Authors: Gary Clyde Hufbauer and Megan Hogan, PIIE
It was a year of transition for US trade policy in 2021. The Trump administration’s trade representative Robert Lighthizer was replaced by Katherine Tai, a senior trade lawyer with a history of taking on China. While Tai’s appointment signalled President Joe Biden’s leanings toward a multilateral approach, under her leadership, the United States has maintained many Trump-era ‘tough on China’ policies, including the phase one trade agreement and tariffs on hundreds of billions of dollars of imports.
Like Trump, Biden has struggled to craft an effective approach to deal with China. Multiple WTO cases have prompted China to reform individual aspects of its trade regime, but there has been no action through the WTO that’s persuaded Beijing to alter foundational features — namely forced technology transfers and subsidisation of state-owned enterprises. Trade battles have not relaxed US fears over China’s military and technology ascent.
Biden’s new twist on the China problem was giving top priority to Indo-Pacific engagement. After assuming office, Tai met with several Indo-Pacific trade ministers, government officials, and industry stakeholders to strengthen US trade and economic relationships in the region, as well as to gauge interest in the recently announced Indo-Pacific economic framework. But meaningful engagement in the region faces a number of challenges, from both inside and outside the administration.
During 2021, Biden found himself consumed by the congressional challenge of enacting his domestic agenda and the military challenge of withdrawing from Afghanistan. As a result, leadership of Asian trade policy, traditionally under the Office of the United States Trade Representative (USTR), was shared with the State Department and the Commerce Department. The consequence of presidential neglect was that rather than push a single framework, Secretary of State Antony Blinken, Secretary of Commerce Gina Raimondo, and Tai each supported different and somewhat competing angles on Indo-Pacific engagement.
Competition between the Blinken, Raimondo and Tai agendas may result in lots of talk and little action, requiring presidential resolution. As Tai is expected to co-lead development of the Indo-Pacific economic framework with Raimondo, differences over the proper focal points of digital trade could be the first issue needing reconciliation.
The United States continues to dominate world finance, but China will soon have the world’s largest economy. China significantly outcompetes the United States in Indo-Pacific trade — all members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and a number of non-members (including Indonesia, South Korea, the Philippines, and Thailand) traded more with China in 2020. This underscores the challenge facing US economic diplomacy in Asia.
Successful US economic engagement in the Indo-Pacific relies on the Indo-Pacific economic framework. But with better access to the US market off the table as an incentive for countries to join, the framework will likely prove an insufficient substitute for the CPTPP. Indo-Pacific countries will likely not prioritise the Indo-Pacific economic framework — which is non-binding and lacks trade and investment liberalisation — over the CPTPP — which is enforceable and delivers demonstrable benefits to its members. This is especially true given China’s application to join the CPTPP and the benefits member countries would enjoy from lowered barriers to China’s vast market.
Following conclusion of the Regional Comprehensive Economic Partnership (RCEP), which entered into force on 1 January 2022), China applied to join the CPTPP in September 2021, positioning itself as a champion of trade liberalisation in the Indo-Pacific. The United States has repeatedly dismissed the idea of joining the CPTPP, advocating the Indo-Pacific economic framework as an alternative. Although many CPTPP countries are sceptical of China’s application for a combination of economic and security reasons, the United States is offering little to counterbalance China’s rise in the CPTPP and other trade agreements.
Currently, the strongest US counterweight to China, and the best prospects for the Indo-Pacific economic framework, lie in the security domain.
In 2021, the Biden administration insisted on incorporating social issues in trade agreements. Tai is committed to a ‘worker-centric’ trade policy, one that advances the American middle class and lifts labour standards abroad. Accordingly, Biden administration officials have said that climate change, workers’ rights and the digital economy are to be focal points for the Info-Pacific economic framework.
Elements of the digital economy agenda should appeal to Asia, but it is questionable whether the Indo-Pacific economic framework can flourish as a forum to address climate change and labour standards. Without significant US trade concessions, Indo-Pacific countries have little incentive to make hard commitments on climate and labour in the new forum. But many may still be attracted to its security overtones.
Attempting to address social issues through trade policy is not new, nor is it confined to the United States. But insisting on such themes in trade agreements is problematic when leaders start to believe that trade agreements are only worth pursuing if they make a major impact on difficult social issues.
Perhaps after the November 2022 congressional elections, Biden will take a fresh look at his languishing trade agenda. Or he may decide that the Indo-Pacific initiative is really about confronting China in the security domain.
Gary Clyde Hufbauer is a non-resident Senior Fellow at the Peterson Institute of International Economics and Megan Hogan is a research analyst at the Peterson Institute for International Economics.
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