Commerce Secretary Gina Raimondo said in an interview on the sidelines of the World Economic Forum in Davos, Switzerland last week: “In the era between World War II and now, the United States has used traditional trade agreements to draw closer to its allies. “
The Trans-Pacific Partnership that the US negotiated with 11 other Pacific Rim countries was in that mold, but President Trump abandoned it in 2017 and Biden has not sought its return. “TPP is no longer happening,” Ms Raimondo candidly admitted. “We have to be innovative.”
Ms Raimondo had traveled directly from Tokyo to Davos, where President Biden began talks with 13 other countries, including India, Japan, South Korea, Malaysia and Indonesia, to build an Indo-Pacific economic framework.
Unlike the TPP, the IPEF will not reduce tariffs or quotas, has no dispute-settlement mechanism, and does not subsidize or regulate state-owned enterprises. It aims to cooperate on issues important to the US, such as decarbonisation, money laundering and tax avoidance. It will not be a treaty ratified by Congress, but an executive-level agreement that the next US president can repeal in an instant.
And yet the IPEF could impact major Asian economies in ways that are in the US sphere of influence, by addressing new areas of competition such as supply-chain resilience, technology standards and export controls.
For example, instead of unilaterally banning US technology exports to Russia for its invasion of Ukraine, the US “persuaded 36 other countries to align their own export controls with ours,” Raimondo said. That said, he could be the model for IPEF. “We’re going to have a whole conversation about export controls for semiconductors. It would be very powerful if we had some of the countries in that region aligning their systems with ours … if anything like that. [Russia’s] The invasion happened, you would be able to move faster with your allies the way we did in the situation in Russia.”
Businesses are wary of the IPEF’s lack of specifics and ambitions, yet are optimistic about its potential and Ms. Raimondo, whom they see as the most effective advocate for business in the Biden administration.
IPEF can emulate digital standards in agreements such as the US-Mexico-Canada Agreement, which succeeded NAFTA, and the 2020 Digital Trade Agreement between Singapore and Australia. Ideally, IPEF would circumvent data-localization requirements that hinder cross-border data flow, prioritize privacy, and guarantee equal treatment of foreign and local suppliers of digital services. This contrasts with China, which treats data as state property, restricts data sharing across borders, and discriminates against non-Chinese suppliers at home and abroad. IPEF can encourage closer integration between the US and Asian tech industries by codifying countries that the US considers safe partners for supply chains and joint ventures.
Yet, in one major respect, IPEF falls short. The US is keen to reduce its and the world’s dependence on Chinese goods by shifting supply chains to friendly countries, a trend known as “friendshoring”. t Expanding access to the US market, which is a priority for poor countries.
For example, Indonesia wants to more than double per capita income to $10,000 by 2038, Trade Minister Muhammad Lutfi said in an interview in Davos. To do this, it needs to move up the value chain from commodities to manufacturing.
“Ten years ago, we were not in a position to manufacture one million cars per year. Now we are,” said Mr. Lutfi. “We are moving up the value chain for lithium batteries and electric vehicles. I want Indonesian cars to drive in the United States.”
A decade ago, Indonesia was not interested in the Trans-Pacific Partnership. Maybe the TPP would have been offered today, Mr. Lutfi said. TPP combined the stick of American standards on labor and the environment with the carrot of access to the US market. In contrast, IPEF is “about norms and standards without market access. It is a stick and a stick, it is not a stick and a carrot.”
Indonesia is upbeat about the IPEF, partly because it shows the US is re-engaging economically in the region after years of absence under Mr. Mr. Lutfi said that infrastructure and technology transfer are important for Indonesia’s development. Right now, he said, China provides both, such as smelting and mining. As Indonesia moves up the value chain, more could come from the US. If access to US technology also insists on coordinating with the US on export controls, it could be up for negotiation, he said.
But closer ties with the US cannot come at the cost of its ties with China. Mr. Lutfi said, “We believe in promoting cooperation as long as there is no discrimination against any country. He cites the 10-member Association of Southeast Asian Nations as a model, of which Indonesia is a member: it promotes “prosperity ahead of strategic and security issues” and “democracy but not at the cost of our unity.”
Mr. Lutfi noted that the US used to open its markets so that other countries could become more democratic and prosperous. He said that Indonesia is now democratic. “We have 270 million mouths now, we are very loud, and to feed them, we need to go up the value chain. If we don’t do that we fail and our democracy fails. “