To Draw Asia Closer, U.S. Tries an Alternative to Traditional Trade Pacts

The Trans-Pacific Partnership that the U.S. negotiated with 11 other Pacific Rim countries was in that mold, but President Trump abandoned it in 2017 and Mr. Biden hasn’t sought its return. “TPP isn’t happening now,” Ms. Raimondo acknowledged bluntly. “We have to get innovative.”

Ms. Raimondo had traveled directly to Davos from Tokyo, where President Biden had kicked off talks to create an Indo-Pacific Economic Framework with 13 other countries, including India, Japan, South Korea, Malaysia and Indonesia.

Unlike the TPP, the IPEF won’t reduce tariffs or quotas, has no dispute-settlement mechanism, and doesn’t regulate subsidies or state-owned enterprises. It aims for cooperation on issues important to the U.S., such as decarbonization, money laundering and tax avoidance. It won’t be a congressionally ratified treaty but an executive-level agreement the next U.S. president can abrogate in an instant.

And yet the IPEF could nudge key Asian economies into the U.S. sphere of influence in ways older treaties didn’t, by addressing new arenas of competition such as supply-chain resilience, technology standards and export controls.

For example, rather than unilaterally bar the export of U.S. technology to Russia for its invasion of Ukraine, the U.S. “convinced 36 other countries to align their own export controls with us,” Ms. Raimondo said. That, she said, could be the model for the IPEF. “We’re going to have a whole negotiation around export controls for semiconductors. It would be very powerful if we had some number of countries in that region aligning their own systems with us…If something like [Russia’s] invasion happened, you would be able to swiftly move with your allies the way we did within the Russia situation.”

Businesses are wary of the IPEF’s lack of specifics and ambition, yet are hopeful about its potential, and about Ms. Raimondo, whom they see as the most effective advocate for business in the Biden administration.

The IPEF could emulate digital standards in pacts such as the U.S.-Mexico-Canada Agreement, which succeeded Nafta, and a 2020 digital trade pact between Singapore and Australia. Ideally, the IPEF would bar data-localization requirements that impede cross-border data flows, would give priority to privacy, and would guarantee equal treatment of foreign and local suppliers of digital services. This contrasts with China, which treats data as state property, restricts sharing of data across borders, and discriminates against non-Chinese suppliers at home and abroad. The IPEF could encourage closer integration between the U.S. and Asian tech industries by codifying which countries the U.S. considers safe partners for supply chains and joint ventures.

Yet in one key respect, the IPEF falls short. The U.S. is eager to reduce its, and the world’s, dependence on Chinese goods by shifting supply chains to friendlier countries, a trend dubbed “friendshoring.” But unlike the TPP, the IPEF doesn’t really encourage such diversification, because it doesn’t expand access to the U.S. market, a priority of poorer countries.

For example, Indonesia wants to more than double per capita income to $10,000 by 2038, trade minister

Muhammad Lutfi

said in an interview in Davos. To do so, it needs to move up the value chain, from commodities to manufacturing.

“Ten years ago, we weren’t in the position to manufacture 1 million cars per year. Now we are,” Mr. Lutfi said. “We’re going up the value chain to lithium batteries and electric vehicles. I want Indonesian cars to be driven in the United States.”

A decade ago, Indonesia wasn’t interested in the Trans-Pacific Partnership. It might be if the TPP were on offer today, Mr. Lutfi said. The TPP combined the stick of U.S. standards on labor and the environment with the carrot of access to the U.S. market. By contrast, the IPEF is “about norms and standards without market access. It’s a stick and a stick, it’s not a stick and a carrot.”

Indonesia is upbeat about the IPEF, in part because it shows the U.S. re-engaging economically in the region after years of absence under Mr. Trump. Mr. Lutfi said infrastructure and technology transfer are critical to Indonesia’s growth. Right now, he noted, China provides both, such as in smelting and mining. As Indonesia moves up the value chain, more could come from the U.S. If access to U.S. technology also entails coordinating with the U.S. on export controls, that could be up for negotiation, he said.

But closer ties to the U.S. can’t come at the expense of its ties to China. “We believe in promoting collaboration for as long as there is no discrimination against any country,” Mr. Lutfi said. He cites the 10-member Association of Southeast Asian Nations, of which Indonesia is a member, as a model: It puts “prosperity ahead of strategic and security issues,” and promotes “democracy but not at the expense of our unity.”

Mr. Lutfi notes the U.S. used to open its markets so that other countries could become more democratic and prosperous. Indonesia, he noted, is now democratic. “Now we have 270 million mouths, we’re very loud, and to feed them, we need to go up the value chain. If we don’t, we fail, and our democracy fails.”

Write to Greg Ip at [email protected]

The Trans-Pacific Partnership that the U.S. negotiated with 11 other Pacific Rim countries was in that mold, but President Trump abandoned it in 2017 and Mr. Biden hasn’t sought its return. “TPP isn’t happening now,” Ms. Raimondo acknowledged bluntly. “We have to get innovative.”

Ms. Raimondo had traveled directly to Davos from Tokyo, where President Biden had kicked off talks to create an Indo-Pacific Economic Framework with 13 other countries, including India, Japan, South Korea, Malaysia and Indonesia.

Unlike the TPP, the IPEF won’t reduce tariffs or quotas, has no dispute-settlement mechanism, and doesn’t regulate subsidies or state-owned enterprises. It aims for cooperation on issues important to the U.S., such as decarbonization, money laundering and tax avoidance. It won’t be a congressionally ratified treaty but an executive-level agreement the next U.S. president can abrogate in an instant.

And yet the IPEF could nudge key Asian economies into the U.S. sphere of influence in ways older treaties didn’t, by addressing new arenas of competition such as supply-chain resilience, technology standards and export controls.

For example, rather than unilaterally bar the export of U.S. technology to Russia for its invasion of Ukraine, the U.S. “convinced 36 other countries to align their own export controls with us,” Ms. Raimondo said. That, she said, could be the model for the IPEF. “We’re going to have a whole negotiation around export controls for semiconductors. It would be very powerful if we had some number of countries in that region aligning their own systems with us…If something like [Russia’s] invasion happened, you would be able to swiftly move with your allies the way we did within the Russia situation.”

Businesses are wary of the IPEF’s lack of specifics and ambition, yet are hopeful about its potential, and about Ms. Raimondo, whom they see as the most effective advocate for business in the Biden administration.

The IPEF could emulate digital standards in pacts such as the U.S.-Mexico-Canada Agreement, which succeeded Nafta, and a 2020 digital trade pact between Singapore and Australia. Ideally, the IPEF would bar data-localization requirements that impede cross-border data flows, would give priority to privacy, and would guarantee equal treatment of foreign and local suppliers of digital services. This contrasts with China, which treats data as state property, restricts sharing of data across borders, and discriminates against non-Chinese suppliers at home and abroad. The IPEF could encourage closer integration between the U.S. and Asian tech industries by codifying which countries the U.S. considers safe partners for supply chains and joint ventures.

Yet in one key respect, the IPEF falls short. The U.S. is eager to reduce its, and the world’s, dependence on Chinese goods by shifting supply chains to friendlier countries, a trend dubbed “friendshoring.” But unlike the TPP, the IPEF doesn’t really encourage such diversification, because it doesn’t expand access to the U.S. market, a priority of poorer countries.

For example, Indonesia wants to more than double per capita income to $10,000 by 2038, trade minister

Muhammad Lutfi

said in an interview in Davos. To do so, it needs to move up the value chain, from commodities to manufacturing.

“Ten years ago, we weren’t in the position to manufacture 1 million cars per year. Now we are,” Mr. Lutfi said. “We’re going up the value chain to lithium batteries and electric vehicles. I want Indonesian cars to be driven in the United States.”

A decade ago, Indonesia wasn’t interested in the Trans-Pacific Partnership. It might be if the TPP were on offer today, Mr. Lutfi said. The TPP combined the stick of U.S. standards on labor and the environment with the carrot of access to the U.S. market. By contrast, the IPEF is “about norms and standards without market access. It’s a stick and a stick, it’s not a stick and a carrot.”

Indonesia is upbeat about the IPEF, in part because it shows the U.S. re-engaging economically in the region after years of absence under Mr. Trump. Mr. Lutfi said infrastructure and technology transfer are critical to Indonesia’s growth. Right now, he noted, China provides both, such as in smelting and mining. As Indonesia moves up the value chain, more could come from the U.S. If access to U.S. technology also entails coordinating with the U.S. on export controls, that could be up for negotiation, he said.

But closer ties to the U.S. can’t come at the expense of its ties to China. “We believe in promoting collaboration for as long as there is no discrimination against any country,” Mr. Lutfi said. He cites the 10-member Association of Southeast Asian Nations, of which Indonesia is a member, as a model: It puts “prosperity ahead of strategic and security issues,” and promotes “democracy but not at the expense of our unity.”

Mr. Lutfi notes the U.S. used to open its markets so that other countries could become more democratic and prosperous. Indonesia, he noted, is now democratic. “Now we have 270 million mouths, we’re very loud, and to feed them, we need to go up the value chain. If we don’t, we fail, and our democracy fails.”

Write to Greg Ip at [email protected]