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Can the US Indo-Pacific Economic Framework Meet the Value Proposition Challenge?

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Trans-Pacific View | Diplomacy

Can the US Indo-Pacific Economic Framework Meet the Value Proposition Challenge?

IPEF’s evolution and prospects will partly hinge on how U.S. and regional partners define its value add in an increasingly competitive landscape.

Can the US Indo-Pacific Economic Framework Meet the Value Proposition Challenge?

U.S. President Joe Biden and his counterparts from nine Association of Southeast Asian Nations (ASEAN) countries take part in the U.S.-ASEAN Special Summit in Washington, D.C., on May 13, 2022.

Credit: State Department photo by Freddie Everett

Even before it was officially launched in May 2022, the Indo-Pacific Economic Framework (IPEF) advanced by the administration of U.S. President Joe Biden has faced questions about what additional value it will provide for the region. As IPEF evolves in the coming months, managing what might be termed a value proposition challenge will require a calibration between meeting the needs of regional countries; defining the framework’s characteristics relative to other existing arrangements; and setting out exactly what Washington will itself be bringing to the table in terms of its commitment to the Indo-Pacific region.

As I have observed before, U.S. policymakers have defined a positive economic agenda for a changing region across multiple administrations with different perspectives and mixed results over the past few decades. The administration of President Bill Clinton brought the U.S. deeper into the multilateral architecture through engagement in the Asia-Pacific Economic Cooperation (APEC) forum, while the George W. Bush years saw some select successes in inking bilateral pacts with countries like Singapore and South Korea, as well as the conclusion of a U.S.-ASEAN Trade and Investment Framework Agreement. During the Barack Obama years the U.S. successfully set the table for the conclusion of a high-standard minilateral pact in the form of the Trans-Pacific Partnership (later renamed CPTPP), only for Washington to subsequently withdraw from it under Donald Trump in 2017.

Seen from this perspective, IPEF, which was first announced by Biden at the East Asia Summit in October 2021 and initially encountered some delays, represents the signature economic arrangement developed by the Biden team thus far based on the domestic and regional environment it perceives to be operating in. While the administration may believe that options like securing Congressional support for rejoining the CPTPP would be too politically costly at this time, it also no doubt recognizes that there is a regional need for a U.S. affirmative economic agenda of some sort, especially in a context where China signaled late last year its desire to join both CPTPP and sectoral agreements like the Digital Economic Partnership Agreement (DEPA) between Chile, New Zealand, and Singapore.

The broader question for IPEF, which was officially launched in May with 13 initial countries during Biden’s first in-person Asia trip since taking office, as a four-pillared framework led by the Department of Commerce and the Office of the U.S. Trade Representative (USTR), focused on issues such as digital economy, supply chains and clean energy, is the extent to which it adds value. This so-called value proposition challenge can be understood as a calibration between three main components: the set of opportunities and challenges countries in the region face; the existing set of arrangements available to countries facing these realities apart from IPEF itself; and what the U.S. itself will be bringing to the table in the context of an increasingly crowded and competitive Indo-Pacific economic landscape.

The first component of the value proposition challenge is whether IPEF is relevant to the needs of regional countries. At a general level, this would both maximize IPEF’s potential traction as well as reinforce that it is designed first and foremost to meet regional needs as noted in the Biden team’s Indo-Pacific strategy released in February, rather than just more narrowly better positioning Washington in ongoing U.S.-China competition. More specifically, as U.S. officials including U.S. Trade Representative Katherine Tai have themselves acknowledged, the question of needs is important given the particularly difficult geopolitical context in the Indo-Pacific, where governments are managing a confluence of issues, including intensifying U.S.-China competition, COVID-19, Russia’s invasion of Ukraine, and climate change, which are affecting everything from food and energy prices to the political stability of some governments.

At a general level, IPEF does connect itself to existing regional needs. Apart from the fact that the four IPEF pillars as currently conceived speak to a shared recognition by Indo-Pacific economies of the importance of digitized, resilient, greener futures, Biden officials have also constructed some building blocks through months of consultations with regional partners, be it the new U.S.-Japan Partnership on Trade which includes environmental issues such as the circular economy or kicking off supply chain mechanisms such as the U.S.-Malaysia Memorandum of Cooperation on Supply Chains. Yet at the same time, it is still early days, the extent of connection between IPEF and regional needs will only become much clearer once the current countries move deeper into consultations and potentially announce some early harvest gains, including a potential early warning system for critical supply chains.

The second component of the value proposition challenge is what IPEF is contributing beyond what existing economic arrangements are already offering. This is an important consideration since there have already been a series of options for countries in the region to choose from what have emerged over the past few years, be it broader trade pacts like the CPTPP and the more inclusive and lower standard Regional Comprehensive Economic Partnership (RCEP), or even sectoral agreements such as DEPA. Indeed, U.S. partners abroad such as Singapore and even some members of Congress at home have explicitly encouraged the Biden administration to eventually join CPTPP or DEPA or even perhaps conclude a separate digital pact.

U.S. policymakers have made it clear thus far that IPEF is a new framework designed to tackle 21st century challenges, rather than a traditional trade agreement with market access provisions. While this  may confer advantages, including additional flexibility, and address newer aspects of issues such as supply chain resilience, regional interlocutors also privately note the lack of market access provisions, the greater emphasis on labor and environmental standards, and the suggestion that countries need to adhere to all components of a single pillar within IPEF to join it – including the multifaceted “Connected” Pillar under USTR which includes the digital economy, where there are a range of approaches around cross-border data flows and issues such as data localization – can also alter the cost-benefit analysis for countries to be part of the agreement.

U.S. officials have shown signs of acknowledging these concerns, and U.S. public messaging around the launch as well as the IPEF launch statement suggested greater flexibility around areas like non-market access incentives, the content of individual pillars, and even the criteria for the inclusion of additional members. How this evolves moving forward as countries move deeper into the negotiations will be important to watch.

The third component of the value proposition challenge is what the United States is itself contributing to the region. As I have noted previously, this is an aspect of U.S. commitment that policymakers sometimes face an uphill task in defining due to aspects of the U.S. economic role, be it the significance of non-governmental actors such as the private sector in advancing U.S. economic ties with the region, the dispersed nature of U.S. economic policymaking, or Washington’s status as a relatively geographically distant, advanced Indo-Pacific economy which can make it challenging to work with a diverse range of countries increasingly forging cross-border connections among themselves. This component of the challenge has also arguably gotten even more difficult of late as more major powers have sought to engage more deeply with the Indo-Pacific and offered a clearer sense of what they are able to provide, with a case in point being Europe’s attempt to shape the Indo-Pacific landscape around digital and environmental issues.

Given the uncertainties around U.S. economic commitment over the past few years, the very articulation of an affirmative regional economic initiative like IPEF can arguably be construed as a contribution. IPEF can also showcase some of Washington’s attributes, such as its convening power, its ability to further catalyze a race to the top on standards, and its leveraging of its full range of alignments to facilitate cross-pollination across institutions, as we have seen in recent months with the development of the Quad, the eventual holding of the U.S.-ASEAN Special Summit, and the development of the agenda for the U.S. hosting of APEC in 2023. Yet at the same time, regional countries will also be looking for what specific incentives Washington can itself provide on IPEF and what it is bringing to the table itself rather than via allies and partners which are themselves also defining their own value add. While there are some promising signs in this regard, be it public messaging by officials on securing early wins and mention of “technical assistance and capacity-building” in the IPEF launch statement, the devil will be in the details.

To be sure, it is still far too early in IPEF’s development to provide a definitive assessment of its value. Regionally, additional consultations will be required between IPEF’s initial members to get a better sense of how certain aspects will be managed, including specificity and inclusiveness, and this will take place as countries are engaging with other’s mechanisms and managing a series of wider opportunities and challenges. And domestically in the United States, the experience of TPP withdrawal means close attention will be paid to evolving dynamics out to the midterm elections later this year and then the next presidential elections in 2024. Nonetheless, how U.S. policymakers work at home and abroad to manage the evolving value proposition challenge in the coming months and years will be an important storyline in IPEF’s development.