Countries in the Indo-Pacific region are actively looking to both the United States and China as they seek to bolster their economic growth, development, supply chain resiliency, and innovative capabilities. Many countries would prefer to align more closely with the United States, but they remain disappointed with Washington’s declining interest in trade agreements. Moreover, they are finding it increasingly difficult to resist China’s active overtures to strengthen economic ties.
The Biden administration is pursuing enhanced U.S. trade with the region through the Indo-Pacific Economic Framework (IPEF). However, the IPEF outcomes released to date in the supply chain pillar represent only a modest step forward, emphasizing process over substance. Further, ongoing IPEF negotiations on other pillars do not include the types of enforceable provisions contained in trade agreements such as the United States-Mexico-Canada Agreement (USMCA), which would allow the United States to secure additional market access for its farmers and workers or proactively shape supply chain decision-making. This omission raises questions about whether the eventual IPEF agreement will be seriously considered as an alternative to the more comprehensive trade agreements that China is offering.
To put it bluntly, if the United States does not take a bolder approach, we risk becoming spectators as our partners work among themselves and with China to strengthen supply chain connectivity and regional economic integration. This will substantially undermine the United States’ long-term economic, national security, and geopolitical influence.
China’s active trade agenda should be inciting a greater sense of urgency among U.S. policymakers to step up our regional economic engagement. Just as the Belt and Road Initiative allowed China to gain a strategic advantage over the United States with respect to its global development, infrastructure, and security objectives, China’s pursuit of regional trade agreements threatens to do the same with respect to supply chains and economic security. Further, the more countries in the region become economically dependent on China, the easier it will be for Beijing to use economic coercion against them to achieve a broad range of geopolitical objectives.
Paramount among China’s recent trade achievements is the 15-member Regional Comprehensive Economic Partnership (RCEP) — the largest trade agreement in the world — which entered into force in 2022. Under the RCEP, new tariff cuts among the members take effect each year, putting those countries on a continuous path toward greater integration with China. Even more economies are seeking to join the RCEP: Bangladesh and Hong Kong recently announced their interest. As more and more tariff reductions take place among the growing membership, the RCEP’s impact will continue to grow, to the further detriment of U.S. interests.
The RCEP is only the beginning of China’s ambition. In fact, Beijing is actively seeking membership in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), an agreement that was largely shaped by the United States. Despite otherwise wishful thinking by U.S. policymakers, numerous CPTPP members appear positively inclined toward China’s membership. If China succeeds in its accession efforts, it will have scored a strategic coup beyond its wildest dreams. Not only will the United States have failed to achieve its original objective of using the agreement to set regional standards and norms without China, but China would be able to flip the table and use the CPTPP to set regional standards and norms without the United States.
Beyond the RCEP and CPTPP, China is engaged on other fronts. This engagement includes negotiations to join the Digital Economy Partnership Agreement, a leading regional digital pact among New Zealand, Singapore, Korea, and Chile. China is also working to upgrade its trade agreement with the 10 members of the Association of Southeast Asian Nations (ASEAN), focusing on emerging issues like digital trade and the green economy.
Successful negotiations on these and other agreements could turbocharge trade, investment, and supply chain connectivity between China and key trading partners. Indeed, trade between ASEAN and China is already increasing at an unprecedented rate — 64% from 2017 to 2022. Given the implementation of RCEP and negotiation of China-ASEAN FTA upgrades, the trend toward deeper economic ties between China and ASEAN is likely to continue to strengthen absent a change in U.S. policy. While the United States has not concluded a new comprehensive market access trade agreement in more than 10 years, China has supplanted the United States as the trading partner of choice for much of the world, and its dominance only continues to grow.
In light of the above, the United States must intensify its economic and trade engagement with this dynamic region, going well beyond the current IPEF negotiations. The United States can take several paths to achieve this goal, and none will be easy or without political and practical challenges. The following discussion sets out the key options in an effort to kick off a conversation about which path (or paths) is worth pursuing.
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September 12, 2023 at 12:15AM
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Jump-starting U.S. Trade and Economic Engagement in the Indo-Pacific - Asia Society
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