A US Indo-Pacific framework trying to build China is unrealistic

Author: Mary E Lovely, Peterson Institute for International Economics

When he pulled the US out of the Trans-Pacific Partnership, former President Donald Trump tore up the playbook for US economic engagement with Asia. In February 2022, his successor, Joe Biden, offered his own strategy for the region — one that marries broader trade and security 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 that regional security and prosperity are vital to American security and prosperity. It recognizes that its economies will take the lion’s share of global growth and that cooperation within the region is essential in the fight against climate change and COVID-19. It suggests new initiatives for military cooperation and shared technology development and governance. It recognizes the infrastructure needs in the region and links them to the G7’s Building a Better World initiative.

By weaving together economic, security, development, climate, and public health challenges, the Biden strategy puts the United States at the center of efforts to address all of the challenges facing the region. Its “strategic ends” – a free and open Indo-Pacific – and its “strategic pathways” – strengthening the role of the United States and building collective capabilities – reflect an optimism that effective mechanisms can be put in place to coordinate. across the region while successfully managing differences.

The strategy encompasses US intentions to strengthen security and economic ties with India, as part of the Quadruple Security Dialogue which also includes Australia and Japan. It also calls for closer cooperation with the EU, which is seeking to increase its own presence in Asia. By attracting so many partners, the strategy can be seen as a building block of American “friendshoring”, or the creation of supply chains based only in countries with which it has a security alliance.

The optimistic tone of the framework obscures a precarious assumption underlying the strategy: that the partners in this endeavor share the American desire to build China from regional economic and technological networks. Indeed, the Biden plan explicitly identifies Beijing as a source of the region’s growing challenges.

While many Indo-Pacific countries wish to strengthen their defenses against Chinese coercion and aggression, it is doubtful that they share the American view that China can or should be excluded from regional economic arrangements and decision-making forums. Many of Washington’s planned partner economies are already integrated with China. The US “endorses the centrality of ASEAN” 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 largest trading bloc in the world and its favorable regional rules of origin are designed to further integrate member economies. RCEP signatories already send almost 50% of their exports to other RCEP members. For ASEAN and Japan, RCEP’s share is even higher. Even the Indian economy sends nearly a quarter of its exports to RCEP members.

Eight East Asian economies are already bound by the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which provides substantial and binding market access, covering the opening of markets for goods and services and commitments on regulation of foreign investment. With significantly overlapping rosters, trade relations between CPTPP members and RCEP members will continue to grow, even if China’s application for CPTPP membership is left on hold indefinitely. The United States, on the other hand, is left out of the CPTPP structures that reinforce block production sharing and complementary foreign investment flows.

US plans to build secure technology value chains must include Japan, a close ally and a powerful supplier of machinery and electronics. What price is Japan willing to pay and in what industries will China build from its products? Already, Japan exports almost as much to China as to the United States and imports almost twice as much. Much of this two-way trade fuels Japan’s domestic production. In 2016 – the most recent year for which we have data – 64% of Chinese exports to Japan came from foreign-invested companies, many of which were Japanese foreign affiliates, while more than half of China’s sales China to Japan result from duty-free processing. provisions. These are clear indications of the extent to which Japan’s industrial engine is tied to China.

The situation is similar for South Korea, another US ally and key supplier of integrated circuits and other electronic products. Its bilateral trade with China is almost double its trade with the United States. As in Japan, a large part of this flow is linked to South Korean industrial production. More than half of China’s exports to South Korea come from foreign-invested enterprises, many of which are South Korean foreign affiliates, and 57 percent reflect duty-free processing agreements.

Despite an ambitious list of negotiating 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, the goal is to create a flexible lattice of “modules” that reinforce each other but are independent.

The Biden plan acknowledges that his vision requires “unprecedented cooperation” for the Indo-Pacific strategic environment to be fundamentally altered. However, she also sees this cooperation as offering “autonomy and options”. This autonomy extends not only to potential partners but to America itself.

Whatever is eventually negotiated, the Indo-Pacific economic framework will not be incorporated into binding treaties. It will not be necessary for the US Congress to overcome partisan politics to agree to an expanded role for America in the region. Asian allies, still reeling from the unpredictable and destabilizing policies of the Trump administration, may be reluctant to invest heavily in new structures that can be as easily destroyed as houses of straw.

Mary E Lovely is a Senior Fellow at the Peterson Institute for International Economics.

This article appeared in the latest edition of East Asia Quarterly Forum“East Asia Economic Agreement”, vol 14, n° 1.

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