“The region has told us loud and clear that it wants us to do more [in terms of economic engagement],” the U.S. Secretary of State Antony Blinken admitted during his first visit to Southeast Asia last year. Speaking before his host in Jakarta, the top diplomatic chief vowed, “we’ll meet that call” by advocating for a comprehensive Indo-Pacific Economic Framework, which “will pursue our shared objectives” in key areas of trade and investment across the region.
For the past two decades, Southeast Asian states have encouraged America to step up its economic game in the region, especially as China became the dominant trade partner of almost all Asian economies in the early 21st century. Former Singaporean Prime Minister Lee Kuan Yew, who operated as an intermediary between the West and Beijing, called on the United States to “pursue more Free Trade Agreements to give the region options besides China.”
In his maiden trip to Asia, U.S. President Joseph Biden sought to bolster America’s regional leadership by formally launching the Indo-Pacific Economic Framework (IPEF). The IPEF falls short of an actual trade agreement but instead provides a frame of reference for expanding trade and investment flows among Indo-Pacific nations. As many as 13 Indo-Pacific nations, including India and the Philippines, have expressed interest in joining the new initiative.
The pan-regional agreement, which aims to raise production standards and enhance supply-chain resiliency, is likely flexible enough to overcome protectionist impulses in major capitals. However, it needs to deliver tangible benefits and facilitate substantial growth in the U.S.-led economic ties in the region in order to make a dent in the face of a resurgent China. Otherwise, the IPEF might end up as a publicity stunt rather than a consequential strategic offensive.
Catch Up Time
To be fair, the U.S.’ economic footprint in Asia is far from insignificant. The country is among the top trading partners of Japan, South Korea and Taiwan, which have also become a major source of high-tech supply and investments in recent years. In Southeast Asia alone, private U.S. investments in 2020 amounted to $328.5 billion, far larger than China’s.
However, the U.S. has been lagging behind in its overall trajectory of trade flows as well as new big-ticket infrastructure investments. In 2020, China’s trade with Southeast Asian economies reached $685 billion, almost twice as much as the U.S. investments in the region. Moreover, the U.S. has yet to mobilize tangible alternatives to China’s state-backed overseas infrastructure investments. Under the BRI, for instance, China has already completed a $6 billion high-speed railway in Laos while Vietnam is opening its first metro line in Hanoi, which was built by a Chinese company.
The Barack Obama administration’s much-vaunted Trans-Pacific Partnership Agreement (TPP) was expressly designed to reinforce America’s declining economic influence in the region in the face of a resurgent China. But his successor, Donald Trump, not only nixed the TPP to ostensibly protect manual jobs at home, but also launched an unprovoked trade war against Beijing.
The Trump administration provided no tangible economic alternative, especially as China pressed ahead with multibillion-dollar investments in the region under the Belt and Road Initiative (BRI). In response, Singaporean Deputy Prime Minister Heng Swee Keat publicly nudged the Biden administration to provide an “equally substantial alternative” on the trade and investment front, even as he remained grateful for how “U.S. security presence has brought stability and peace in the region.” In a public lecture last year, the Singaporean leader warned, “the U.S. cannot afford to be absent from the region’s evolving economic architecture” if it wants to maintain its leadership position “into the next decades.”
While both the Obama and Trump administrations managed to expand America’s military footprint in the region, most especially through increased naval deployments across the Taiwan Straits and the South China Sea, there has been no corresponding improvement in the U.S. economic leadership in the Indo-Pacific region. As Jonathan R. Stromseth of the Brookings Institution put it, “The Achilles’ heel of U.S. policy remains economic engagement, with China far outpacing the U.S. in trade and infrastructure investment.”
A Ray of Hope
During his high-profile visit to Tokyo, Biden officially launched the IPEF amid much fanfare. His National Security Advisor, Jake Sullivan, described it as “a big deal” and a “significant milestone” in U.S.’ relations with the region, which “is going to be the new model of economic arrangement that will set the terms and rules of the road for trade and technology and supply chains for the 21st century.”
Backed by top Japanese conglomerates, Prime Minister Fumio Kishida praised the initiative as a critical step towards “build[ing] a desirable economic order" for the region and, in a joint statement with Biden, “expressed his support for President Biden’s Indo-Pacific Economic Framework (IPEF)” as part of broader efforts to enhance regional “multilateral trading system based on free and fair economic rules.” Days earlier, South Korea also expressed its support, with newly-installed President Yoon Suk Yeol underscoring in a joint statement with his U.S. counterpart, his commitment to “cooperate closely through the Indo-Pacific Economic Framework (IPEF), based on the principles of openness, transparency, and inclusiveness.”
U.S. Trade Representative Katherine Tai maintained that the new deal holds more promise than the TPP, which "ultimately was something that was quite fragile", since "[t]he biggest problem with it was that we did not have the support at home to get it through."
The path ahead, however, is potentially treacherous. At home, progressive Senator Elizabeth Warren has publicly warned that the new agreement “cannot be TPP 2.0.”, since “the original TPP was derailed” because of concerns over how it could have “off-shored more jobs to countries that use child labor and prison labor and pay workers almost nothing.” Overseas, there are also concerns that the new agreement will place undue restrictions on developing nations with export-oriented industries. During an earlier talk in Washington, Vietnam’s Prime Minister Pham Minh Chinh refused to categorically back the new initiative by instead stating how his country “is ready to work alongside the U.S. to discuss, to further clarify what these pillars entail.”
On his part, Singaporean Prime Minister Lee Hsien Loong welcomed the initiative as a reflection of the Biden administration’s “intent to cooperate on economic issues which are relevant” to the region, but warned against exclusionary strategic initiatives against China. “Singapore is planning to join. It is not quite a substitute for the TPP, but it is a forward-looking agenda,” he said. Yet, he insisted that China, which has also applied for the TPP successor (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), should be part of any mega-regional initiative lest it worsens an ongoing great power rivalry in the region.
Work in Progress
Thai Prime Minister Prayuth Chan-och raised the most fundamental concern with the new initiative. While welcoming the IPEF as a mechanism to “enhance [regional economies’] access to sources of finance and technology," the initiative is “still a work in progress, with detailed consultations planned in the near future."
After all, the framework is not a traditional free trade agreement but instead a guide for negotiating new agreements in four major areas: supply chains, the digital economy, clean energy transformation and investments in infrastructure. Biden, so far, simply launched “collective discussions toward future negotiations.”
As U.S. Ambassador to Japan, Rahm Emanuel, admitted, the IPEF is a “consultation to negotiation,” which is primarily designed to signal how the U.S. is “still a player in the Pacific, and China has an interest in saying the U.S. is on its way out.” But it’s precisely that flexibility that may allow the Biden administration to circumvent domestic as well as overseas resistance while ironing out the exact details of a potential mega-trade framework across the Indo-Pacific. One thing Washington can do down the road is tether the new initiative to other existing development projects, including the Blue Dot Network (BDN) with Australia and Japan, as well as Build Back Better World (B3W) with G-7 allies.
Moreover, as Mathew Goodman and Jonathan Hillman of the Center for Strategic and International Studies (CSIS) have argued, the Biden administration can, in conjunction with like-minded powers, provide the necessary policy framework and strategic assurances that could nudge private investors in the West to allocate a part of their massive $110 trillion portfolio.
In short, the best way for the IPEF to work is to include it in a series of interlocking development initiatives, which are both multilateral and backed by public-private partnership agreements. Otherwise, the Biden administration’s latest move may end up creating short-term strategic hype at the risk of long-term disappointment to regional partners.
