Amid China’s ongoing quest to expand its economic clout in Asia and beyond, the administration of U.S. President Joe Biden will gear up next year to launch an Indo-Pacific economic framework to deepen engagement with the region.
But the odds are not necessarily in favor of Washington in the absence of a robust strategy for regional trade, an area where the world’s second-largest economy seems increasingly eager to fill the void.
The idea to develop the economic framework was first announced by Biden in virtual regional summits in the fall, and it could take shape early next year following talks with U.S. allies and partners.
The framework remains vaguely defined as an agreement that will pursue “shared objectives,” including those around trade facilitation, the digital economy and technology, supply chains, clean energy, infrastructure, worker standards and other priorities.
“The Biden administration has to turn this economic framework into something real, and that means partly fleshing out the details,” said Matthew Goodman, an expert on international economic policy at the Center for Strategic and International Studies, a Washington think tank.
What has driven the Biden administration toward the launch of a seemingly half-baked initiative appears to be China’s clear efforts to ramp up its influence over trade policy in the fast-growing region.
In September, Beijing applied to join an 11-member Pacific free trade pact sealed under Japan’s leadership as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, following U.S. withdrawal in 2017 from the deal as originally envisioned.
China, along with Japan, South Korea, the 10 countries of the Association of Southeast Asian Nations and others, are also awaiting the Regional Comprehensive Economic Partnership to take effect on Jan. 1 after years of free trade negotiations.
As attention grows as to the importance of the rules governing digital trade, China said in November it has asked for admission to a digital economy partnership signed in 2020 between Singapore, Chile and New Zealand — three of the four countries that had laid the foundation for what later evolved into the CPTPP.
Doubts remain over whether China, often accused of market-distorting practices such as the extensive use of subsidies, will be accepted into the high-standard CPTPP anytime soon, with key members such as Japan and Australia voicing caution.
But experts suggest that Beijing’s move should not simply be dismissed, especially with the Biden administration continuing to distance itself from key trade frameworks in the region as trade liberalization remains a politically sensitive issue on which it is difficult to win Congressional backing.
If the United States cannot make its presence felt, and China keeps pressing CPTPP nations to let it in — possibly by suggesting lower standards for entry or implying threats of retaliation for potential exclusion — members may eventually have to give a serious hearing to Beijing’s application, Goodman said.
Mireya Solis, a trade expert at the Brookings Institution, another think tank in Washington, said the Biden administration apparently views the new framework as “easier to launch” because it likely would not require ratification from Congress.
Washington seems eager to align like-minded countries by highlighting the rules and standards it wants to promote, given concerns over China’s subsidization policy, digital protectionism such as through web censorship and restrictions on data flows, and the erosion of some democratic values.
“But I think that it’s a halfway effort if you’re not prepared to talk about a real trade agreement with actionable, binding commitments towards economic integration,” she said.
Goodman said the framework should include U.S. requests for “higher standards” in each of the areas in question, but such a proposal would have to be balanced with “offers of tangible benefits” for its partners.
A meaningful framework would not just bring together allies and advanced economies that already have close ties with the United States, but also less developed yet strategically important economies like Vietnam, which shares concerns about China’s increasing assertiveness in the region, he said.
For example, under the Trans-Pacific Partnership, the original pact that later became the CPTPP, Washington had offered market access to Vietnam, reflecting the Southeast Asian country’s desire to sell more clothing and footwear to the world’s largest economy.
But such tariff-cutting steps are unlikely to become part of the new framework, as the administration is apparently seeking to avoid the “hard political work” of gaining market-access concessions from Congress in favor of a combination of other potential incentives such as infrastructure investments and clean energy solutions, Goodman said.
“If the combined benefit for the partner countries is positive, then maybe they will be willing to engage, and accept some of the U.S. requests for higher standards on worker rights or on digital economy. But I think that’s a question,” he said.
Goodman said he hopes the “political constraints” on trade will ease for the Biden administration, at least after the November midterm elections, and that it will be able to shift to a more proactive stance on the issue.
White House Indo-Pacific coordinator Kurt Campbell indicated at a think tank event in November the challenge of competing with China economically in the region without an affirmative trade strategy.
The moderator described the U.S. situation as “one hand or two hands tied behind your back.” Campbell replied, “It may be even more than that — maybe one foot tied back there as well.”
Japan Times