Countries in the Indo-Pacific region are actively seeking to enhance their economic growth, development, supply chain resilience, and innovative capabilities by engaging with both the United States and China. While many nations express a preference for closer alignment with the United States, concerns persist over Washington’s waning interest in trade agreements. Simultaneously, they face the growing influence of China, which actively seeks to strengthen economic ties.
The Biden administration is pursuing a more robust U.S. trade presence in the region through the Indo-Pacific Economic Framework (IPEF). However, the outcomes achieved in the supply chain pillar of IPEF to date are viewed as a modest step, with an emphasis on process rather than substance. Moreover, the ongoing IPEF negotiations in other areas lack enforceable provisions found in agreements like the United States-Mexico-Canada Agreement (USMCA), which offer the United States greater market access and supply chain influence. This has led to questions regarding whether IPEF can serve as a viable alternative to the comprehensive trade agreements that China is proposing.
It is evident that a bolder U.S. approach is necessary to prevent the United States from becoming a bystander as its partners in the Indo-Pacific region forge economic ties with China. This passivity could undermine the United States’ long-term economic, national security, and geopolitical interests.
China’s assertive trade agenda should serve as a wake-up call for U.S. policymakers, prompting them to enhance regional economic engagement. Much like China’s Belt and Road Initiative bolstered its global development and security objectives, its pursuit of regional trade agreements now poses a threat to supply chains and economic security. The dependence of regional countries on China’s economic influence could potentially enable Beijing to exert economic pressure to achieve various geopolitical goals.
China’s recent achievement, the Regional Comprehensive Economic Partnership (RCEP), entered into force in 2022, making it the world’s largest trade agreement. RCEP’s gradual tariff reductions among its members further integrate these countries with China. Additionally, more nations, such as Bangladesh and Hong Kong, express interest in joining RCEP. The expansion of this agreement could further disadvantage U.S. interests.
China’s ambitions extend beyond RCEP; it seeks membership in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), an agreement initially shaped by the United States. While some CPTPP members may favor China’s accession, it would signify a significant strategic achievement for China. It could potentially allow China to set regional standards and norms, overshadowing the United States’ initial objectives.
China also engages in negotiations to join the Digital Economy Partnership Agreement, focusing on digital trade and the green economy. The upgrading of trade agreements with the Association of Southeast Asian Nations (ASEAN) addresses emerging issues like digital trade.
To mitigate the risk of further economic dependence on China in the Indo-Pacific, the United States must intensify its economic and trade engagement beyond current IPEF negotiations. Several approaches can be considered, each with its unique challenges and benefits.
- Rejoin and Reimagine CPTPP: The United States could update and renegotiate the CPTPP to modernize it according to its needs. This approach could involve changes in areas like rules of origin, labor, environment, digital trade, and intellectual property.
- Phase 2 IPEF Negotiations: The United States could lead “phase 2” IPEF negotiations, focusing on critical areas such as supply chains, critical minerals, and reducing non-tariff barriers, while expanding market access.
- Expand USMCA Membership: The United States could encourage new partners to join the successful United States-Mexico-Canada Agreement (USMCA), thereby integrating their economies with the existing agreement’s rules.
- Start Fresh: Initiating new free trade negotiations with Indo-Pacific countries allows flexibility in shaping agreements that draw from various templates while addressing emerging issues.
In conclusion, the United States must act promptly to strengthen its trade engagement in the Indo-Pacific, providing a credible economic alternative to China. The approach chosen will have a significant impact on the region’s economic landscape, with consequences for U.S. economic, national security, and geopolitical interests.
Your go-to for supply chain report news updates: The Supply Chain Report. For international trade tools, see ADAMftd.com.
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