At the recent Quad summit in Japan, the US announced an Indo pacific economic framework for prosperity (IPEF) which was joined by 13 nations of the Indo Pacific region: United States, Australia, Brunei Darussalam, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. Together these countries contribute 40% of world GDP. The main objective of the economic framework is to compete with China’s rising economic and strategic influence in the region and enable the US to take a leadership role in setting standards and rules in the emerging economic sectors, namely: the Digital and the technological economy and the Green economy. The US-led economic grouping aims to achieve resilience, fairness, and competitiveness in the economies of Indo pacific region.
“Indo-Pacific Economic Framework “The fact sheet by the President’s office elucidates the following goals:
a) Protection from the supply chain disruptions, which could have an adverse impact on inflation and make the region’s economies more resilient. This would require mapping of critical mineral supply chains and coordination on diversification.
b) The framework also focuses on the transition to clean energy by accelerating efforts towards renewable energy, energy efficiency and decarbonisation.
c) In the front of a fair economy, the grouping aims to cooperate on tax evasion, money laundering and corruption.
These issues are part of the low politics of international affairs as the Indo pacific states have been reluctant to take sides in the larger geopolitical competition between the two powers: China and the USA. The US aims to deepen cooperation with the countries in the region through these common areas of interest, which have broader bipartisan support within the US and even from the participant states. “Indo-Pacific Economic Framework”.
Examining IPEF as a foreign policy tool
US foreign policy has historically used coalition building tools to secure its interests since it adopted an internationalist role after a century-long isolationist foreign policy in the initial decades of the republic. Economic integration through trade thus became a primary focus in the post WW 2 era, which was secured through Bretton Woods Institutions and WTO (erstwhile GATT). The rise of China and the emerging economies in the 21st century created challenges to its free trade policy as countries of the Global South began to challenge the traditional economic advantage of the US economy, which began to have large trade deficits with China and the ASEAN. The adoption of regional trade agreements and bilateral treaties reflected this change. The four pillars of IPEF also deal with less contentious issues which enjoy bipartisan support, unlike trade deals that involve tariff reduction obligations.
Since Obama’s Pivot to Asia strategy, the US has shifted its focus from the Atlantic to the Asia Pacific as the region defined the shifting geopolitical and geo-economic realities. The trans-pacific partnership was central to Obama’s strategy, including the Indo pacific economic corridor. The TPP deal did not enjoy bipartisan support, and thus, Donald Trump rejected the coalition-building strategy of Obama and adopted a transactional approach to economic cooperation. However, Trump’s “Free and Open Indo Pacific strategy” did not find strong support from the region’s economies as it lacked strong incentives for the Indo pacific states.
Indo Pacific economic framework thus aims to bring back coalition building tools. It will enable the US to claim a leadership role in the Indo pacific region by setting up common standards and rules in the areas of the digital and green economy. It will also reduce the risks to its economy by focussing on supply chain diversification (offshoring). However, the US will face a strong challenge in the region because its economic interaction with the ASEAN countries is significantly less than China: China’s trade with ASEAN is $685 billion, whereas US trade is $362 billion.
However, the common set of standards for the four pillars of the connected economy, resilient economy, clean economy and fair economy will have to deal with diverging interests within the region.US has the potential to emerge as a source of green financing for the clean energy projects in the region. Thus it is a potential source of common interest for the thirteen-member states. However, the environmental standards could become a significant issue of contention if Washington dictates the region’s energy policies. Developing countries have to make a significant tradeoff between fossil fuel-based energy sources and clean energy sources, considering base load and grid stability issues.
Although the economic grouping is relatively flexible, it allows flexibility. It gives the option to join any of the four pillars of the connected economy: a resilient economy, a fair economy, and a clean economy. It will have to deal with the issues of data sovereignty and data localisation in which India’s position will be challenging to manage with the US’s policy of cross border data flows. Moreover, US policies on labour standards may not find partners in the region, especially ASEAN and India, moving towards flexible labour regimes.
However, the region can achieve deeper cooperation on the issue of a fairer economy as tax evasion is a significant challenge for the countries of the region. The US is the largest economy, and the grouping’s economic heft will allow possibilities of shaping a common goods regime on the issue. Although narrow national interests shape foreign policies, the US will have to be more flexible if it aims to lead such a diverse grouping with multiple arenas of completion and competition.
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