One Year in, What to Make of Joe Biden’s Asia Trade Policy?
We discuss Joe Biden’s Asia Trade Policy, one year into his Presidency. Many countries in Asia will welcome any US effort to boost trade. Access to the prized US market and American products and services would be vital to balancing their dependency on China.
2022 will be a critical year for the United States’ trade policy for Asia. As President Joe Biden’s administration completes one year in the White House, Washington DC is still working to rebuild international bridges and pursue a more multilateral trade policy. Meanwhile the China-inclusive Regional Comprehensive Economic Partnership (RCEP) – accounting for about 30 percent of world trade – has just taken effect.
Biden administration’s record on reversing Trump policies: What has changed and what has remained the same?
After four years of President Donald Trump’s strategy of US isolationism, the Biden administration has reversed many of Trump’s economic, COVID-19, and environmental policies. This includes returning the US to the Paris accord, rejoining the World Health Organization (WHO), and reversing the Trump administration’s decision to block the election of a Nigerian candidate as the director-general of the World Trade Organization (WTO).
Yet, on other matters, the Biden administration has been relatively slower to shift US strategy.
Biden’s version of America First is hurting trade prospects
After entering office, Biden showed little inclination to develop closer ties with Asian allies, despite negotiating large-scale security agreements like AUKUS (a trilateral security pact between Australia, the United Kingdom, and the United States) and the Quadrilateral Security Dialogue (QUAD), a strategic security dialogue between the United States, Japan, India, and Australia. This was surprising considering he was the TPP’s biggest hype-man in 2012.
Moreover, there has been no appetite across the US political divide to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) given the perception, especially among labor unions, that such mega-trade agreements result in the loss of blue-collar US jobs. To give context, some 56 percent of US labor union households voted for Biden in the 2020 elections.
Many countries in Asia will welcome any US effort to boost trade. Access to the prized US market and American products and services would be vital to balancing their dependency on China. Yet, repairing relations with Asian partners has often had to take a backseat for Biden. Foremost among them is his priority of putting US workers first under the ‘Build Back Better’ agenda.
Competing policy goals, such as the priority of putting US workers first under the ‘Build Back Better’ agenda, is an example of how domestic priorities have once again trumped the scope for US economic diplomacy.
To explain how to look at a proposed tax credit under the Build Back Better agenda. The framework proposes a tax credit of US$7,500 for electric vehicles built by American union workers from 2026. This has sparked furious opposition from Mexico and Canada as it would severely impact their automotive industries, which are closely integrated with the US.
No moves to join regional trade pacts or remove Trump-era tariffs
Further, traditional Asian allies, such as Japan and Australia, are frustrated at the US’ lack of commitment to regional trade pacts like the CPTPP. The Biden administration has maintained former President Trump’s tariffs on China (only the narrowest of openings for tariff exclusions are available for US firms that are dependent on Chinese intermediate goods). Even the UK and Japan are still waiting for the lifting of Trump-era tariffs on steel and aluminum exports to the US.
Non-renewal of the Trade Promotion Authority
The Biden administration has also given no indication to renew the Trade Promotion Authority (TPA), which expired on July 1, 2021. The TPA was first enacted in 1974 and gives the President the authority to enter trade agreements, while Congress must introduce implementing legislation for the agreement. Moreover, the TPA gives the President the authority to negotiate tariff-only agreements.
The last renewal of the TPA was in 2015 and since its expiration in July 2021, only the U.S.-Mexico-Canada Agreement (USMCA) was approved.
How America’s accession to regional trade agreements could enhance US trade
US foreign policy under the Barack Obama administration focused on establishing the Trans-Pacific Partnership (TPP), which was poised to become the world’s largest free trade agreement (FTA) and cover 40 percent of the global economy. The US expected two key benefits from the TPP. Firstly, by excluding China from the deal the Obama administration hoped to pressure the Chinese to enact stringent labor, market, and environmental reforms. Secondly, the TPP would cement the US’ commitment to the Indo-Pacific region and strengthen its Asian alliance.
When the Trump administration withdrew the US from the TPP negotiations in 2017, few expected the agreement to survive without US involvement. It did survive, and former Japanese Prime Minister Shinzo Abe assumed Japan’s leadership over the trade pact’s talks, solidifying its status as an economic counterweight to China.
Several American Chambers of Commerce organizations from Singapore, New Zealand, Malaysia, and Vietnam have urged the Biden administration to begin the process of joining the CPTPP, arguing that the US business community is at a disadvantage since the US pulled out. They argue that the CPTPP is one of the highest-standard multilateral agreements in existence — attributed to the US’ role as a lead negotiator during its initial draft.
“To have CPTPP or any new free trade agreements passed, the President will need the TPA,” says Kyle Freeman, Partner at Dezan Shira & Associates and head of the firm’s North America Desk. “Like the Obama administration, the Biden administration has chosen not to spend political capital on having the TPA renewed and instead has focused on its domestic agenda in Congress during his first year. However, the administration could pursue CPTPP or other FTA negotiations under an “assumed” TPA authority and then have the TPA renewed later, similar to what the Obama administration did during TPP negotiations. Unfortunately, neither Congress nor the Biden administration has so far shown interest in engaging in talks on trade agreements.”
When analyzing the cost and benefits of the CPTPP to the US, it is pertinent to note that entering the agreement would also benefit Japan. One of the US’ oldest and economically dominant allies, a stronger Japanese economy would share the burden of promoting free trade in Asia. In recent times, it has become increasingly evident that post-Trump, Japan’s position as the ‘cornerstone’ of US security interests in Asia is not as secure as the administration would Americans have believed. For all intents and purposes, Japan is economically compelled to balance its relationship with China and the US as both countries are its largest trading partner; if either of the two retaliated, it would cause significant pain to Japan’s economy.
Why the US cannot afford to stand aside on free trade pacts with Asia
US reticence on global trade is in wide contrast to China’s own trade liberalization agenda. Beijing is boosting its engagement with regional trade pacts and recently applied to join the CPTPP. Although its application is likely to be rejected, as geopolitics stands now, it does refocus international dialogue on the credibility of the US and the economic balance of power in the Asia-Pacific.
The longer Washington stands on the sidelines concerning trade with Asia, the more US businesses face competitive disadvantages in their exports to some of the world’s fastest-growing markets. US total trade in goods with Asia reached US$1.6 trillion — as of November 2021 — while China recorded over US$2 trillion worth of trade with Asia in 2020.
While ASEAN’s total trade with the US amounted to US$362 billion for 2020, it was dwarfed by China’s whose total trade with the Southeast Asian bloc reached US$685 billion.
And, while the US spent the last five years turning away from the CPTPP, China, Japan, South Korea, Australia, New Zealand, and the 10 members of ASEAN signed the RCEP FTA, which came into force on January 1, 2022.
The RCEP trades US$2.5 trillion among its members and its 15 signatories account for 30 percent of global GDP.
Despite being not as comprehensive as the CPTPP (for instance, the RCEP does not include detailed provisions related to labor and environmental standards that are in the CPTPP), the RCEP is still significant for the size of the region it covers and the dynamism of its participating economies. Importantly, the RCEP will deepen China’s integration with its neighbors in ASEAN, Australasia, and North Asia, and strengthen Beijing’s role in the rapid growth of intra-Asia trade.
US exporters will need to achieve greater access to Asian markets if they are to have a share of the region’s dramatic growth prospects.
The Indo-Pacific economic framework
US Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo embarked on a tour of Asia in November 2021 to sell a new initiative by Washington dubbed the ‘Indo-Pacific economic framework’ (IPEF), set to launch sometime in 2022. Secretary of State Antony Blinken also laid down the groundwork during his recent visit to Southeast Asia and Vice President Kamala Harris said that Washington’s partnerships with the Indo-Pacific and Southeast Asian countries would be a top priority during a visit to Singapore in August 2021.
The Indo-Pacific economic framework is largely a response to China and aims to make supply chains less reliant on China. The framework will cover common rules for artificial intelligence and data while plugging leaks of critical technology. Further, Biden administration officials have said that labor standards, the digital economy, and climate change will also be focal points in the IPEF. However, details of the IPEF framework are still unclear and lack any trade and investment liberalization policies, unlike the CPTPP.
Further, it is also unclear if the IPEF will be legally binding. Aspects of the framework, such as tight oversight of advanced technology could easily hurt countries that heavily trade with China.
What regional countries in the Indo-Pacific want is a robust economic pact that offers growth for the region, and greater access to the US market will be a major incentive for countries to join. Currently, the strongest US counterweight to China is only in the security domain. Without major US concessions, such as through trade provisions, Indo-Pacific countries have little incentive to make hard commitments on labor and environmental reforms. But with this seemingly off the table, countries in the region are not likely to prioritize the IPEF; it is almost certainly not a substitute for the RCEP. Or, for that matter, China’s Belt & Road Initiative program.
US mid-term elections in 2022
The US’ Asia trade policy could change after the mid-term elections in November 2022. However, if Biden sees Democrats lose control of the House of Representatives – there is little chance that his political rivals, the Republican Party, will allow the renewal of the TPA, and as such, congressional procedures will kill any hope of a US move to join pacts like the CPTPP.
Washington needs an economic policy for Asia
Washington needs to develop an economic policy suited for Asia. Granting preferential trade access or debt relief measures will be a boon for export-dependent economies in Asia, particularly those that have been hit hard by the pandemic.
Such preferential treatment could include a mix of incentives to Asian allies who make progress on labor rights, climate change, and implement anti-kleptocracy initiatives. Washington could also provide aid for the development of green energy.
The US government can deploy limited resources to extract maximal gains. For example, countries that have received investments through the Belt & Road Initiative could work with the US to improve aspects, such as the financial sustainability of projects, commitment to the rule of law and transparency, as well as social and environmental issues.
Freeman notes that “with an eye on being less economically reliant on China and creating great market opportunities elsewhere, several Indo-Pacific countries would welcome great trade ties with the US. Therefore, there should be ample opportunity for the Biden administration to engage with partners on these issues, so long as the administration can find both the political will and context in which to do so.”
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ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, Munich, and Esen in Germany, Boston, and Salt Lake City in the United States, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at email@example.com or visit our website at www.dezshira.com.