Blog · February 22, 2022

In search of a US-Indo-Pacific economic policy

Author: Claude Barfield, American Enterprise Institute

Entering its second year, the Biden administration has failed to produce a coherent economic policy for the Indo-Pacific. Meanwhile, two major regional trade agreements are moving forward. US businesses and workers will increasingly suffer from legal economic discrimination from these new regional trade rules of the road — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP).

The parallels and contrasts with the Obama administration are striking. Like US President Joe Biden, Obama came into office proclaiming the need to fix the US economy first, with no plans for advancing new trade initiatives. But within a year, faced with rising security and diplomatic challenges in Asia — China’s growing assertiveness and North Korea’s missiles over surrounding seas — the Obama administration reversed course and joined negotiations for the Trans-Pacific Partnership. Obama also ‘rebalanced’ military assets to Asia.

In 2022, the fusion of economic imperatives and security dangers are even more pressing. While the Biden administration has made some progress on the security front by upgrading the ‘Quad’ and securing the AUKUS nuclear submarine deal, the United States has failed to develop a credible economic response.

Looking beyond the Biden administration’s internal difficulties, the reality is that the political ground for US international economic advances is hostile. The progressive wing of the Democratic Party, in strong alliance with industrial labour unions continues to be hostile to open trade and investment policies. This has led President Biden to promise domestic reforms before tackling international economic advances.

On the Republican side, former president Trump’s ‘America First’ economic doctrines have produced a similar anti-trade mindset. With Congress split evenly between the two parties and with deep intraparty divisions, the Biden administration is hamstrung. The so-called Trade Promotion Authority, the congressional grant of authority given to the president to negotiate new trade agreements, has lapsed and there is no prospect of renewal in the foreseeable future.

The Biden administration has compounded its challenges by failing to speak with one voice and by touting unconvincing alternatives to strong trade and investment rules. Multiple voices vie for internal leadership on international economic policy, including the State Department, the National Security Council, the Commerce Department and the Office of the US Trade Representative, headed by Katherine Tai. While Tai came to the office with an excellent reputation, she is not close to Biden and has often found herself outflanked by officials in the White House and Commerce Department.

The National Security Council’s Asia specialist Kurt Campbell was widely quoted in asserting that the United States will ‘step up its game’ in Asia. Secretary of Commerce Gina Raimondo has also taken the lead in touting plans for an Indo-Pacific framework that will be ‘more robust’ and comprehensive than traditional trade agreements. In fairness, Biden administration officials have sedulously consulted with Asian partners through several trips by top officials.

The administration has promised a fully developed framework for the Indo-Pacific in the coming weeks. While the details are yet to come, it seems clear that the robust elements touted by top Biden officials will go beyond traditional trade liberalisation. They will likely emphasise social issues and policies for small and medium-sized businesses.

A potentially separate digital trade initiative would likely include provisions for worker training and development, regional and global standards, bridging the digital divide and combating bias in platform algorithms. The digital area has produced deep internal clashes in the administration, as some top officials have sided with progressive pressure groups who argue that a digital trade agreement is a sell-out to big tech firms.

For decades, the United States has insisted on negotiating only ‘enforceable’ trade pacts. In keeping with the Biden administration’s emphasis on social justice and equity issues, Tai has expressed scepticism about the adequacy of traditional trade liberalisation agreements. She also likened the framework to the new advisory US-EU Trade and Technology Council. If such an executive agreement is contemplated, it would be constricted — amendable by the next president and bound by no changes in United States law.

Absent the concessions and market-opening pledges the United States made in the CPTPP, Washington will find it extremely difficult to persuade Indo-Pacific nations that the framework equals even the limited concessions China promised in RCEP.

Claude Barfield is a Senior Fellow at the American Enterprise Institute and a former consultant to the office of the US Trade Representative.