US hopes IPEF meeting kicks off globalisation 2.0
The United States (US) administration believes that the fact that IPEF does not resemble a traditional free trade pact is, as national security advisor Jake Sullivan put it in a briefing in May, a “feature of IPEF, not a bug”.
The Indo-Pacific Economic Framework (IPEF) is not a free trade agreement and this has led to befuddlement about what the pact represents if it doesn’t involve market access, and has invited scepticism about whether the arrangement is merely a symbolic American attempt to take on China’s growing economic influence in the Indo-Pacific.
But the United States (US) administration believes that the fact that IPEF does not resemble a traditional free trade pact is, as national security advisor Jake Sullivan put it in a briefing in May, a “feature of IPEF, not a bug”.
But is that merely spin given the US’s inability to enter a trading arrangement in the region due to its domestic political fractures? Or have these domestic political fractures led to a reset in the way the US views globalisation itself? A clue to the American thinking on trade in general, and IPEF in particular, came from US Trade Representative Katherine Tai who spoke at a Carnegie Endowment platform on Wednesday on the eve of the first in-person ministerial IPEF summit in Los Angeles.
The limits of globalisation 1.0
Tai began by acknowledging that the global economy was fraught in the last five-seven years when events — from Brexit to Donald Trump’s presidency, from the pandemic to the war in Ukraine –compressed over a short period forced countries to re-examine their policymaking on trade.
Tai said this did not mean trade openness had not been successful. “Trade liberalisation programme has been very successful. It brought this version of globalisation. It increased the pie.” But, she said, they were now seeing its limits.
“Over the course of the growing of the pie, it does feel like inequality is on the rise — not just in the US but economic policymakers in other countries are grappling with similar sensitivities. Growing the pie doesn’t mean that there is more to be had by everyone.”
Tai said trade liberalisation gave firms the incentive to chase efficiency, making minimising costs and maximising efficiency the only priority. “The idea isn’t to abandon efficiency but it is not the only incentive through the rules we are creating.”
Incentivising resilience
The idea now, according to America’s top trade negotiator, was “incentivising resilience”.
“This means incentivising firms and economic participants to factor in risk when they are making economic decisions. If we are working towards resilience to global shocks, it is about figuring out with our partners and allies how to pursue goals that will result in a more resilient globalisation.”
When asked if the US was feeling left out — it is not a part of the mega trading arrangements in Asia — Tai said that was not the case because she did not think anyone had cracked that nut of resilient globalisation yet.
Trade deals versus domestic politics
But how does the US do that when allies and partners seek greater market access, and domestic politics deters any move that could be seen as eroding jobs?
Tai said, “I don’t see it as a bind. It is always the case. We exist in an uncomfortable tension point between different powerful forces. Trade policy sits at the intersection of foreign policy, national security policy and domestic economic policy. …It is always finding that balance.”
And this new balance, according to Tai, is a globalisation 2.0 vision.
The China challenge and rethink
Describing the US-China trade relationship, which has become adversarial over the years, as one where two football teams play different versions of the game—one American football and the other soccer — Tai said what the US wanted from China was for the Chinese economy to operate like that of the US, “along the assumptions and norms embodied in the World Trade Organization, which is open, market based, with a pretty clean separation between government and State and market and economy”.
But in the last 10 years, Tai said, there had been an “awakening” to the fact that China was pursuing its own policies and perspective.
The US approach will now be based on a combination of “defence and offence” in order to compete.
The IPEF rationale
And this is where the IPEF fits in — with its four pillars of trade, supply chain, energy and infrastructure, and anti-corruption and taxation. Tai claimed the fact that 13 other countries signed up for it shows that America’s partners wanted the US in the Indo-Pacific.
“What we are really trying to do is to establish rules to create work streams that will allow us to together to create sustainability, resilience and inclusive prosperity.”
