Indo-Pacific Economic Framework: A geopolitical Weapon Masquerading as Economic Agreement

On the afternoon of May 23, U.S. President Joe Biden, Japanese Prime Minister Fumio Kishida, and Indian Prime Minister Narendra Modi launched the Indo-Pacific Economic Framework (IPEF) in Tokyo. The White House said that the newest economic vision for the Asia-Pacific region consists of 13 initial members, including India, in a grouping that accounts for 40% of the world’s GDP. Apart from the U.S., the other 12 initial members are Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. In terms of geopolitical ties, IPEF crosses multiple geo-economic organizations including North America, East Asia, Southeast Asia, Australia, South Asia (India), and more.

The framework proposed by the U.S. consists of four pillars: the first is to establish fair, high-standard and binding rules in areas of digital trade, labor and the environment; the second is to improve the resilience and security of supply chains in key industries such as chips, high-capacity batteries, medical products, and critical minerals; the third is to promote high standards of infrastructure, decarbonization and green technology development; and the fourth is taxation and anti-corruption. According to the U.S. government, the IPEF will help the U.S. and Asian economies work more closely together in these areas.

The Associated Press says the IPEF’s attractiveness is in doubt because it does not offer preferential terms for access to the U.S. market and has made no commitments on tariffs, due to concerns of protectionist sentiment within the U.S. “IPEF has no tariff reduction and no access to the U.S. market,” said one Japanese international trade director, adding that “we don’t see the benefits of the emerging economies of Southeast Asia joining IPEF”. Critics of the IPEF say the framework lacks any incentives — such as lower tariffs — to attract other countries to join. According to the Centre for Strategic and International Studies (CSIS), a leading U.S. foreign policy think tank, some Indo-Pacific signatories will be disappointed because the agreement will not include preferential terms to help them access the U.S. market. In fact, U.S. Trade Representative Katherine Tai has pointed out to members of Congress as early as March 31, that the IPEF, which is intended to target China, would not include a free trade agreement and therefore would not reduce tariffs for its members.

The framework is not a trade agreement in the “traditional sense” and for the initial IPEF member governments, especially for the main driver, the United States, it is not limited to economic objectives. The U.S.-led IPEF of the Biden administration is intended to reduce the strategic gap caused by the Trump administration’s withdrawal from the Trans-Pacific Partnership (TPP). At the launch, Biden said, “We’re here today for one simple purpose: The future of the 21st-century economy is going to be largely written in the Indo-Pacific — in our region”. As can be seen, such a view on the global economic organization is heavily influenced by geopolitics.

The grouping’s future substantive role, according to ANBOUND experts, will be that of a geopolitical tool disguised with economic carrots. The U.S. has made no secret of the fact that one of the main goals is to decrease China’s economic dominance in the Indo-Pacific area. China is one of the world’s largest trading nations and has close economic and trade ties with all major global economies. ln 2021, China’s trade with its top five trading partners ranked as follows: ASEAN, trade volume of RMB 5.67 trillion; EU, trade volume of RMB 5.35 trillion; U.S., trade volume of RMB 4.88 trillion; Japan, trade volume of RMB 2.40 trillion; and South Korea, trade volume of RMB 2.34 trillion. As a result, an Indo-Pacific economic and trade international organization that excludes the world’s second-largest economy appears odd from an economic and commercial perspective.

However, in the practical sense, if the framework is to balance the economic, trade, and geopolitical ambitions of Washington, it may cause some role distortion for member states. Traditional allies such as Japan, South Korea, Australia, and New Zealand are among those where the U.S. can clearly impose its geopolitical footprint. However, ASEAN countries, and to some extent, Japan and South Korea, will have to consider their economic and trade relations. India on the other hand, will perhaps remain relatively independent. Previously, Asian leaders had made two major demands: first, they did not want to be compelled to choose sides between the United States and China, and second, they wanted to be able to negotiate an agreement on trade and investment access to the U.S. The second point is currently unmet, while the first may not go as planned by the U.S.

On the other hand, China requires a pragmatic approach to this problem. Beijing will need to pay heed to what the U.S. is concocting with this move which intends to alienate China on the geopolitical front with the use of the framework. It should also not exaggerate the economic and trade implications of this grouping. In this era of deglobalization and geopolitical dominance, it is no longer possible to completely free the economy and trade from the influence of politics.

In such a world, and faced with the United States-driven geopolitical framework, ANBOUND researchers believe that the more important issue for China is its opening up and development, which should not be centered towards self-isolation, but stick to “dual-circulation” and “self-reliance”. As long as China remains open and cooperative, and participates in the build-up of more international economic and trade “circles of friends” (e.g. in the RCEP framework, China is in such a circle with ASEAN, Japan, Korea, Australia, and New Zealand), the influence of the IPEF that excludes China will be significantly less effective.

Final analysis conclusion

The Indo-Pacific Economic Framework, led by the United States, is essentially a geopolitical tool disguised as an economic framework. To compete with similar economic and trade circles that exclude China, Beijing will need to maintain sufficient economic openness, as well as sustained and stable economic growth.

Writer by He Jun
Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.

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ANBOUND is a multinational independent think tank, specializing in public policy research, incl. economy, urban and industry, geopolitical issues. Est. 1993.