President Joe Biden Just Revealed a plan to form a new alliance between the US and countries in the Asia-Pacific region, providing a counterbalance to China’s growing dominance there. But without also improving access to international markets between member states, the scope – as well as the economic benefits – of the union may be limited.
On Monday, the president announced the new pact, dubbed the Indo-Pacific Economic Framework (IPEF), as a means to help member states better coordinate their efforts to strengthen global supply chains, promote digital trade, deploy clean energy. expanding and fighting corruption. The framework is also expected to influence the environmental and labor standards of the participating countries.
“We are writing the new rules for the 21st century economy that will help all the economies of our countries grow faster and more equitably,” Biden said in a speech from Tokyo, where he met with Japanese Prime Minister Fumio Kishida. Along with Japan, 13 countries, including India, Brunei, Australia and Singapore, are expected to sign the pact. Biden noted that other countries could join in the future if they agree to uphold the same standards.
The deal will differ significantly from previous trade pacts. In particular, the IPEF is not expected to come up with guarantees to remove or reduce tariffs between Member States. And unlike the last pact offered to unify the region — the Trans-Pacific Partnership (TPP), which Barack Obama led in 2014 and passed on to Donald Trump — the IPEF doesn’t oblige member states to impose compliance barriers, trade quotas or other bureaucracy.
Instead, according to the framework, Member States can choose for themselves which measures they want to join. For example, coal-rich Australia could agree to harmonize with member states about safeguarding global supply chains, but refuse to participate in any kind of clean energy initiatives.
For small businesses trading with Asia, the benefits can also be far off. “It remains to be seen what this will become or where this will lead,” said Raymond J. Keating, chief economist at the Small Business & Entrepreneurship Council, a nonpartisan advocacy group in Vienna, Virginia. But it’s certainly not a trade deal in the traditional sense — meaning its economic impact is questionable, he says. “You should lower tariffs and other barriers to trade so you can have economic growth. That’s not the issue here,” Keating says, adding that the current agreement doesn’t even need Congressional approval to move forward.
That lack of charisma may do little to counter China’s growing prominence in the region. Many of the same countries competing for the IPEF are also members of the TPP, which does require its members, including China, to reduce trade barriers. since Trump withdrew the US from the TPP in 2017, China has become a leading force behind the bloc, so unraveling that influence would take some work.
So why didn’t Biden propose or sign back to the TPP with more teeth?
Globalization has become a political hot potato in the wake of Trump’s 2016 election, which was largely seen as a proxy for free trade. During his presidency, and on the electoral path, Trump frequently questioned the value of trade deals and their impact on working Americans, and freely imposed tariffs on trading partners, including Canada and the European Union.
The results are certainly mixed. Take, for example, the North American Free Trade Agreement (NAFTA), now known as the USMCA, which Trump negotiated in 2019. regional trade In the first two decades of NAFTA, it rose to $1.1 trillion in 2016, from about $290 billion in 1993, and the impact on wages and labor in general is more difficult to assess.
Although some have tried. According to Robert E. Scott, director of trade and manufacturing policy research at the Economic Policy Institute, an impartial think tank in Washington, DC, NAFTA has contributed to the loss of approximately four million US jobs over the same 20-year period. Seven years after the agreement, in 2001, Scott assessed the laid off around 766,000; he issued a new review in 2014, stating: laid off a total of 3.2 million between 2001 and 2013.
The business case for globalization is easier to sell – and it goes beyond exporting jobs to cheaper countries. In 2020, the final year of the Trump presidency, small and medium-sized enterprises accounted for $413 billion in known export value, down 10 percent from $460 billion in 2019. US Census Bureau release from April. In 2020, small to medium-sized companies imported $651 billion worth of goods, a decrease of about 3 percent from 2019. However, the diminished results cannot be attributed to the dismay of globalization. The decline may have been caused by several factors, including chaotic shocks in the supply chain that continue to reverberate.
Yet the hunger for free trade agreements is no longer what it once was. So it’s no wonder why Biden might take the less controversial route, but make no mistake: the IPEF is not a trade deal and will not bring the same economic benefits.
