A US Indo-Pacific framework that seeks to build China is unrealistic – Analysis – Eurasia Review

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By Mary E Lovely*

When he withdrew the United States from the Trans-Pacific Partnership, former President Donald Trump tore up the playbook for America’s economic engagement in Asia. In February 2022, his successor, Joe Biden, offered his own strategy for the region – one that blends broadly defined security and trade interests while sharing Trump’s refusal to commit to new comprehensive trade deals.

American partners in Asia welcome many aspects of President Biden’s Indo-Pacific strategy. The Biden framework recognizes the security and prosperity of the region as critical to America’s security and prosperity. It recognizes that its economies will drive the lion’s share of global growth and that cooperation within the region is vital in the fight against climate disruption and COVID-19. It proposes new initiatives in military cooperation and joint technology development and leadership. It recognizes infrastructure needs in the region and links them to the G7’s Build Back Better World initiative.

By blending economic, security, development, climate, and public health challenges, the Biden strategy puts the United States at the center of efforts to address the full range of challenges facing the region. His “strategic goals” – a free and open Indo-Pacific – and his “strategic paths” – strengthening the US role and building collective capacity – reflect optimism that effective mechanisms can be built to coordinate the region and at the same time successfully manage differences.

The strategy encompasses US intentions for closer security and economic ties with India, which are part of the Quad Security Dialogue, which also includes Australia and Japan. It also invites closer cooperation with the EU, which wants to strengthen its own presence in Asia. The strategy, involving so many partners, can be seen as a building block for America’s “friendshoring,” or the creation of supply chains based only in countries with which it has a security alliance.

The optimistic tone of the framework masks a precarious assumption underlying the strategy: that the partners in the endeavor share an American desire to build China out of regional economic and technology networks. In fact, the Biden plan explicitly identifies Beijing as the source of the growing challenges in the region.

While many Indo-Pacific nations want to strengthen defenses against Chinese coercion and aggression, it is doubtful they share the US view that China can or should be excluded from regional economic agreements and decision-making forums. Many of Washington’s intended partner economies are already integrated into China. The United States “advocates ASEAN centrality” but ignores ASEAN’s presence at the heart of the Regional Comprehensive Economic Partnership (RCEP), of which China is a founding member.

RCEP is the world’s largest trading bloc and its beneficial regional rules of origin are designed to further integrate member states’ economies. RCEP signatories already send almost 50 percent of their exports to other RCEP members. For ASEAN and for Japan the RCEP share is even higher. Even the Indian economy sends almost a quarter of its exports to RCEP members.

Eight East Asian economies are already linked by the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which provides essential and mandatory market access that includes opening up markets for goods and services and commitments to regulate foreign investment. With rosters clearly overlapping, trade relations between CPTPP members and RCEP members will continue to grow even as China’s bid to join the CPTPP remains pending indefinitely. In contrast, the United States is excluded from the CPTPP structures that enhance block production sharing and complementary foreign investment flows.

US plans to build secure technology value chains must include Japan, a close ally and leading supplier of machinery and electronics. What price is Japan willing to pay and in which industries is China expanding its products? Already, Japan exports almost as much to China as it does to the United States and imports almost twice as much. Much of this bilateral trade feeds Japan’s onshore production. In 2016 — the latest year for which we have data — 64 percent of Chinese exports to Japan came from foreign-invested companies, many of which have Japanese overseas branches, while more than half of China’s sales to Japan result from duty-free processing orders. These are clear indications of how tied Japan’s industrial engine is to China.

The same is true of South Korea, another US ally and major supplier of integrated circuits and other electronics. Its two-way trade with China is almost double that of trade with the United States. As with Japan, much of this flow is associated with South Korean industrial production. More than half of Chinese exports to South Korea come from foreign-invested companies, many of which are South Korean foreign subsidiaries, and 57 percent reflect duty-free processing agreements.

Despite an ambitious list of negotiation issues, the Biden administration has made it clear that it will not seek a comprehensive, binding deal under the proposed Indo-Pacific economic framework. Rather, a flexible latticework of mutually reinforcing but independent “modules” is to be created.

The Biden plan recognizes that his vision requires “unprecedented collaboration” to transform the strategic landscape of the Indo-Pacific. But she also sees “autonomy and options” in this cooperation. This autonomy extends not only to potential partners, but to America itself.

Whatever is ultimately negotiated, the Indo-Pacific economic framework will not be translated into binding treaties. It will not require Congress to transcend partisan politics to agree on an expanded America’s role in the region. Asian allies, still reeling from the Trump administration’s unpredictable and destabilizing policies, may be reluctant to invest heavily in new structures that can be blown away as easily as straw houses.

*About the author: Mary E. Lovely is a Senior Fellow at the Peterson Institute for International Economics.

Source: This article was published by East Asia Forum and appears in the latest issue of Quarterly East Asia Forum‘East Asia’s Economic Agreement’, Vol. 14, No. 1.

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