Growing Chinese influence in Asia

The new economic framework of United States was intended to counter China’s influence in the Indo-Pacific region. But the increasingly inward-looking Washington is no longer a champion of free trade, says S Rajaratnam School of International Studies’ Kevin Chen.

Three of the four Indo-Pacific Economic Framework (IPEF) pillars may have been completed, but the inability of United States to see through the trade deal aimed at countering China’s economic influence is a strategic failure.

Hopes of an agreement were dashed last week at the Asia-Pacific Economic Cooperation (APEC) forum, even before former US president Donald Trump threatened to knock out the initiative if he were to return to power.

The IPEF was supposed to fill the policy gap left by the Trump administration’s withdrawal from the Trans-Pacific Partnership (TPP) in 2017.

It was styled as a novel economic agreement that provides a template for future economic engagement after years of rudderless drifting in the Indo-Pacific.

“You can count on the United States,” said Joe Biden at APEC. At its most basic level, the IPEF aimed to reassure America’s partners that it is still interested in a meaningful economic relationship with them. However, it has ostensibly fallen short of even that.

Southeast Asian observers should recognize that for domestic political reasons, Washington is no longer a champion of free trade. While they should continue engaging with the US on security issues, they should also be mindful that their region’s economic agenda is increasingly diverging from that of Washington’s.

The IPEF was challenging to negotiate from the outset, its demands and constraints a product of US domestic politics.

The lack of access to the US market removed a key incentive from the American negotiating toolkit. It was an effort to avoid a sensitive political issue: American public opinion has become generally less supportive of free trade due to the perception that cheap foreign goods are displacing American products, especially in key swing states and unions.

Believing that deep trade liberalization failed to protect American jobs and capacity, Biden’s administration bucked decades of free trade promotion to aggressively subsidise favoured industries in its competition with China. US$39 billion in manufacturing incentives was allocated under the CHIPS Act alongside US$370 billion in investments for clean energy under the Inflation Reduction Act to grow the US industrial base.

Meanwhile, labour and environmental standards were always a hard sell to partners such as Vietnam and Indonesia. These US demands tapped on these growing sentiments against free trade.

A common rallying call was that trade deals need to ensure strong labour and anti-dumping standards so American workers can compete on a level playing field – not just with Chinese workers, but with supply chains linked to China as well.

Yet, the IPEF was still vulnerable to the domestic forces it sought to appease. As a White House initiative, the IPEF was unlikely to garner financial support from a split Congress and could also be cancelled with a simple executive order by a future president.

Negotiators likely understood that the odds were stacked against them. The timeframe to complete IPEF negotiations was also relatively short at two years, compared to seven years for the TPP.