President Biden’s economic plan to counter China in the Indo-Pacific region is likely to fail.
The US and dozens of countries on Monday kicked off a new trade initiative called the Indo-Pacific Economic Framework. The move is clearly aimed at countering Chinese influence in the region. In addition to traditional US allies such as Australia and Japan, early members included India and many economies in Southeast Asia, including Indonesia and Vietnam.
Since withdrawing from the Trans-Pacific Partnership in 2016, the US has lacked a clear economic strategy in the region. The other countries in the TPP went ahead without the US to form a new trade agreement, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which took effect in 2018. Many members CPTPP members also signed another major trade deal called the Regional Comprehensive Economic Partnership in 2020. Despite its less ambitious scale, the RCEP is notable because it includes China. Quoc is a member.
The new IPEF aims to put the US back on the economic map in the region, to align with its increasingly assertive security plans in the region. There are few details on how the new deal will address stated goals such as supply chain resilience and clean energy development, but the elephant in the room — changes in tariffs and market access — obviously not. India’s participation in the IPEF is particularly notable, as the country has always been skeptical of opening its markets too much. It withdrew from RCEP because of its potential impact on farmers and businesses. India’s willingness to join is perhaps a sign that the IPEF cannot afford to match its cover.
The United States, with its large domestic economy, provides a viable market for the Indo-Pacific economies if the goal is to counter China’s growing economic influence in the region. Many US companies and farmers will also benefit from increased access to fast-growing markets in friendly Asian countries, while reducing the relative importance of the Chinese market. That was the original idea of the TPP. But the resumption of TPP met with great domestic opposition in the US
Thus, the IPEF is perhaps best viewed as the second or third weakest option: one that can persist in domestic politics while still sending signals of intent on the part of the United States. But it may not work well. China is an important trading partner of most countries in the Indo-Pacific. For example, trade between China and the countries of the Association of Southeast Asian Nations has more than doubled in the past decade. The United States remains an important export destination but has become less of a source of imports.
If the US joins the CPTPP, then any discussion of a shallower, China-backed RCEP will become the dominant body of trade standards. As a result, US policy disparities – towards stronger, more costly Asian security commitments and a second most difficult role for US exporters and manufacturers – have can continue.
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