Midterm vote in the United States could affect the fate of the Indo-Pacific economic framework

With the US-led Indo-Pacific economic framework evolving as a loose economic cooperation initiative, President Joe Biden appears to have managed to avoid politicizing trade at home ahead of November’s midterm elections.

But depending on the outcome of the election, when congressional control hangs in the balance, the Democratic president could take an “ambitious” business approach and work to make the fledgling IPEF initiative a more substantial regional economic engagement in the world. amid China’s growing influence, say some trade experts.

Just two months before the Nov. 8 vote, U.S. Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo were in Los Angeles with officials from 13 IPEF partners, including Japan, India and some of the countries. Southeast Asia, touting how the framework would fuel economic activity. and investments throughout the region.

The IPEF, launched in May, seeks to deepen cooperation among member countries in the areas of trade, supply chains, clean economy and tax and anti-corruption rules.

Participants of a US-led Indo-Pacific Economic Framework ministerial meeting pose for a group photo in Los Angeles on September 8, 2022. (Kyodo)

But the Biden administration has ruled out negotiations to deliver greater access to the U.S. market through tariff cuts, leaving the benefits for participating economies largely vague.

Still, Biden can consider his broad-based approach to trade issues a “success” so far, in the sense that he hasn’t faced a strong backlash from Republicans and Democrats on sensitive liberalization issues. of commerce, said Gary Hufbauer, principal investigator at the Peterson. Washington Institute of International Economics.

Trade policy is not a big item on the medium-term agenda… It’s kind of at the bottom of anybody’s list, and that’s where they want it,” said said Hufbauer, a former Treasury Department official.

In traditional free trade agreements, lower tariffs typically serve as a “carrot” offered by Washington in exchange for higher standards related to intellectual property, labor rights, the environment and other issues. But fear persists in the United States that past free trade agreements have led to the relocation and erosion of jobs in the United States.

The IPEF was largely welcomed by Indo-Pacific countries as a sign that the United States is seeking to reassert its economic leadership in the region following the country’s 2017 withdrawal from the Partnership Free Trade Agreement. transpacific under then-Republican President Donald Trump. .

Biden apparently decided to launch IPEF as an alternative to joining the unpopular TPP, renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, while showing “some response to China,” Hufbauer said.

Trump won the 2016 election largely because he carried states into the declining industrial zone known as the “Rust Belt.” He appealed to working-class white voters by speaking out about their disaffection with globalization and free trade agreements, departing from the orthodox pro-trade Republican stance.

Biden defeated Trump in the 2020 election, but he essentially followed his predecessor’s protectionist trade policies, including maintaining punitive tariffs on China that were imposed to address US concerns over alleged unfair trade practices by Biden. Beijing.

Whether the midterm elections will become a turning point in Biden’s trade policy and approach to IPEF remains to be seen.

The Democratic Party has a narrow majority in the House of Representatives. The Senate is split evenly, but Democrats hold the majority due to Vice President Kamala Harris’ decisive vote. The incumbent’s party tends to lose seats mid-term, which is generally seen as a referendum on the incumbent leadership.

If the Democrats surprisingly retain control of the House as well as the Senate in November, it is expected that the IPEF talks under the Biden administration will be “just talks” and “nothing more” in order to not to risk annoying the progressive wing of his party who are “very protectionist”, Hufbauer said.

But if Republicans win the House, Biden could “very well take a more ambitious approach,” Hufbauer said, citing Trump’s predecessor Barack Obama, who pushed hard to make the TPP a key part of his presidential legacy. after Democrats suffered a major setback. in the midterm elections in 2014.

“If the Republicans take the House, he’ll be on the defensive against any legislation. So why not turn to foreign affairs? That’s what Obama did,” the trade expert said.

“Biden … could really try to do something about this IPEF and he might even be willing to talk about market access, even though he won’t have the power to commit to market access because ‘ it will not have the Trade Promotion Authority in either scenario.”

The TPA is a power granted by Congress to the president to negotiate international trade agreements with limited interference from lawmakers. The Biden administration let it expire in July last year without asking for a renewal.

Gabe Horwitz of Third Way, a center-left think tank in Washington, said Biden’s stance on trade policy could be hurt if Republicans take control of one or both houses of Congress, but the question will be “what type of Republicans will win”.

“On the one hand, there are Republicans who are loyal to Trump, mostly avoid increased global ties, and are more focused on subverting American democracy than building. On the other hand, there are Republicans who want to help businesses in a more traditional sense,” said the group’s senior vice president of economics program.

While acknowledging that market access is important to galvanizing trade, Horwitz said that exclusion from negotiations on tariff cuts does not necessarily mean that IPEF cannot become “a meaningful initiative”.

A report published by Third Way in July showed that increasing trade facilitation, for example by simplifying customs procedures, in the East Asia and Pacific region alone could result in savings of 24, $1 billion for US exporters. Excluding China, US export cost reductions in the region were estimated at $12.3 billion.

But Hufbauer warned that the US currently has “nothing to say” to China if it sticks to the current trade approach of not discussing market access, with Beijing already on board. of a mega free trade agreement involving 14 other Asia-Pacific countries, including Japan and members of the Association of Southeast Asian Nations.

“My view is that the president after Biden – whether it’s a more traditional Republican or a middle-of-the-road Democrat – will probably rethink all of this market access, this traditional trade and bring the discussion of IPEF to merge with CPTPP. But that won’t happen until 2025,” he said.

Related coverage:

Indo-Pacific countries agree to start negotiations on economic initiative

Indo-Pacific ministers to launch talks for new economic initiative

Indo-Pacific ministers to boost regional supply chains: Japan

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