The Indo-Pacific Economic Framework (IPEF) and the decline of US Leadership

The Indo-Pacific Economic Framework (IPEF)

Having first been conceived in October 2021, and launched in May 2022, the United States (US) Trade Representative Katherine Tai and Secretary of Commerce Gina M Raimondo hosted counterparts from the 13 Indo-Pacific Economic Framework (IPEF) for prosperity of partner countries¹ representing over 40 percent of the global economy and 28 percent of global goods and services trade – at the first official in-person Ministerial meeting on September 09, 2022. Previously in May and July 2022, virtual ministerial were held. According to Ambassador Katherine Tai, “This meeting was a chance to deepen our partnerships and fill in the details about how we will work collectively to address the challenges and exploit opportunities that will define the 21st century.”² Furthermore, this meeting was an opportunity to show that the IPEF can deliver concrete and tangible economic benefits for partner countries while pursuing an inclusive and high standard framework at the same time, according to Secretary of Commerce Gina M Raimondo. The ministerial discussions by the IPEF members are conducted under IPEF pillars that are Trade, Supply Chain, Clean Economy and Fair Economy. The framework is flexible as members can choose to participate in any of the pillars according to their discretion.

The stated strategic objective of this new initiative is “In order to prepare our economies for the “future”, we are launching the process to establish the Indo-Pacific Economic Framework for Prosperity.”³ Its objective includes establishment of ‘peace’ and ‘stability’ in the Indo-Pacific region along with contribution towards cooperation, prosperity, development, technical assistance and capacity building.⁴ In the arena of ‘trade’, the IPEF seeks to craft high-standard, inclusive, free, fair and open trade commitments that build upon the rules-based multi-lateral trading system with World Trade Organisation (WTO) at its core.⁵ However, given that not all participating nations share comparable economies, the IPEF is committed to considering flexibilities where appropriate. Due to the disruption caused by the COVID-19 pandemic on global supply chains⁶, a particular emphasis has been laid on the need to ensure secure and resilient supply chains and to minimise disruptions and vulnerabilities.⁷ An emphasis has been laid on ‘crisis response’ and ‘critical sectors’ to ensure a reliable supply of goods and related essential services. Furthermore, the IPEF seeks to strengthen measures to identify, trace and recover proceeds of crime, strengthen anti-money laundering and countering the financing of terrorism frameworks and their enforcement.⁸

Role for the US in the Indo-Pacific Region

The IPEF is not founded on any radical new foundation or philosophy and much of the initiative being articulated is founded on already established multilateral frameworks such as World Trade Organisation (WTO), Paris Agreement, International Labour Organisation (ILO), United Nations Convention Against Corruption (UNCAC), OECD/G20 Inclusive Framework on Base Erosion of Profit Sharing and OECD Anti-Bribery Convention. The IPEF is not just limited to economic domain and spans into international politics and security – QUAD. It is safe to assume that IPEF is an initiative that aims to sustain a continuing role for the US in the Indo-Pacific region and this was made clear in the remarks made by President Biden and Prime Minister Kishida Fumio of Japan at the Joint Press Conference held a day prior to the QUAD Summit on 23 May, 2022 – “Engagement in the Indo-Pacific by the US and especially in the economic order, is becoming ever more important. Japan welcomes the launch of the IPEF – by President Biden and will participate and cooperate in this initiative. Having said so, Japan hopes to see the US return to the TPP from a strategic perspective.”⁹ Both Japan and the US hope to create a major global trend of common economic policies among major countries as per Japan’s proposal on “new form of capitalism” in an era described as “the end of the post-Cold War era.”¹⁰ Furthermore, as stated by Prime Minister Kishida Fumio in May, 2022, “Even with the TPP, it is important that we proceed with discussions on IPEF”. As a ‘strategic mean’, IPEF is designed to strengthen the weakening model of “liberal democracies” with capitalism as its basis for socio-economic development. The BRICS group of nations, for example, rejects this “one size fit all” model and seeks reforms in both economic and political domains of global governance.

Furthermore, the IPEF is founded on a certain ‘threat perception’ – “China right now in the Indo-Pacific region is demonstrating significant economic presence. That is true, but look into the substance of their presence. Are they abiding by international rules? What about development finance? Are they carrying about sustainable initiatives? They have to do that because they are a major power. They have significant responsibility. Even in the economic field, they have to live up to that responsibility” said Prime Minister Kishida Fumio on May 23, 2022.¹¹ With ‘security’ being at the core of US strategic perspective in engaging with the Indo-Pacific region, the IPEF represents the economic dimension of the US Indo-Pacific Strategy.¹² This strategy aims in particular to address the ‘PRC’s harmful behaviour where the People’s Republic of China (PRC) is combining its economic, diplomatic, military and technological might as it pursues a sphere of influence in the Indo-Pacific and seeks to become the world’s most influential power.¹³ In sum, the announcement marks the beginning of the evolution of a rule-based economic framework for the region, given that for a long time, discussions on the Indo-Pacific have been dominated by and limited to security issues.

The success of initiatives such as the IPEF is measured by the extent to China is able or unable to transform the existing rules and norms that have benefitted the Indo-Pacific and the world. In this regard, one of the core objectives of the US-led Indo-Pacific strategy is to ensure Indo-Pacific governments can make independent political choices free from coercion. China, on the other hand, has interpreted the US initiative of IPEF as an effort directed towards protectionism as against free-trade and is aimed at economic decoupling, technological blockade and industrial disruption thus aggravating the supply-chain crisis. According to Wang Yi, “If the IPEF becomes a political tool for the US to safeguard its regional economic hegemony and deliberately exclude specific countries that would be a wrong way to go.

The US is politicising, weaponising and ideologising economic issues and using economic means to coerce regional countries to choose sides between China and the US.”¹⁴ The US now denies exports to China of any chips that perform above a certain threshold, prevent any American citizen, green-card holder or company that does not have a license to do so from working with any Chinese company to manufacture chips. The new rules restrict the use of American tools, equipment or software anywhere in the world to manufacture and export advanced chips to China.¹⁵

The Expanding Role of the IPEF

In terms of conceptualisation, the IPEF is a ‘strategic means’ to strengthen the US’ role and build collective capacity with allies and partners through deepening the US economic integration with and within the Indo-Pacific. The constant references to terms such as ‘high-standards trade’, ‘supply-chain resilience and security’, ‘governance of digital economy’, ‘transparency’, ‘corruption’, ‘sustainable development’, ‘freedom from coercion’ and ‘free, fair and open’ is directly aimed at countering China’s growing economic influence in the Indo-Pacific region that challenges the existing norms of conduct. From a political perspective, IPEF resembles block politics and is aimed at preserving and continuation of global domination by the US.

According to Russian Foreign Minister Sergey Lavrov (2023), “The NATO is not limited to organising life on the European continent. NATO’s Madrid Summit declared that the military bloc had a global commitment, specifically in relation to the Asia-Pacific region, which they call the Indo-Pacific region”. The IPEF represents the economic foundation of this vision. Given that new centres of economic growth are emerging, the US-led alliance is attempting to exploit the mechanisms created to service its interests within the globalisation framework it created. More specifically, the West is creating a bloc architecture against Russia and China, by systematically dismantling existing mechanisms and format of cooperation centered on ASEAN group of nations which is based on equality, consensus and a balance of interests.¹⁶ The IPEF includes all ASEAN members excluding Cambodia, Lao PDR and Myanmar who are part of the RCEP which includes China and hence deviates from the so-called ASEAN centrality.¹⁷ However, as per the US Indo-Pacific strategy, “…. will also work through the World Health Organisation (WHO), the G7, the G20 and other multi-lateral fora to strengthen preparedness and response…. advance our resilience efforts in close coordination with ASEAN, APEC, the Pacific Islands Forum (PIF) and other organisations.”¹⁸

The IPEF is further founded on the assumption that Indo-Pacific is the ‘centre of gravity’ of the global economic system. From a US strategic perspective, extensive influence and control over vast resources of the Indo-Pacific by any one nation is a direct threat to its national security and global leadership – geo-political thought.¹⁹ Previously, the US resorted to use or threaten to use of military power in case of Germany and Soviet Union to thwart their domination of Europe in the preceding century for this reason. According to Ashley Tellis, after the Second World War, the US established an international political and economic system that was by design aimed to protect its national interest and coincidentally also created stakeholders in Europe and the Asia-Pacific who benefitted from it.²⁰

The economic development of the nations in the Asia-Pacific region is inextricably linked to the world trading system led by the West. China’s rise, unlike the rise of erstwhile great powers, is unique since its rise occurred within the international – political and economic system established and defended by the US-led West – an open market system for the US and its allies with shared values of capitalism, democracy, and human rights. The assumption behind the US initiative to incorporate China into the liberal trading system created by the West was that China will adopt Western democratic values and thus be favorable to its interest in long-term and in short-term, aid in dealing with the Soviet-led Warsaw pact. However, this assumption fell flat with China’s rise being directed towards its nationalism, national rejuvenation and China-centric regional order to begin within Indo-Pacific and thus ruining the US strategic expectations and calculations. Multil-ateral initiatives such as BRICS, Belt and Road Initiative (BRI), Shanghai Cooperation Organisation (SCO), New Development Bank (NDB), Global Security Initiative (GSI), Asian Infrastructure Investment Bank (AIIB) are either aimed at reforms or fill-gaps in the West-led international system.

China’s Role in the Global Economy

The PRC harbours the intention and, increasingly, the capacity to reshape the international order in favour of one that tilts the global playing field to its benefit, even as the US remains committed to managing the competition between our countries responsibly.²¹ Initiatives such as the Indo-Pacific Quad, the Indo-Pacific Economic Framework and the Americas Partnership for Economic Prosperity, seek in particular, to restore the eroding influence of the US in the Indo-Pacific region due to China’s growing economic power and the political influence that comes along with it. China’s economic rise materialised due to free and open access to liberal world economic system maintained by the US and in particular, access to the US market itself.

The dynamic strength of China–US trade relations entered a crisis and was consciously de-stabilised by the Trump administration and is being continued by a bi-partisan support within in the US Congress. The US is in firm belief that China’s politico-economic rise inevitably challenges US hegemonic status within the international system. However, whether this will end in a conflict remains unknown – the Thucydides Trap.²² China, on the other hand, believes that such a trap does not exist and argues otherwise calling for normalcy in the relationship under agreements consequential and critical to the strategic stability and non-repetition of history.²³

The PRC government may be using trade coercion and protectionism under an assumption that markets will remain open to China regardless of China’s policies and practices. China has adopted a trade posture that seeks to open global markets and set standards in digital trade and emerging technologies, while restricting foreign firms in these sectors in China. China’s government plans prioritise its ability to set global trade rules, extend the global reach of its legal, IP, digital and anti-trust authorities and counter US policy actions with its counter-measures.²⁴

As geo-political rivalry between the US and China intensifies, the US strategy of containment as practised against the Soviet Union and expounded by the realist school during the Cold War years, cannot be executed against China.²⁵ Despite a bi-partisan support in US Congress to de-couple US-China commerce, in 2022, record trade of around $760 billion was registered.²⁶ The US-led alliance, friends and partners alike have high-stake economic interdependence with China. For example, for the QUAD group that is the US, Japan, Australia and India, China is the largest trading partner with the balance of trade in her favour.

Trade with China was apparently hit by its strict “zero-COVID” policy, leading to major supply-chain disruption and it is also China’s economic normalisation after the pandemic which will support world economic growth. Japan’s trade deficit alone plummeted to more than double to ¥5.83 trillion in 2022, indicating the challenges offered by an integrated world economy while attempting containment strategies.²⁷

A key to restoring domestic political support for US leadership of the multi-lateral trading system is to reframe that leadership in terms of strategic competition with China around the rules and norms of the global economy. Effective US leadership of the multi-lateral trading system would not only promote US foreign policy objectives such as prosecuting its strategic competition with China, but would also discipline US domestic economic policy in ways that better serve its economic interests. It also provides a rules-based framework to manage trade frictions arising from climate mitigation under the Paris Agreement and growth in the digital economy.²⁸

The Way Forward for India

It is within this context of world economic system that emerging economies such as India need to draft their policies and make choices. In his address to the third Atal Bihari Vajpayee Memorial Lecture Series, Ambassador Bilahari Kausikan underscored the non-availability of the option of binary (either-or) decision-making for countries in the Indo-Pacific. While the geo-political and geo-strategic rivalry between the US and China is a fact, it is unlike the days of 20^th century Cold War between the US and the Soviet Union.²⁹ Both the US and China are an integral and key component of the in-vogue world economic system and are inextricably linked.³⁰ Hence, it is unlikely that China will contest the foundations of this economic system which has benefitted its economic rise so far. It is almost impossible for countries in the Indo-Pacific to choose between the US and China who differ in their philosophies regarding the governance of both domestic and global economic system.

Economic Complexity Index (ECI)³¹

Hence, in order to analyse India’s choice-making within this new emerging reality of international economics and politics, it is worthwhile to revisit the world system theory as expounded by Immanuel Wallerstein in the 1970s and acknowledge India’s position within this world system and explain. Prima facie, India’s decision-making is both binary and non-binary given that India walks on the edge by being part of various multi-lateral forum/institutions, which at times, may seem contradictory to observers. It is a matter of ‘complex’ choice-making for India where myriads of factors play a role, the foremost of these being its ‘normative economics’ and the ‘structure of Indian economy’. In hypothesis, India seeks to promote itself to the core of the world system from semi-periphery by maximising its cooperation with all and minimising antagonism that may halt its progress towards the core of the modern world system which is the capitalist world economy.

Conclusion

Initiatives such as IPEF seek to preserve core components of the ‘Modern World System’. The theory of ‘Modern World System’ expounded by Immanuel Wallerstein in the 1970s, which incorporated the ‘Dependency’ theories put forward by under-developed countries in Latin America which in turn was a reaction to modernisation theory according to which all societies progress through similar stages of development. India rejects this “one-size fit all” model of development, but does not hold up multi-lateralism. A modern world system can be world empire or world economy. When the world economy disintegrates as a system to become dysfunctional, it reorganises itself as a world empire.

According to Wallerstein, the in-vogue capitalist world economy was established by the Western European powers in last five hundred years and it adheres to a capitalist mode of production – endless accumulation of capital and profit. This capitalist world economy is now facing a ‘structural crisis’ and js painfully paving the way for a better system to replace it. The structural crisis is caused due to three key preferences of capitalism – reduction in cost of labour, production and taxes.

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At some point, it is no longer feasible to control these costs and capitalists lose interest in capitalist mode of production as capital accumulation is no longer possible. The era of distribution of supply chains at global level or globalisation, was an attempt at the systemic level to control these costs related to labour, production and taxes. According to Wallerstein, this term is soon becoming obsolete and the era of globalisation as we know it, is coming to an end. Decline of the US leadership within the modern world system and counter-measures to preserve it or transcend to a new system while carrying its core values, is perhaps resulting in multilateral frameworks such as IPEF.

Endnotes

1.IPEF Members include: United States, Australia, Brunei Darussalam, Fiji, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Viet Nam.