About the Author: Brian P. Klein is the founder of RidgePoint Global, a strategic advisory firm, and a former US diplomat.
America is back in Asia, in a way.
Indo-Pacific Economic Framework for Prosperity launched this week, It is Washington’s latest attempt to restart dialogue with Asia after years of relative neglect.
To make a significant impact, the framework would have to do much more than just be a symbol of American re-engagement. It has to give countries something they don’t already have. Higher-paying jobs, greater economic activity, and increased resilience in the face of growing global uncertainty would be a good start.
As its name suggests, IPEF is neither a trade deal nor an economic commitment. There will be no traditional trade talks where governments jockey for better market access and lower tariffs. There will be no talks on the intricacies of anti-dumping provisions. “The fact that this is not a traditional free trade agreement is not a feature bug of the IPEF,” said national security adviser Jake Sullivan. said At this week’s White House briefing.
Instead, the framework covers four broad categories: green, digital, fair and resilient economies. Members include 11 countries in South, Southeast and Northeast Asia, as well as the Americas and Brunei. Each can opt-in to any of the pillars, Unlike a traditional trade agreement, which requires consensus on the entire package, the subject areas of the Framework can be finalized without waiting for others. It is a marked improvement over previous negotiations that have often been held hostage by some unresolved issues.
The making of this structure is a master diplomatic stroke that should elicit significant goodwill from all sides.
Still, Washington’s challenge will be to convince Asian countries that its new plan represents a meaningful commitment in light of China’s growing clout. Much of Asia has become accustomed to Beijing’s voracious appetite for imports and billions of dollars in Belt and Road development deals. China remains the region’s main trading partner and the countries do not want, nor should they, be asked to choose sides.
Back in the US, there is a broad bipartisan consensus about the seriousness of China’s challenge, says Vance Serchuk, executive director of the KKR Global Institute. But making a politically risky or painful choice diminishes the enthusiasm to do anything dramatically.
Many Democrats and Republicans have taken a tough stand on China and opposed new trade talks. The US has been absent from any major advances in international trade and investment policy for nearly a decade. The Trump administration abandoned the Trans-Pacific Partnership negotiated by the Obama administration. Biden has adopted a labor-intensive foreign economic policy to protect American workers.
However, low US unemployment creates an opportunity for the administration to move forward with a major international economic plan. The question is, can the president reach a consensus with domestic allies before the 2024 presidential election season kicks into high gear? Although they do not require formal Congressional approval, they still grapple with the political realities of anti-business sentiment in both parties.
Politicians will be tempted to cast IPEF as an anti-China measure. Commerce Secretary Gina Raimondo called him “An Alternative to China’s Approach.” But the biggest opportunity for the framework lies in framing it as an enhancement to the overall opportunities that IPEF will achieve in practice. Asia and America can co-create the next generation of a rules-based, international economic system.
Robert Hormets, managing director of Tiedemann Advisors and a former under-secretary of state, said digital commerce could be a relatively non-controversial area for growth in both the Americas and Asia. He added that a digital initiative has not been taken before and will be viewed positively on both sides of the Pacific.
Avoiding major disputes abroad will also be critical to IPEF’s success. The flexibility section of the framework will be required to address the significant shortcoming of semiconductors. Taiwan’s TSMC is the world’s largest producer, and is already planning to manufacture new factory In Singapore and the US, but for Taiwan, a formal invitation to join the group could be a political blast.
There is a need for Taipei to carve out an informal role that does not push participating countries to a corner or unnecessarily generate a response from Beijing. The IPEF will fruitfully advance the global economic system only if it drives cooperation and consensus. And without the allure of more open US markets, a feature of traditional trade agreements, US negotiators require a more shrewd approach to engaging with firms that have the resources to influence supply chain resilience.
According to Scott Marsil, visiting scholar at Stanford University and senior advisor to BowerGroupAsia, governments need input from the private sector to find creative solutions to the issues to be addressed by IPEF. There is a need to initiate some form of regular discussion with the business, he added.
Getting that input can also be a challenge, as the framework may not have a more direct impact on the business. The US declaration did not contain any details on the public-private dialogue or commercial deals that usually complement these sorts of presidential-inspired initiatives. Matthew McGrath, founder and managing director of Emissary Partners, said investors are unlikely to change their business decisions based on this framework alone.
The framework represents creative thinking at a time when US international economic policy has been slow and reactive. It shows the Biden administration is paying attention to a new center of global economic gravity. But it is playing catch-up. The world doesn’t need another broad-based set of mutual talking points. To be successful, this framework has to make an impact. Hard work is yet to be done to make this a reality.
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