E-Paper
The US sees IPEF as the beginning of globalisation 2.0 based on resilience
US Trade Representative Katherine Tai said that trade liberalisation had taken the world to a point where firms had been given the incentive to chase efficiency - so minimising your costs and maximising your efficiency was the only priority
LOS ANGELES: The Indo-Pacific Economic Framework (IPEF) is not a free trade agreement and this has been widely viewed as its biggest weakness. It has led to befuddlement about what the pact represents if it doesn’t involve market access and scepticism about whether the arrangement has any substance, or is merely a symbolic American attempt to take on China’s growing economic influence in the Indo-Pacific.
But the US administration believes that the fact that IPEF does not resemble a traditional free trade pact is, as national security adviser 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 a way that it did not feel five to seven years ago - from Brexit to Donald Trump’s presidency, from the pandemic to the war in Ukraine, events compressed over a short period of time have forced countries to re-examine their economic policymaking on trade.
Tai said this did not mean that trade openness had not been successful. “Trade liberalisation programme has been very successful in many ways. It has brought this version of globalisation. It has increased the pie.”
But, she said, they were now seeing “the limits of the programme”.
“Over the course of the growing of the pie, it does feel like inequality is on the rise - not just in the US but similar sensitivities that economic policymakers in other countries are grappling with. Growing the pie doesn’t mean that there is more pie to be had by everyone. There are concentrations on where the pie is.”
Tai said that trade liberalisation had taken the world to a point where firms had been given the incentive to chase efficiency - so minimising your costs and maximising your efficiency was the only priority.
“I think that one lesson we are learning is that efficiency has created a fragile global economy we are contending with. 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 their economic decisions. If we are working towards a version of globalisation more resilient to global shocks, it is about figuring out with our partners and allies how to pursue a set of goals that will result in a more resilient version of globalisation.”
When asked if the US was feeling left out - it is not a part of the mega trading arrangements in Asia - Tai said she didn’t feel left out because she did not think anyone had cracked that nut yet, of creating this resilient globalisation.
“We as United States have to be at the cutting edge to figure out how do we deploy the more traditional tools, including trade liberalisation, to harness them towards the larger purpose of resilience and sustainability and treatment of our workers and people. How do we work towards a prosperity that is more inclusive?”
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? Is the US in a bind?
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. We were carved out of the state department because Congress wanted to ensure that deals we were striking for foreign policy reasons which had significant domestic economic impact were going to be informed by a more economic deal making perspective…It is always finding that balance.”
And this new balance, according to Tai, is a globalisation 2.0 vision. “I wouldn’t say globalisation 1.0 is over but we need to evolve globalisation to be resilient and responsive to current challenges.”
But what both necessitates and complicates this balancing act is China and Washington’s not just competitive but now adversarial relationship with Beijing.
The China challenge and rethink
Describing the US-China trade relationship as one where two teams had come to play football - but one was playing American football while the other was playing 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”.
“We don’t have that. The Chinese have pursued a model different from ours. It has been for a long time our perspective that we just keep putting pressure on China, some combination of carrots and sticks, dialogue and enforcement and we can bring China along.”
But in the last 10 years, Tai said, there had been an “awakening” to the fact that China was pursuing its own policies and own perspective. And this had led to a change in American approach now.
“What this means is that we talk about the turning the page of the old playbook and approaching the China differently. Until the day the China chooses a path to have its economy more like ours, we need to see we can have effective tools in ensuring that we can continue to compete and we can allow our economy can thrive on principles it is built on - that is a combination of tariffs that are in place and other policy accomplishments that US has made over the last year and a half in terms of making investments in US and American competitiveness.”
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, in the American assessment, 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 had signed up for it showed that America’s partners wanted the US in the region.
“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 for our economies and for the region. It is about bringing along these sets of partners with us in the work in involving a globalisation that has been based on market access and competition into one that doesn’t just prevent race to the bottom but promotes a race to the top.”
The LA ministerial summit is to lay the foundations of this road map of globalisation 2.0.
