190209 us china trade
Image Credit: Reuters

The US economic rivalry with China is set to intensify further with the launch of Indo-Pacific Economic Framework (IPEF), a US-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 US has excluded China in a multilateral trade arrangement in the Asia-Pacific. Earlier, when the Trans-Pacific Partnership comprising 12 countries, which the US had championed, was about to be concluded, the US itself withdrew under President Trump.

The rest of the 11 countries went ahead and signed this free trade agreement as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). China formally applied to join the CPTPP on Sep. 16, 2021.

Fifteen countries of the Asia-Pacific region comprising all major economies including China have in the meantime signed up to Regional Comprehensive Economic Partnership (RCEP), creating the world’s largest trading bloc. The agreement came into force after ratification by 10 countries on Jan. 1, 2022. The US chose to stay out.

According to data by the World Bank, the agreement covers 2.3 billion people or 30 per cent of the world’s population, contributes $25.8 trillion, about 30 per cent of global GDP, and accounts for $12.7 trillion — over a quarter of global trade in goods and services.

The American absence from CPTPP and RCEP, two of the largest trading agreements in the world points at the US policy direction in the region.

Strengthening economic ties

The US led IPEF is presumably attempting to rectify this. It reflects the American resolve to strengthen economic ties with key economies of Asia-Pacific. But the IPEF focuses on “trade facilitation, standards for the digital economy and technology, supply chain resiliency, decarbonisation 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 is not part of the IPEF.

It is unclear to what extent countries with deep trade and economic relations with China will participate in this coalition. Some countries may have participated seeking to balance relations with both China and the US.

ASEAN as group funds itself in a dilemma. They do not want to be taking sides in this tussle between China and the US. In the long run they will be more comfortable with a regional organisation that also includes China.

Singapore’s Prime Minister Lee Hsien Loong wants IPEF “should remain open, inclusive and flexible” to leave the membership open to others to join later. Malaysia too called for inclusiveness. And above all “now is the time to open doors, not close them,” New Zealand Prime Minister Jacinda Ardern noted.

Regional trade relations 

Beijing has accused Washington of creating division with its newly launched IPEF. Like Trump, President Biden too has taken a hardline on Beijing in the presence of China’s deepening economic ties with all of the regional states.

The two big economic pacts CPTPP and RCEP offer market access to the member states. But with preferential market access to the US off the table in the IPEF, there is a little incentive for member states to substitute it for the other two. China’s application to join CPTPP, on the other hand offers the possibility of huge preferential access to Chinese market for the other member states.

Meaningful economic engagement with the Asia-Pacific faces a number of challenges within the Biden administration.

The US may still control the global finance but China has overtaken the US in regional trade. While China’s economic engagement makes it an indispensable partner for the region, the US has been looking at ways to counter China. What does this hold for regional dynamics and global trade? Only time will tell.

Sajjad Ashraf served as an adjunct professor at the Lee Kuan Yew School of Public Policy, National University of Singapore from 2009 to 2017. He was a member of Pakistan Foreign Service from 1973 to 2008 and served as ambassador the several countries.