The US wants to establish a trade model with the United States at the center with the Indo-Pacific Economic Framework. Twelve countries want to join the discussion. But many actually want a different solution.
For Japan’s Prime Minister Fumio Kishida, Biden’s proposal for a new deal is only the second-best option.
US President Joe Biden twice challenged US rival China in Japan. First, in a press conference with his host, Japan’s Prime Minister Fumio Kishida, he assured Taiwan of military assistance in the event of an attack by China. When asked if the US would intervene militarily in opposition to the Russian attack on Ukraine, he replied: “Yes, we have that obligation.”
This older statement alone, which Biden repeated for the first time on the global stage, provoked protests in Beijing. The People’s Republic of China sees Taiwan as part of the country and reserves the right to use force to unite the island with the mainland if necessary. Shortly thereafter, Biden presented his actual declaration of war, with which he wants to counter China’s economic influence in the region: the “Indo-Pacific Economic Framework”, or IPEF for short.
“We are here for a simple reason,” said Biden to the heads of state and government from the twelve participating countries in the region, most of whom had joined the kick-off online. “The future of the 21st century economy will largely be written in the Indo-Pacific region.” And the participants would now write the rules for the new economy.
As a goal, Biden defined an Indo-Pacific “that is free, safe and resilient”. The US has also identified several areas that are key brakes on the world’s largest economy. Some of the key points at stake:
- Develop common rules for the digital economy
- Developing resilient supply chains for critical components such as semiconductors
- Promote investment in clean energy and decarbonisation of the economy
- Curbing corruption, among other things, through fair rules.
However, a lot of things that make up modern free trade agreements are being suppressed, above all duty-free access for participants to the US market.
With high standards against China
Even without this lure, Biden wants to raise the hurdles. The key to success will be a framework that focuses on high standards and inclusivity, he says. In theory, he left the door open to China. But in Asia, the IPEF is widely seen as a US attempt to counter China’s huge economic clout. And not by accident.
China is already a member of the Regional Comprehensive Economic Partnership RCEP, the largest free trade area in the world. The country has also applied to be included in the successor to the Trans-Pacific Partnership Agreement (TPP), from which Biden’s predecessor Donald Trump withdrew in 2017.
The IPEF should now smooth out this embarrassment. At the weekend, Biden’s security advisor clearly described the claim “that we want to be at the center of the agreement.”
At first glance, the starting signal for the new agreement seems like a success: the participants represent 40 percent of global economic output, in addition to the USA, namely Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam.
The location and timing of Biden’s presentation also underscored the importance of the IPEF. It was the highlight of Biden’s five-day trip to Asia. First, he promised the East Asian allies South Korea and Japan greater security cooperation and rallied their support for his new strategic economic initiative.
The summit of the Quad, a loose alliance of the USA, India, Australia and Japan, follows on Tuesday. In addition to security policy initiatives, there will also be questions of economic security, two aspects that are the focus of the IPEF.
India’s Prime Minister Narendra Mori, who sat alongside Japan’s Prime Minister Fumio Kishida on site alongside Biden, promised: “India will work with all of you to build a resilient and inclusive IPEF.” Trust, transparency and time horizons are important.
For Asia’s participants, the IPEF is just plan B
Only the mood is more complicated than the words of greeting showed. Not even the most important US ally, Japan, celebrates unreservedly. Tobias Harris, East Asia expert at the think tank Center for American Progress, puts it this way: “Tokyo’s disappointment is obvious.”
Japan’s Prime Minister Kishida, in the presence of Biden, expressly welcomed the USA’s Indo-Pacific strategy. In an interview with the business newspaper Nikkei, however, other governments spoke from the soul: Japan would still prefer the USA to return to the Transpacific Partnership Agreement TPP.
The agreement was originally initiated by the USA in order to reduce China’s economic influence in Southeast Asia through freer access to the US market. After Trump’s departure, Japan and Australia then saved the remainder of the agreement, which has now come into force as the CPTPP. But Biden, who as Vice President was responsible for the TPP, is undeterred in continuing Trump’s US-centric course.
The problem: Without legally secured free access to the US market, many governments in the region lack the economic incentive to fully commit to binding rules on trade, labor and environmental law. Furthermore, IPEF’s advantage of not requiring parliamentary approval is also a disadvantage. A new US president could remove it with one signature. This is more difficult with a free trade agreement.
However, Japan’s support also reflects thinking in the region. The IPEF is approved as Plan B. In the Nikkei interview, Kishida said his government would continue to press the US for a return to the TPP, while at the same time encouraging cooperation through the IPEF.
On the one hand, the federal states want to try to influence the new set of rules. On the other hand, the USA is at least partially filling the economic vacuum in the region that Trump had left behind.
The countries hope, however, that this will not force them to choose between China and the United States.
Instead, they wish to avoid any one-sided dependence on either of the two economic giants. As Singapore’s Prime Minister Lee Hsien Long put it: “It is important that IPEF remains open, inclusive and flexible, allowing members to work with many other partners in overlapping collaborations.”
Finally, he wished, barely concealed, that the United States would finally overcome its aversion to free trade agreements. He hopes that IPEF “over time will lead to even greater and more ambitious economic engagement between the United States and the region.”