America’s Pivot to Asia 2.0: The Indo-Pacific Economic Framework

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America’s Pivot to Asia 2.0: The Indo-Pacific Economic Framework

As long as IPEF lacks clear incentives, it will be hard to transform the framework into meaningful action.

America’s Pivot to Asia 2.0: The Indo-Pacific Economic Framework
Credit: Official White House photo

On his Asia trip, U.S. President Joe Biden announced on Monday that Japan, India and 10 other countries have committed to join the U.S.-led Indo-Pacific Economic Framework (IPEF). Those countries include Australia, Brunei, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Not included, at least for now, are Taiwan, three ASEAN member states (Cambodia, Laos, and Myanmar) and China (obviously). But the door to their future membership remains (at least theoretically) open.

Through IPEF, the United States hopes to economically engage the Indo-Pacific and counter China’s increasing economic and political influence in the region. With around 60 percent of global population, the region is going to be the main driver of economic growth in the world in the next few decades. According to the White House, the region “supports 3 million American jobs” and is “the source of nearly $900 billion in foreign direct investment in the United States,” while U.S. FDI in the region totaled around $969 billion in 2020. What’s more, the United States is the “primary exporter of services to the region.”

In short, U.S. (and many global) policy and economic elites see the course of this century’s geopolitics and geoeconomics to be determined in this region.

From Pivot 1.0 to Pivot 2.0

In 2011, then-U.S. President Barack Obama, on a trip to Asia, introduced the U.S. Pivot to Asia, which had both geopolitical components (such as increasing the U.S. military presence in the  region) and geoeconomic ones (such as the Trans-Pacific Partnership, or TPP). Through the TPP, Obama wanted the United States, not China, to write “the rules of the road in the region” or “write the rules of the global economy” in this century. Obama hoped the TPP would be materialized by December 2012; as it turned out, negotiations lasted until 2015.

In their 2016 electoral campaigns, both Hillary Clinton and Donald Trump opposed the TPP due to anti-globalization (i.e. anti-FTA) sentiments in the United States. President Trump then torpedoed the TPP immediately after taking office in 2017. Since then, the U.S. Indo-Pacific policy has been increasingly lopsided, defined more by geopolitical formations (such as the Quad and AUKUS) than (geo)economic initiatives and trade pacts.

In the meantime, in 2021, after around 10 years of painstaking negotiations, China and other Indo-Pacific countries signed the Regional Comprehensive Economic Partnership (RCEP), the largest free trade deal in the world. All ASEAN countries and some close U.S. allies (Australia, Japan, New Zealand, and South Korea) joined RCEP. It entered into force on January 1, 2022.

On the other hand, Japan and others negotiated and revived the TPP (or what was left of it after the U.S. withdrawal) and called it Comprehensive and Progressive Transpacific Partnership (CPTPP). It was ratified in 2018. The United States has ruled out the possibility of rejoining this FTA, however. Instead, Washington has argued that the region needs to move beyond it. Enter IPEF, the second coming of the U.S. Pivot to Asia.

While the Pivot’s geopolitics developed substance (through the likes of the Quad and AUKUS), the U.S. Indo-Pacific policy lacks geoeconomic heft. IPEF aims to fill this gap. According to the White House, the goal of the IPEF is to tackle:

21st century economic challenges ranging from setting the rules of the road for the digital economy, to ensuring secure and resilient supply chains, to helping make the kinds of major investments necessary in clean energy infrastructure and the clean energy transition, to raising standards for transparency, fair taxation, and anti-corruption.

Obama’s legacy of the Pivot is almost impossible to miss in IPEF. His discourse about the TPP’s objective (“writing the rules of the road”) resonates clearly in the quote above. In this sense, IPEF is the United States’ second attempt at a Pivot to Asia. U.S. policymakers have noticed that the United States is left sitting on the outside of the Indo-Pacific’s two main trade blocs (RCEP and CPTPP).

How to Interpret IPEF and Its Challenges

In what follows, I offer seven observations about the visions behind and the challenges ahead of IPEF.

First, it is important to determine what IPEF is not. It is certainly not an FTA like RCEP and the CPTPP. It has not involved, nor has it promised to involve in the future, negotiations to remove tariffs or increase market access. For now, IPEF is best understood as a vision, a signal, a statement of purpose, or an attempt by the United States to catch up with the Indo-Pacific’s evolving history, geography, and (geo)economics.

Second, IPEF’s ultimate vision is to reinstate U.S. “economic leadership” in the Indo-Pacific region and enable the United States –  as both Obama and Biden have envisioned –  “to [re]write the rules of the road”  for the Indo-Pacific, and global, economy.

Third, a major contradiction here is that “rules of the road” require a framework with binding commitments based on specific rules and regulations. This specificity is normally formalized through FTAs with clear rules and dispute settlement mechanism. IPEF does not offer any of that. Even before this trip, the Biden team had to water down IPEF to attract more countries to it.

The White House has argued that this aspect of IPEF is a “feature,” not a “bug,” as it gives more flexibility to the participants to act upon the components that are completed without having to wait for all of IPEF to be completed. While this is a theoretically beautiful thought process, we do not have many – in fact, any – historical precedents of such a loosely defined framework creating enough obligations and incentives to create history-changing momentum.

Fourth, the conceptual baggage of IPEF (setting “rules,” “standards,” and “principles”) has already appeared and been tested in both the Blue Dot Network (BDN) launched in 2019 by the Trump administration and the Build Back Better World (B3W) initiative launched in 2021 by the Biden administration. BDN was defined as “a mechanism to promote robust standards […] for quality infrastructure projects” and B3W as an initiative to promote “high standards and principles” in areas that overlap with IPEF’s issue areas. Both B3W and BDN were defined in terms of countering China and its Belt and Road Initiative (BRI). Neither has so far produced much tangible substance and momentum. The United States should watch out that IPEF does not meet the same fate as BDN and B3W.

Fifth, from the list of excluded countries (China and its close ASEAN partners such as Myanmar, Cambodia, and Laos), it is hard not to infer that IPEF’s trajectory has been – and will likely be – defined more by the United States’ geopolitical objectives than global economic dynamics. Another layer of complexity for the U.S. is that, since 2011, the Pivot to Asia has been constantly derailed by geopolitical emergencies elsewhere, such as in the Middle East or now in Ukraine.

Sixth, the most herculean challenge for the United States is to persuade IPEF members to disentangle their economies from China’s. It is worth remembering that other than the U.S., each and every country that has joined IPEF previously joined China in signing an actually binding FTA, namely, RCEP. For them, that was much more of a commitment than joining IPEF.

This challenge becomes even greater given that IPEF, in trying to set standards and principles, will inevitably create obligations while “lacking incentives.” It remains to be seen if, how, and why IPEF partners should not be “skeptical” and should work against their own economic interests (i.e., economic engagement with China) in the absence of IPEF incentives (such as access to the U.S. market).

Seventh and finally, for IPEF to succeed, U.S. policymakers should try to do two things simultaneously: They should, first, get their domestic act together by properly addressing the U.S. population’s anti-globalization sentiments and economic concerns; and, second, merge initiatives such as IPEF (and B3W and BDN) with already existing FTAs, such as the Japan-led CPTPP, which are the results of years of painstaking negotiations. Only then can the United States use its economic might, soft power, and geopolitical leverage to start writing – or better, co-writing with partners – the rules of the road for the global economy.