps with the new US administration and veers into the first years of Xi’s third term. 

Three, Chinese leaders themselves have imbued this next FYP cycle with more significance than usual because it begins the 15-year period leading up to 2035, the midway status point for Xi’s national rejuvenation agenda that runs up to 2049. In this context, the 15th and 16th FYPs will be building directly on the outcomes of this five-year cycle even more so than in the past.

Still, five years can be an eternity in an environment where current shifts accelerate and unexpected factors manifest to knock China from its intended path. These uncertainties could lead to various permutations of China’s trajectory and a wider range of outcomes than we currently expect.

Recognizing this degree of uncertainty, we nonetheless aimed to distill, to the best of our abilities, a clear and comprehensive view of how China’s political economy will be shaped. 

MACRO ASSUMPTIONS

Grappling with the complexity of current dynamics and the numerous factors at play is important. As such, it was necessary to bound our forecast within clear assumptions for the five-year time period. These assumptions are:

1. China’s political economy will remain largely what it is today, ruled by a strong Chinese Communist Party (CCP) led by General Secretary Xi Jinping.
2. Direct US-China military confrontation is unlikely, but competitive dynamics and tensions will become more explicit and play out across all major geographies. 
3. Globalization will likely continue to stall as countries turn more inward and regionalism becomes more prominent. 

We also eschewed low probability, high impact “fat tail” scenarios, such as a “Taiwan confrontation” or a “political transition crisis.” Such scenarios remain possible, but what’s possible is not necessarily what’s probable. They are, however, certainly worthy of discussion and continued monitoring beyond this product because of their outsized impact on the future of China and global markets.

In our view, these macro assumptions preclude entertaining the outlier scenarios above and set parameters on the domestic and global environment in which China will operate—an environment that can both facilitate and constrain China’s behavior. If these key assumptions are undermined over the medium term, then the entire forecast will need to be reevaluated accordingly.

KEY FACTORS

In addition to these macro assumptions, it’s important to determine what key factors may have changed that inform how we think about China going forward, to help avoid over-reliance on simple, straight line projections. We believe there are two key factors, one domestic and one external, that have changed and that matter for our forecast to a considerable degree:

1. Stronger center, weaker localities: from dealing with debt and growth to executing on reforms and environmental initiatives, local governments are being kept on a much shorter leash and are less able to freelance relative to just five years ago. The main manifestation of this dynamic will be Beijing’s continued fiscal hawkishness and increased actions to induce local compliance with central mandates.

2. Global power under global scrutiny: Beijing faces its toughest external environment in about a generation, centered on US-China tensions. China likely can no longer count on a relatively stable external environment, one of the key ingredients that has facilitated its economic success to date. Its conduct and intent, both domestic and foreign, will be put under a global spotlight, forcing it to respond. 

Building on these factors and the macro assumptions, our team constructed base case scenarios for China’s economy, politics, technology, and energy. Each base case represents the most likely outcome over the five-year time period. Needless to say, these base cases do not represent the totality of scenarios. But we believe they are the most probable realistic outcomes based on our understanding and approach to analyzing China.

SUMMARY OF BASE CASES

This forecast product has four components: economy, politics, technology, and energy. Each section contains the lead analyst’s base case calls, followed by specific assumptions and leading indicators, and then in-depth analysis of each base case with assigned probability. Each section then concludes with a less likely secondary scenario as a complement to the base case.

Economy: Eluding the Middle Income Trap
Houze Song

• By 2025, Beijing will have had little choice but to reform its way out of challenges that result in a Chinese economy that will likely become more open, balanced, and efficient.
• China faces one of the most daunting external environments in decades, which ironically will likely push Beijing to further embrace foreign direct investment (FDI) and improve the business environment.
• On the domestic front, China’s “internal circulation” agenda will be less about self-reliance but focus on improving productivity and inducing more local competition, while keeping a lid on financial risk.
• The pursuit of reform priorities means that at the end of the 14th Five-Year Plan (FYP, 2020-2025), China will likely have eluded the “middle-income trap” and become a near-majority middle-class country.

Politics: Stronger as Xi Goes
Neil Thomas

• In 2025, Xi Jinping will remain General Secretary of the Chinese Communist Party (CCP), Chair of the Central Military Commission, and President of the People’s Republic of China. He will likely emerge the strongest he has ever been after the 20th Party Congress in 2022.
• It’s unlikely that a clear successor will emerge from the 2022 political transition, to avoid diluting Xi’s authority as the CCP focuses on executing his domestic reform agenda.
• Xi will likely focus his power on “the politics of execution” in his third term, as the 14th FYP begins his strategy to transform China into a superpower by 2035. This program will strengthen governance, discipline, and ideology to enhance Beijing’s ability to transmit policy through central agencies and local governments.
• A strengthening focus on domestic priorities will involve some trade-offs, so Xi is unlikely to announce any major new foreign policy initiatives in the next five years.

Technology: Fragile Tech Superpower
Matt Sheehan

• By 2025, China’s technology ecosystem will have matured and be on par with Silicon Valley in terms of dynamism, innovation, and competitiveness.
• That dynamism will increasingly take the form of industrial applications of information technology, as the locus of Chinese innovation shifts from the consumer internet to the industrial internet.
• China will largely succeed in deploying highly capable “new infrastructure”—cloud computing, 5G networks, smart cities, and surveillance networks, among others—to facilitate this transition to the industrial internet.
• US export controls on semiconductors will act as a modest brake on China’s new infrastructure rollout. But expanding restrictions on semiconductor manufacturing equipment will mean that China remains vulnerable to future interruptions to its supply chain for advanced chips.

Energy: Setting Course for Peak Emissions
Ilaria Mazzocco

• By 2025, China will be close to achieving peak emissions as a result of more ambitious actions to bolster renewables, pivot toward market mechanisms, and enhanced energy efficiency measures.
• Renewables will benefit from cost competitiveness relative to coal even in the absence of subsidies.
• Power sector reforms announced in 2015 will see meaningful progress to better support Beijing’s decarbonization efforts.
• These factors will mean that non-fossil energy sources such as nuclear, wind, and solar will be the major beneficiaries relative to coal over the medium term.

This analytical product has been a collective MacroPolo endeavor. We harnessed our specialized knowledge and our broad understanding of how China functions to arrive at a comprehensive assessment of the country’s trajectory.

It was a challenging process to say the least, as all attempts at forecasts are. Yet through it all, this very exercise sharpened and disciplined our own thinking. Whether you agree with our assessment, we hope you find it as useful and clarifying as we did in creating it.

To download the full report, please click here.

Damien Ma is the Director of MacroPolo

Houze Song is a Research Fellow at MacroPolo

Neil Thomas is a Senior Research Associate at MacroPolo

Matt Sheehan is a Fellow at MacroPolo

Ilaria Mazzocco is a Senior Research Associate at MacroPolo

© 2020 MacroPolo

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At the onset of COVID-19, the Bank Group took broad, decisive action in delivering a fast-track facility to help countries respond quickly to this crisis. We expect to deploy up to $160 billion in the 15 months ending June 30, 2021, through new operations and the restructuring of existing ones to help countries address the wide range of needs arising from the pandemic. This will include over $50 billion of IDA resources on grant and highly concessional terms.

By May, we reached the milestone of emergency health operations in 100 countries. Our initial projects focused on limiting the pandemic’s spread and boosting the capacity of health services. We helped countries access essential medical supplies and equipment through support for procurement and logistics, including negotiations with suppliers on their behalf. Many developing countries are dependent on imports for supplies, making them highly exposed to price fluctuations and trade restrictions. Through IFC and MIGA, we provided vital working capital and trade finance for the private sector in developing countries, particularly firms in core industries, and helped financial sectors continue lending to viable local businesses.

In March, the World Bank and IMF called for official bilateral creditors to suspend debt payments from IDA countries. In April, G20 leaders issued a historic agreement suspending official bilateral debt service payments from May 1 through the end of 2020 and called for comparable treatment by commercial creditors— a powerful example of international cooperation to help the poorest countries. Beyond immediate health concerns, the Bank Group is supporting countries as they reopen their economies, restore jobs and services, and pave the pathway to a sustainable recovery. Many of our client countries have enhanced their transparency and attractiveness to new investment with fuller disclosure of their public sector’s financial commitments. The Bank is helping the most vulnerable countries evaluate their debt sustainability and transparency, which are both essential to good development outcomes.

The Bank Group is supporting countries’ efforts to scale up their social safety nets. This includes cash transfer operations through both in-person and digital options so that governments can efficiently deliver this critical support to their most vulnerable people. We are also engaging with governments to eliminate or redirect costly and environmentally harmful fuel subsidies and reduce trade barriers for food and medical supplies.

In fiscal 2020, IBRD’s net commitments rose to $28 billion, while disbursements remained strong. IDA’s net commitments were $30.4 billion, 39 percent higher than the previous year. The 19th replenishment of IDA was approved in March, securing a three-year $82 billion financing package for the world’s 76 poorest countries. This will increase our support to countries affected by fragility, conflict, and violence (FCV) and strengthen debt transparency and sustainable borrowing practices. Over the last year, we realigned the Bank’s staff and management to drive coordinated country programs and put high-quality knowledge at the center of our operations and development policy. We are increasing our global footprint to be closer to our operations on the ground. We also strengthened our focus on Africa by creating
two Bank vice presidencies, one focusing on Western and Central Africa and the other on Eastern and Southern Africa, to take effect in fiscal 2021. I appointed four new senior leaders: Anshula Kant as Managing Director and Chief Financial Officer, Mari Pangestu as Managing Director of Development Policy and Partnerships, Hiroshi Matano as Executive Vice President of MIGA, and Axel van Trotsenburg as Managing Director of Operations on the departure of Kristalina Georgieva to head the IMF. In addition to these appointments, there were 12 vice-presidential appointments or reassignments over the last year. Together, the strong leadership team and a highly dedicated and motivated staff are striving to build the world’s most effective development institution, with a resilient and responsive business model that can help each country and region achieve better development outcomes.

At our Annual Meetings in October, we presented a new index to track learning poverty—the percentage of 10-year-olds who cannot read and understand a basic story. Reducing learning poverty will require comprehensive reforms, but the payoff—equipping children with the skills they need to succeed and achieve their potential as adults—is vital for development.

By helping countries leverage new digital technologies, we are expanding access to low-cost financial transactions, particularly for women and other vulnerable groups. Digital connectivity is one of many key steps in helping women unleash their full economic potential. The Women Entrepreneurs Finance Initiative (We-Fi), hosted by the Bank Group, works to remove regulatory and legal barriers that women face and help them gain access to the financing, markets, and networks they need to succeed. Bank operations also focus on providing women with greater agency and voice in their communities, working to ensure that girls can learn effectively and safely in schools, and promoting quality health care for mothers and children.

We help countries strengthen their private sectors, which are central to creating jobs and boosting economic growth. In fiscal 2020, IFC’s long-term finance commitments increased to $22 billion, which includes $11 billion of its own commitments and $11 billion in mobilization, commitments from private investors, and others. In addition, IFC extended $6.5 billion in short-term finance. MIGA’s commitments totaled $4 billion, with an average project size of $84 million. Looking forward, MIGA’s product line, staffing, and upstream efforts are well suited to help in the Bank Group’s COVID-19 response, including a focus on smaller projects in IDA-eligible countries and countries affected by FCV.

None of these achievements would have been possible without our staff’s hard work and successful adjustment to home-based work during the pandemic. Working around the world and at all levels, staff continued to deliver solutions to address countries’ most urgent needs. I am deeply grateful for their dedication and flexibility, especially amid these difficult circumstances.

As people in developing countries worldwide grapple with the pandemic and deep recessions, the World Bank Group remains committed to their future, providing the support and assistance they need to overcome this crisis, and achieve a sustainable and inclusive recovery.

DAVID MALPASS
President of the World Bank Group and Chairman of the Board of Executive Directors

To download the full report, please click here.

World Bank. 2020. World Bank Annual Report 2020. Washington, DC: World Bank. doi: 10.1596/978-1-4648-1619-2 . License: Creative Commons Attribution–NonCommercial–NoDerivatives 3.0 IGO (CC BY-NC-ND 3.0 IGO).

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In recent years, the case for U.S. participation in the TPP has only become more compelling as the political and economic importance of the Asia-Pacific region has grown and concerns about Beijing’s economic model have mounted. East Asia is bouncing back from the COVID-19 pandemic before the rest of the world, and deepening economic ties with the engines of global growth will be an even more valuable proposition in the midst of a deep recession. Moreover, the pandemic has revealed serious vulnerabilities in supply chain networks, and the common standards and rules of the TPP can serve as the basis for establishing trusted supply chains in the region. But is there a path for the United States to return to the TPP or to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the 11 remaining countries finalized without the United States?

This report examines four options that the next administration would have for reengaging the CPTPP countries on trade: returning to the original TPP agreement, formally acceding to the CPTPP, seeking a broader renegotiation with the CPTPP as a baseline, or working on a narrower sectoral deal as an immediate, interim step. It then assesses the feasibility of each option based on domestic considerations and developments, as well as input from the CPTPP countries.

Domestically, a policy window may be opening for CPTPP reentry. Whereas trade was seen as toxic only four years ago, recent polls have found growing bipartisan public support for trade. At the same time, however, the views of the political parties on trade appear to be shifting. Some observers have gone so far as to suggest that the United States is on the precipice of a new trade order, with Republicans more protectionist and Democrats friendlier toward trade. This makes the domestic landscape and the outcome of a congressional trade vote uncertain. The strong bipartisan congressional vote in favor of the United States-Mexico-Canada Agreement (USMCA) led many to conclude that this agreement should be the new U.S. template for trade agreements. However, there may be factors unique to the USMCA that would not be in play in a negotiation with Asian countries. Another complicating factor is the fate of Trade Promotion Authority, set to expire in July 2021, which is a prerequisite for negotiations in the view of U.S. trading partners.

The prospect of CPTPP reentry also depends on the extent to which its members would be open to revisions proposed by the United States. To take the temperature of capitals in Asia, the Asia Society Policy Institute spoke with a dozen current and former trade officials from a diverse set of CPTPP countries. Those interviewed unanimously affirmed that they would welcome the United States back, but not at any cost. They are wary of being asked to make extensive revisions, having been scarred by the U.S. withdrawal after expending significant political capital during the TPP negotiations. Those countries  were accustomed to the uncertainties of the congressional approval process, but they now also worry about the presidential election cycle.

With the foregoing considerations in mind, the report offers a road map for the next administration to reengage with the CPTPP countries. Recommended steps include the following:

• Launch an interim sectoral agreement: As a first step, pursue a limited, sector-specific Asia-Pacific trade deal with the CPTPP members, and perhaps other countries, to set high standards, rebuild trust, and build momentum. Promising topics include:
  • Digital trade, an area that represents more and more of overall trade, particularly now that the COVID-19 pandemic has accelerated the digitalization of the global economy.
  • Trade in medical and other essential products, a sector in which COVID-19 has focused attention on trade restrictions and vulnerabilities in global supply chains.
  • Trade and the environment/climate, which may be of particular interest to a Democratic White House.
• Invest in competitiveness and adjustment at home: Build support for trade agreements generally and the CPTPP specifically at home by investing in competitiveness and adjustment policies and programs. Doing so would take the pressure off trade agreements to achieve goals they are not designed to tackle, such as ensuring more equitable income distribution.
• Make the case for trade: Explain to the American public that deeper U.S. trade engagement with Asia-Pacific partners is integral to building an alternative economic model to Chinese state capitalism, diversifying U.S. trade beyond China and, ideally, promoting reforms within China.
• Prioritize negotiating proposals: Develop and prioritize concrete proposals for U.S. reengagement with the CPTPP based on input from business, labor, and civil society groups throughout the country, as well as Congress.
• Consult with trading partners: Consult with the CPTPP members to understand their limits, priorities, and concerns around U.S. reengagement.

These steps would pave the way for U.S. reentry into the CPTPP. Even then, CPTPP reengagement would be a heavy lift that would require flexibility and creativity from both the United States and the CPTPP countries. Returning to the original TPP by signing on to a five-year-old agreement that faced considerable opposition at home is not a realistic proposition in 2021. The approach with the best odds of success would likely fall between formal CPTPP accession and a more extensive renegotiation. For that to work, the United States would need to focus on the most important changes and modernizations needed, while the CPTPP countries would need to be more open to changes than during a typical accession.

Given the domestic and international challenges outlined in this report, it is understandable that many would question whether returning to the CPTPP is worth all the trouble. Despite those concerns, rejoining the CPTPP is one of the most impactful ways in which the United States can work with likeminded countries in the region to promote an alternative economic model to state-led capitalism and help shape the economic future of a region that is increasingly the engine of global growth and innovation.

Wendy Cutler is the Vice President and Managing Director of Washington DC Office of the Asia Society Policy Institute and former Deputy USTR.

To download the full report, please click here.

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