In May, US President Joe Biden visited South Korea and Japan with the aim of reaffirming the US’ commitment to the Asia-Pacific region after the uncertainties and doubts generated by Donald Trump’s presidency.
In Tokyo, Biden launched the Indo-Pacific Economic Framework for Prosperity (IPEF) and participated in a summit of the Quadrilateral Security Dialogue (Quad), an informal security grouping that also includes Japan, Australia and India.
The Quad aims to promote and secure a free, open, prosperous and inclusive Indo-Pacific region, and is widely regarded as a means of checking China’s regional ambitions, while the IPEF’s benefits are less obvious to many Asian countries.
Besides the US, the IPEF’s initial signatories are Japan, Australia, India, New Zealand, South Korea and seven ASEAN members: Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The new grouping supposedly intends to set common rules regarding the digital economy, implement strong trade-related labor and environmental standards, share information on supply chains of semiconductors and other sensitive products, and support the construction of clean-energy infrastructure.
The IPEF is not a free-trade agreement that aims to open up markets by lowering tariffs and nontariff barriers. Emerging and developing Asian economies hoping for greater access to the US market are relatively unenthusiastic about Biden’s new initiative, and there are calls across Southeast Asia for the US to demonstrate greater willingness to liberalize trade.
Convincing countries to sign on to the IPEF was reportedly a struggle. Whether the US will be able to keep the group together with the prospect of substantive economic benefits is the great unknown of the project, which is in many ways a thinly veiled attempt to establish a regional economic bloc to compete against China.
The IPEF is not the first US-led initiative in that regard, of course. The 12-country Trans-Pacific Partnership (TPP), negotiated during the administration of former US president Barack Obama, was generally viewed as a high-standard free-trade agreement that would put China at a disadvantage. Trump withdrew the US from the deal shortly after taking office in 2017, claiming that it was “a rape of our country.”
Sensing that Trump was making a serious strategic mistake that would hand economic leadership in the region to China, then-Japanese prime minister Shinzo Abe took the lead in negotiating a follow-up treaty to the TPP. The original pact’s 11 remaining members (including Japan) subsequently concluded the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Japan strongly believes that US accession to the CPTPP would be the best option to cement a free-trade group in the Asia-Pacific region. The problem is that, starting with Trump’s 2016 presidential campaign, the political mood in the US has turned against free trade and multilateral trade agreements.
Sadly, Trump’s “America First” approach seems to be lingering. While the US under Biden continues to stay away from CPTPP, China and Taiwan have applied to join it. A framework that was once supposed to exclude China is about to exclude the US, and Chinese economic leadership in the Asia-Pacific region looks set to strengthen.
Asian countries, particularly Japan, used to fear US pressure to join free-trade pacts. The US, directly applying the theory of comparative advantage, firmly believed that reciprocal tariff reductions — say, by the US and Japan — would benefit both countries.
It is ironic and untimely that the US has turned its back on the CPTPP. Today, Japan and other Asian countries are longing for the US to return to the free-trade framework.
After all, the US has long been a key member of APEC, which was established in 1989 with the main goal of promoting free trade. The group’s 12 founding members were Australia, Canada Japan, New Zealand, South Korea, the US and six ASEAN countries.
Its membership expanded to include China, Hong Kong and Taiwan in 1991, Mexico and Papua New Guinea in 1993, Chile a year later, and Russia, Vietnam and Peru in 1998.
Nevertheless, momentum for trade liberalization among APEC members gradually faded, and Russia’s membership will likely paralyze the group.
Attention is instead increasingly shifting to the Regional Comprehensive Economic Partnership (RCEP), a large free-trade area that entered into force in January this year and consists of 10 ASEAN members, Australia, China, Japan, New Zealand and South Korea. (India dropped out in the final stages of negotiations.)
Competition between China and Japan over co-leadership of the bloc with ASEAN is expected to intensify.
There is significant overlap between the members of the IPEF and the RCEP. Eleven countries belong to both. In addition, the IPEF includes India and the US, while the RCEP counts Cambodia, China, Laos and Myanmar among its members. The difference in memberships could determine whether China takes the regional economic lead and contains the US, or vice versa.
Unless the US further opens its domestic market to imports from ASEAN countries by lowering tariffs and nontariff barriers, many Asian economies might find the IPEF framework unattractive.
The Indo-Pacific region already boasts a thick alphabet soup of economic and trade agreements. If Biden does not add some beef to the IPEF, his new dish risks looking watery and unappetizing by comparison.
Takatoshi Ito, a former Japanese deputy vice minister of finance, is a professor at the School of International and Public Affairs at Columbia University and a senior professor at the National Graduate Institute for Policy Studies in Tokyo.
Copyright: Project Syndicate
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