The U.S. rivalry with China is set to intensify further with the launch of Indo-Pacific Economic Framework (IPEF), a U.S.-led initiative which is “widely seen as an effort to counter China’s influence in the Asia-Pacific,” according to the South China Morning Post. This is the second time the U.S. has excluded China in a multilateral trade arrangement in the Asia-Pacific. Earlier, when the U.S.-led Trans-Pacific Partnership, comprising 12 countries, was about to be concluded, the U.S. itself withdrew under President Trump. The remaining 11 countries went ahead and signed this free trade agreement as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). China formally applied to join the CPTPP on September 16, 2021.
Fifteen countries of the Asia-Pacific region comprising all major economies including China have in the meantime joined the Regional Comprehensive Economic Partnership (RCEP), creating the world’s largest trading bloc. The agreement came into force after ratification by 10 countries on January 1, 2022. The U.S. chose to stay out and India balked at the last minute. According to data by the World Bank, the agreement covers 2.3 billion people or 30 percent of the world’s population, contributes U.S.$25.8 trillion, about 30 percent of global GDP, and accounts for U.S.$12.7 trillion - over a quarter of global trade in goods and services.
The U.S. absence from CPTPP and RCEP, two of the largest trading agreements in the world demonstrates lack of American economic engagement policy with the region.
The U.S. led IPEF is presumably an attempt to rectify this shortcoming. It reflects the American ambition to strengthen economic ties with key economies of the Asia-Pacific. But the IPEF focuses on “trade facilitation, standards for the digital economy and technology, supply chain resiliency, decarbonization and clean energy, infrastructure, worker standards, and other areas of shared interest.” The proposal is silent on ‘market access’ – something that all trade facilitation agreements aim for. IPEF is thus no substitute for CPTPP or RCEP.
Thirteen countries agreed to join the IPEF negotiations, which include Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. Participating countries can choose any of the processes. China – the world’s biggest trading nation and a key partner in the global supply chain was not invited to join, which lays bare the real purpose of creating another economic agreement in the presence of the more substantial CPTPP and RCEP.
Questions about the purpose behind creation of IPEF in the presence of two of the largest multilateral trade pacts have already arisen. It is unclear to what extent countries with deep trade and economic relations with China will participate in a visibly anti-China coalition. Some countries may have participated seeking to balance relations with both China and the U.S. or even to keep drawing the U.S. into the region as a bulwark against China’s overwhelming presence. Major ASEAN economies may have considered strategic benefits over economic ones. Nonetheless, openly apprehensive voices on China’s absence include Malaysia’s senior minister for International Trade and Industry Mohamed Azmin Ali who emphasized that the framework should be ‘inclusive’ and engaging for all players in the ASEAN.
Similarly, wary of the U.S.’s intentions, Indonesia’s Trade Minster Muhammad Lutfi, who attended on behalf of President Joko Widodo said: “We do not wish to see the IPEF merely as an instrument to contain other countries.”
Singapore’s Prime Minister Lee Hsien Loong stated that the IPEF “should remain open, inclusive and flexible.” The agreement, he added, should enable members to continue working with other partners in "overlapping circles of cooperation," and leave membership open to others to join later. Singapore, he added hopes for “Indo-Pacific that is free and open, connected and prosperous…”
Beijing has accused Washington of creating division with its newly launched IPEF, saying that it was forcing countries in the region to pick sides between the U.S. and China. Chinese Foreign Ministry spokesman Wang Wenbin questioned the need for a new economic alliance where three – CPTPP, RCEP and APEC, already exist. "The U.S. is trying to use this framework to isolate China, but it will only isolate itself in the end." Mr. Wang added.
Like Trump, President Biden too has struggled to craft a coherent China policy to truly overshadow China’s deepening economic ties with all of the regional states. The CPTPP and RCEP offer market access to the member states. But without preferential market access to the U.S. in the IPEF, there is little incentive for member states to choose it over the other two. China’s application to join CPTPP, on the other hand, offers the possibility of huge preferential access to the Chinese market for the other member states.
Meaningful economic engagement with the Asia-Pacific faces a number of challenges within the U.S. administration. The U.S. may still control the global finance infrastructure but China has overtaken the U.S. in regional trade. While China’s economic engagement makes it an indispensable partner for the region, the U.S. has countered China by pursuing military engagements like the Quad and AUKUS. How long can the U.S. supplement its presence with military engagement alone? Only time will tell.