A Transactional Mindset Won’t Win in the Indo-Pacific

 

June 10, 2022 Matthew P. Goodman, Senior Vice President for Economics, CSIS

 

Responding to widespread criticism of the Biden administration’s paltry offer of funding for Southeast Asian partners at a recent summit, a wise friend offered a colorful metaphor: “If we’re dating and I sense that you’re being transactional, then I want you to take me to the best restaurant in town and get the priciest bottle of wine. If you want a long-term relationship, buy me a cheap bottle of Chianti and we can sit on the roof and watch the sunset.”

My friend is right: no amount of money will win hearts and minds in the vital Indo-Pacific region unless it comes with a credible demonstration of long-term commitment to the region.

This is the thinking that should guide the Biden administration as it takes forward its new “Indo-Pacific Economic Framework for Prosperity” (IPEF). President Biden rolled out the initiative at a hybrid event in Tokyo with leaders of 12 other Indo-Pacific countries. In a joint statement, the leaders committed to a “free, open, fair, inclusive, interconnected, resilient, secure, and prosperous Indo-Pacific region” and agreed to “launch collective discussions toward future negotiations” on four pillars of work: trade; supply chains; clean energy, decarbonization, and infrastructure; and tax and anti-corruption.

The high turnout of countries at the IPEF launch was encouraging. Close U.S. allies and partners in the region, such as Japan, Australia, and Singapore, had been expected to join, but there was widespread skepticism about the willingness of India and members of the Association of Southeast Asian Nations (ASEAN) to participate; in the end, India and 7 of the 10 ASEAN countries joined. (The Pacific nation of Fiji later signed up, bringing the tally of initial IPEF participants to 14.) The White House appears to have persuaded those on the fence by scaling back its earlier insistence that participating countries commit upfront to specific negotiating objectives for the initiative and each of its four pillars.

The menu of topics in IPEF is promising; as noted before, it covers many key U.S. interests and is largely aligned with the stated policy priorities of regional partners. Moreover, there are indications that the Biden administration is ready to make some tangible financial commitments to win partner buy-in and advance U.S.-preferred standards, including greater investments in project-preparation facilities to encourage more private infrastructure investment, and in building up partner capacity in the digital economy. These are the kind of unheralded but important offerings from the United States that countries in the region want and could help strengthen long-term relationships there.

But questions continue to swirl around IPEF, particularly concerning its durability. Will most of the countries that signed on at the launch—including India, Indonesia, and other ASEAN countries critical to the initiative’s success—stay constructively engaged once the negotiations start and the United States presses for binding commitments to high standards? Will the White House be able to hold the multiple strands of IPEF together as a coherent strategy? Will a possible new U.S. administration in 2025 tear up the initiative and offer its own preferred approach?

Frankly, this points to one of the major drawbacks of the Biden administration’s current approach: its reluctance to seek formal congressional approval of the initiative and of IPEF’s ultimate outcomes. As discussed before, this is a problem for two reasons: First, only Congress can grant what trading partners really want economically from the United States—namely, tariff reductions and other legislated changes ensuring greater access to the large U.S. market. And second, if the final IPEF outcomes are simply “executive agreements” not approved by Congress, they will lack the force of U.S. law, raising doubts in partner countries’ minds about the durability of U.S. commitments beyond the current administration.

Note that the focus on partner perspectives in the points above is grounded in U.S. interests. Without sufficient incentives, other countries are unlikely to agree to high U.S.-preferred standards in areas like the digital economy and anti-corruption. (The reason Vietnam agreed to disciplines on labor, the environment, and state-owned enterprises in the Trans-Pacific Partnership (TPP) negotiations is that Hanoi won greater access to the U.S. market for its exports of apparel, footwear, and basa fish.) Moreover, as with the United States, whatever commitments other countries do make in IPEF will be more binding if approved by their own legislatures. 

The administration’s reluctance to engage Congress is based on the view that trade politics is “too hard.” To be sure, manufacturing labor unions still have a powerful hold on the Democratic party, and former president Trump’s anti-trade posture has gained traction on the Republican side of the aisle. Yet a number of data points cast doubt on the conventional wisdom in Washington on trade. As recently as January 2020, the United States-Mexico-Canada Agreement (USMCA) was comfortably approved by Congress in bipartisan votes. And opinion polls consistently show that a solid majority of Americans see trade as a positive force for economic growth. The Biden administration’s theory that there is no appetite for trade on Capitol Hill has not been tested; now may be the time to try, to give IPEF a better chance for success.

The high turnout at last month’s IPEF launch shows that there is a strong demand signal for U.S. economic engagement in the region. The key now is for the Biden administration to demonstrate that it is committed to a long-term, strategic economic relationship with partners in the region.

Matthew P. Goodman is senior vice president for economics at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2022 by the Center for Strategic and International Studies. All rights reserved.

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