Aristophanes lives. Delusive optimism, unmoored to reality and lampooned in the Greek playwright’s “The Birds” at this point seems to be an apt metaphor for the Biden administration’s highly anticipated Indo-Pacific Economic Framework (IPEF). As now configured, trade experts in both the US and Asia have described the IPEF variously. At best, the Prime Minister of Singapore views it as a “baby step,” but more commonly, Asian and American trade experts characterize the framework as “weak tea,” consisting of “all of the things the US considers important” but little for Indo-Pacific nations in return for their membership obligations. Specifically, the US will press Indo-Pacific nations to introduce or upgrade economic and social reforms like labor rights, climate change, and data flows, among others—all while refusing to grant additional market access to the American economy.
In reality, the US has been “overshadowed” by China in recent years throughout the Indo-Pacific, particularly in Southeast Asia. As the Biden administration attempts to recover America’s leadership role in the region, the US finds itself outside of the two major regional trade agreements: the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). While less comprehensive than the 11-member CPTPP, the 15-nation RCEP, which includes ASEAN countries plus Australia, China, Japan, New Zealand, and South Korea, includes provisions that provide meaningful inducements for intra-RCEP trade. (Almost 50 percent of exports from RCEP nations go to other RCEP members, and China ranks as the largest trade partner for almost all of them.)
The IPEF: What We Know
The IPEF will be a complicated, not to say Rube Goldberg-esque, structure. As now envisioned (these details could continue evolving right down to the official kickoff), the IPEF will consist of four substantive pillars: infrastructure and green technology, supply chain resiliency, tax and anti-corruption, and trade rules and standards. The US Trade Representative (USTR) and Commerce Department will divide the lead responsibilities for the initiative with the Departments of Defense, State, and Agriculture participating in interagency deliberations.
Administration officials have indicated that the framework will be organized as two concentric circles. There will be an outer, less ambitious orbit of nations and an inner, more ambitious group of countries who will be expected to agree to deeper commitments. The IPEF will take the form of an executive agreement, not a trade agreement ratified by Congress. Thus, it could be subject to change by succeeding administrations.
The trade module, headed by the USTR, will include the digital economy, labor rights, environment, elements of competition and regulatory policy, agriculture, and transparency, with “inclusiveness” and reducing inequality as cross-cutting themes. At the same time, the administration has been adamant that no market access obligations will be included in the IPEF.
No final decisions have been made on just which Indo-Pacific nations will be invited to join the framework, but administration officials have held extensive discussions with Australia, India (quite recently), Indonesia, Japan, Malaysia, New Zealand, South Korea, and Vietnam. Over the past several weeks, the administration has been scrambling to persuade a number of additional Indo-Pacific nations to join the process.
Major Flaws in Biden’s IPEF Strategy: Trade Agreements Versus Executive Agreements
The decision not to push for formal enforceable trade pacts with IPEF members has been roundly criticized by the US business community and members of Congress from both parties. At a recent Senate Finance Committee hearing, the negative reaction was bipartisan. The committee’s ranking member Sen. Mike Crapo (R-ID) queried: “Why would you take the carrot of market access off the table?” And Sen. Maria Cantwell (D-WA) stated in frustration: “I’m for labor rights. I’m for capacity building. But why can’t we be for opening market access right now and getting rid of tariffs?” These reactions echoed throughout the hearing—and at a comparable House Ways and Means Committee hearing.
Both ideological and political judgments explain the administration’s firm opposition to more formal trade obligations in the IPEF. First, starting with her confirmation hearings, USTR Katherine Tai has expressed deep skepticism regarding market-access trade goals. In recent days, she has argued that we must rethink the traditional dichotomy of “free trade equals good; protectionism equals bad.” In effect, she and other Biden administration officials accept the major claims of the progressive and labor-union wing of the Democratic party that argue past US trade agreements—or, in her words, the “offshoring and outsourcing of American jobs and opportunity”—have both been detrimental to the US and have led to greater inequality. In place of the outdated “20th century” market-access priority, the Biden administration is putting forward a new “innovative” model that privileges high labor, environmental, and social justice standards “to counteract those forces that have tended to bleed out our industries to other regions.” (Although here is not the place for this debate, it suffices to state that Tai’s progressive view of trade is inaccurate. While trade liberalization does “not lift all boats,” there is overwhelming economic evidence that freer trade policies result in greater economic growth and higher living standards.)
Tai and other administration leaders have also tied themselves in knots over the enforceable rules versus inclusive participation in the IPEF. Deputy USTR Sarah Bianchi and Commerce Secretary Gina Raimondo have stoutly claimed that binding high-stand rules will define the framework, despite the weak obligations of an executive agreement. Recently, Tai disparaged binding provisions, arguing that in the past, “what looked like ironclad commitments on paper” didn’t actually deliver. “Engagement, not dispute settlement, [is] key to durable trade policy,” she maintained.
“Engagement” through an executive agreement may have its virtues, but it is no substitute for legally binding trade rules that transcend individual US administrations. Indo-Pacific nations are quite aware of the US’ recent trade history, notably former President Donald Trump’s decision to pull the US out of Trans-Pacific Partnership negotiations. Asking Indo-Pacific nations to adhere to the most stringent labor, climate, anti-corruption, and digital trade rules while offering no market access—instead, only giving vague promises of development financing for participation in the IPEF—is no recipe for a revival of US economic leadership in Asia.
One final political point: While the Biden administration has not raised the following point as a defense of mere “engagement,” it is true that moving to a legally enforceable IPEF arrangement would entail facing the difficult challenge of seeking a grant of renewed presidential authority (Trade Promotion Authority) to negotiate future trade agreements. Such a move could well entail several years of complex domestic political negotiations. But, in the end, this admittedly fraught course might be the most realistic path for what the administration calls innovative “21st-century” trade policy.