During his recent trip to Tokyo, US President Joe Biden, along with his counterparts from the other 12 original member states, officially launched the Indo-Pacific Economic Framework (IPEF) for Prosperity. Unlike a traditional trade agreement, IPEF is a flexible negotiating structure with four pillars (fair and sustainable trade, supply chain sustainability, infrastructure and clean energy, taxes and anti-corruption).
From a strategic perspective, IPEF has announced that the United States will be more involved in the Indo-Pacific economy. This structure is designed to restore confidence in the US in the regional economy and is trying to “rewrite” the status quo of China’s strong economic influence in the Indo-Pacific region. However, unstable co-leadership, a lack of tangible interest, and the risk of a decentralized approach will hamper US efforts to counter China’s economic influence in the Indo-Pacific.
Restore confidence in the US in the regional economy
First, IPEF enhances US credibility among Pacific partners by responding to their request for US involvement and leadership in the regional economy. From withdrawing from the Trans-Pacific Partnership (TPP) in 2017 to the recent scrutiny of the Ukraine crisis, the United States always seems to deviate from its strategic pivot in the Indo-Pacific.
This model has weakened US credibility in the region and disappointed its regional partners such as Japan, which forced other members of the TPP to end painstaking negotiations in 2019. Poll “Countries that love Americans 2022”Japan has a 57 percent favor for Americans, 15 points less than under Obama. To some extent, the decline indicates that the Japanese are losing confidence in the leading role of the United States, including in the economy of the Indo-Pacific region.
IPEF shows that the United States is trying to reverse this deviation and regain its economic leadership in the region, which will compensate for the loss of confidence in it from its Pacific partners, in particular Japan.
“Rewrite” the regional economic order?
IPEF also represents the US economic plan to counter China’s growing influence in the region. Some previous comments have criticized that Washington has “All guns and no oil” a regional strategy that allowed China to use its economic power to attract or pressure other countries. According to State of Southeast Asia Study ReportChina has been ranked as the most powerful economic power since 2019 (roughly 75 percent of respondents), much higher than the United States (only 8.9 percent of respondents in 2022).
IPEF Final Vision is considered a restoration of US economic leadership and will allow Washington to ” [re]write the rules of the road” for the Indo-Pacific region. In particular, the United States wants to “rewrite” the Chinese-dominated economic model in the Indo-Pacific region. Jake Sullivan, US National Security Adviser said, “[W]We believe we need a new model that we can transition to quickly to deal with these challenges, and that’s what IPEF will do.”
However, in reality, the United States and its allies are far behind China in economic ties with the countries of the Indo-Pacific region. Over the past decade, China has become ASEAN’s dominant trading partner, accounting for more than 20% of Southeast Asia’s trade, well ahead of the US. There are many reasons to catch up, especially given that IPEF has already faced skeptical reception.
Restore unstable co-leadership with Pacific allies and private investors
Instead of direct competition, the United States, through IPEF, seeks to play a role in specific areas (such as clean energy, tax regimes, and data privacy) to counter China by changing the rules. Evan Feigenbaum, vice president of research at the Carnegie Endowment for International Peace, has demonstrated that the United States needs to transcend Chinese competition, which means playing the game, setting standards, making rules, and being active.
However, since leaving the TPP, the United States has been outside of most economic agreements that could set the rules in the Indo-Pacific, including the CPTPP, RCEP, and the Digital Economy Partnership Agreement (DEPA). Therefore, in order to engage more in the regional economy, the United States needs to cooperate with other regional powers, including Japan, South Korea, Australia, and others.
On infrastructure, the United States is working with Japan and Australia to develop infrastructure quality standards such as certification systems for quality infrastructure projects. For example, the US, Japan and Australia are working with several South Pacific countries to build a new submarine telecommunications cable. US-led standard-setting is also emerging in the digital economy. Last month, the US, Canada, Japan, South Korea, the Philippines, Singapore, and Taiwan (called Chinese Taipei) jointly issued a Declaration of Global Cross-border Privacy Practices based on the APEC CBPR.
Japan and Australia seem to be strongly supporting the IPEF, but this is not the only way to continue to influence the region. Japan has already impacted regional trade and investment through CPTPP, and Singapore could impact digital trade through DEPA.
In addition, US private actors are contributing to ASEAN investment despite the Trump administration’s geo-economic retreat from the region. According to the ASEAN Secretariat, the United States was the largest investor in ASEAN in 2019 and 2020, investing about $35 billion, four times more than China’s investors. The Biden administration will welcome private investors to participate in IPEF, but their interests differ.
IPEF is building US economic leadership in partnership with its allies and private investors, especially under standard terms. But this joint leadership is unstable, relying on how many common ground the US government and its partners can find.
Ask for compliance with the rules but offer few tangible benefits
Even if the United States can promote certain rules and standards, there is little incentive for other players to get involved. The IPEF does not provide many tangible benefits to its members, such as market access, or at least those incentives remain unclear until negotiations. The Biden administration insists that this structure is better than traditional trade agreements due to its flexible approach to negotiations. However, so far, apart from the four pillars of the policy and the list of original members, the IPEF has no details on the negotiations. It remains unknown even which countries will join the negotiations on which pillars.
The structure points to Biden’s desire for greater U.S. economic involvement in the region, but lacks a positive vision for inclusive economic cooperation. The agreements will ask participants to bring their economies into line with a series of new rules on clean energy, taxes, data protection, etc., without offering enhanced market access in return. James Crabtree of the Singapore International Institute for Strategic Studies has argued that IPEF is “all the pain, no gain economic deal”For the countries of Southeast Asia.
Without market access, IPEF has no incentive to attract developing countries. Prime Minister of Singapore Lee Hsien Loong noted that several ASEAN countries are interested in this structure, but in terms of investment and trade, “it doesn’t make much sense yet.”
Risk of fragmentation of regional development
Innovative negotiations on the four pillars can lead to unpredictable problems. Some scholars at the Washington Center for Strategic and International Studies have argued that this decentralized approach can advance the IPEF negotiations by getting more countries to join the structure with low barriers and flexible choice. However, in the long run, this approach may lead to a split in regional economic development.
Despite the Biden administration’s repeated emphasis on ASEAN’s centrality, only four ASEAN countries (Brunei, Malaysia, Singapore, and Vietnam) have joined IPEF as early members. Under flexible participation in the quadripartite negotiations, IPEF’s likely outcome will be somewhat “minilateral“Treaties guided by the interests of the participants, not regional development. These agreements may restrict trade flows or technology exchange between insiders and outsiders, and then widen the development gap between these blocs.
However, ASEAN members participating in IPEF are willing to wait and see what the new grouping has to offer. There is little risk involved in the upcoming negotiations as countries can always move out of this framework if they don’t see any sustainable interest stemming from the IPEF.