Biden´s Asia tour, IPEF and the strength of the US $
As Biden seems to be occupied with Russia and the Ukraine war, he also wants to demonstrate that the USA still has not forgotten the Indo-Pacific and Asia, even when his santion front against Russia is not finding as many partners in Asia, Africa and Latinamerica as in the rest of the West Therefore he is touring Japan and South Korea and had an virtual meeting with the ASEAN states. However Biden only offered a 150 million US $for the ASEAN which in itself is peanuts and not a very strong incentive to strengthen US-ASEAN ties. However afterwards Biden has now the ASEAN and other Indo- Pacific states a so called Indo-Pacific Economic Framework (IPEF). As Trump cancelled the free trade agreement TPP and the America first economicic protectionism and nationalism is still pretty strong in the USA, a new TPP seems unliely. But however, Biden wants to offer some alternative as China beyond its New Silkroad launched the RCEP and the USA seemed to be kicked out economically and in free trade terms out of Asia.
However Bidens IPEF is not a trade agreement, offers no real tariff reductions, but focuses more on common new standards in 4 main areas and it is more about investment than about trade. Some also compare IPEF more with the structure of the OECD. An Asian commentator summarized IPEF as follows:
“US playing catch-up as China keeps hold on trade dominance in region
May 23, 2022, 5:00 AM SGT
BEIJING/WASHINGTON – The United States and China are locked in a battle for influence in South-East Asia, home to more than 660 million people and the fifth-largest economy in the world.
US President Joe Biden will unveil his administration’s long-awaited Indo-Pacific Economic Framework (IPEF) on Monday (May 23), as part of efforts to step up Washington’s economic engagement with Asia.
But it points to the stark reality that when it comes to economics and trade, America has some catching up to do with China.
Over the years, China has cultivated considerable economic links with Asean – which sits on its doorstep and covers key trade routes – and has leapfrogged the Americans‘ economic dominance in the region.
At the turn of this century, US trade with Asean stood at US$135 billion, more than three times China’s US$39.5 billion. As at last year, China’s trade with Asean was US$878 billion (S$1.2 trillion), more than double US trade with the bloc at US$380 billion. This makes Beijing Asean’s largest trading partner – a status it has held for 12 consecutive years since 2009.
How deep is China’s trade foothold?
In terms of goods, China is the top trading partner of all Asean countries except Laos and Brunei.
China’s massive market of 1.4 billion people is soaking up imports – everything from liquefied natural gas to electronics.
Asean’s market is also a major destination for Chinese goods, particularly with a middle class that is projected to grow to make up two-thirds of the region’s population by 2030.
Dr Sarah Tong, senior research fellow at the National University of Singapore’s East Asian Institute, said trade between China and Asean has more than doubled in the past decade and almost quadrupled since the Asean-China Trade in Goods Agreement came into force in 2005.
„In recent years, as China faces growing domestic and external challenges to sustain future development, deepening economic relations with regional partners has become even more important,“ she said.
And South-east Asians themselves perceive China to be the economic giant in the region.
„China definitely has more momentum in the way that it is engaging with Asean,“ said Dr William Choong, a senior fellow at the ISEAS – Yusof Ishak Institute, citing a survey published by the institute earlier this year where 76.7 per cent of respondents said China was the most influential economic power. „There is a perception that the Americans are lagging behind China, and I think that it’s a big gap to close.“
Where do the US and China stand in investment?
Investimento is where America has the advantage for now.
It is Asean’s top investor, with its foreign direct investment (FDI) stock at US$328.5 billion in 2020. American firms invested US$35 billion into Asean in 2020, compared with China’s US$7.7 billion that same year, according to the Asean Stats data portal.
America’s direct investment in Asean is led by non-bank institutions that provide financial services. The US also invests heavily in manufacturing and wholesale trade in Asean.
Part of these trade and investment disparities arise from differences between the US and Chinese economies, said American Enterprise Institute senior fellow Zack Cooper.
For instance, he said, exporting to South-east Asia can be difficult for many American sectors because of the long distances involved. US products in some categories will be expensive for Asean, compared with Chinese goods.
Said Dr Cooper: „So much of the US economy is really built around finance and investing. I think it’s natural for American investment to be a far larger portion of US activity in the region than it would be for China.“
The investment gap is not quite as wide if FDI figures from the mainland are combined with Hong Kong’s. In 2020, this amounted to about US$28 billion, based on figures from Beijing and the Hong Kong Trade Development Council.
And in some Asean states such as Cambodia and Laos, FDI from China has been the largest source of investment for consecutive years, based on data from the Asean Investment Report last September.
The report noted that investment from China has been rising steadily, from an annual average of US$6.9 billion from 2011 to 2015, to an average of US$11.5 billion per year from 2016 to 2020 – an increase of about 67 per cent.
Chinese investment in key sectors such as construction and IT services is growing rapidly, increasing by more than 250 per cent in 2020 from the year before to reach US$1.6 billion and US$656 million respectively, according to figures from Beijing.
Experts say this suggests China’s investments are targeted at what the region needs – towards infrastructure in developing nations, and IT services like data centres.
Beijing is also building mega infrastructure projects, such as ports and high-speed railways, in Asean nations – something the US simply will not match.
Said Dr Cooper: „There’s a fundamental asymmetry here, which is that the US doesn’t determine what its private sector does.“
Unlike in China where the government has more involvement in and leverage over Chinese businesses, America’s private sector is largely driven by assessments of expected returns on investment and risk profiles, he said. The most that any US administration can do is roll out incentives to encourage companies to invest somewhere.
„The US government is never going to be able to announce billions and billions of dollars in new US government-driven investment in South-east Asia… But that doesn’t mean that every day, there aren’t hundreds of US companies looking to invest in the region,“ he said.
Stimson Centre senior fellow Yun Sun also noted that China’s state-dominated approach is not a model that the US can offer.
„For avid South-east Asian observers, this might be a reality they have to reckon with. The US and China each has its own comparative advantage in economic engagement and broader relations with the region,“ she said.
The issue, as many analysts see it, is that Washington’s engagement with the Indo-Pacific region has been primarily focused on security, while Beijing is addressing bread-and-butter issues.
The US has strengthened partnerships to confront China, such as the Five Eyes intelligence-sharing alliance (Australia, Britain, Canada, New Zealand and the US), Quad (Quadrilateral Security Dialogue comprising Australia, India, Japan and the US) and Aukus security pact (Australia-United Kingdom-US).
It has grown increasingly worried about losing economic ground to China in South-east Asia, and successive administrations have spoken about America’s desire to deepen its engagement with the region.
But it still lacks a multilateral trade strategy in the region, and there is little appetite in Washington for free trade deals today.
Experts say trade arrangements will continue to propel the growth of trade between Asean and China, while America’s lack of involvement in the region’s multilateral deals will get in the way of deepening its economic ties with Asean.
In 2017, the US bowed out of the Trans-Pacific Partnership, which later became the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
In contrast, China is part of the Regional Comprehensive Economic Partnership, which counts the 10 Asean states, Japan, South Korea, Australia and New Zealand as members, and is estimated to boost global trade by almost US$500 billion annually by 2030.
Will Indo-Pacific Economic Framework help the US to catch up?
The IPEF will not be a traditional free trade deal with market access, which is arguably at the top of South-east Asian wish lists.
Instead, it will focus on the four „pillars“ of supply chain resilience, infrastructure and clean energy, anti-corruption, as well as fair and resilient trade, which includes the digital economy and labour standards.
Hinrich Foundation senior research fellow Stephen Olson said: „For most countries in South-east Asia, the Indo-Pacific Economic Framework will be seen as a poor consolation prize in place of what they really want: concrete market access commitments from the US.
„The agenda appears to be far more reflective of what the US wants, rather than what Asean wants.“
Ms Sun said countries in the region may find the four pillars difficult to take part in – for instance, the higher trade standards – or expensive, such as tackling corruption.
Analysts like Dr Choong say the IPEF will be a hard sell to less-developed states such as Cambodia and Laos.
„These countries want the meat and potatoes, and when it comes to free trade agreements, this means access to the US market and lower tariffs… without this market access, it’s difficult for Washington to bring something substantive to the table,“ he said.”
The Japanese newspaper Asashi Shimbum also voices some scepticism if Biden´s IPEF offer will fulfill the expectations of most Asian countries and China also sees an US attempt to divide the Asian countries and bring them in a united front against China for containment which as foreign minister Wang Yi and the Global Times claim to have no success:
“In Japan, Biden to launch economic plan for region skeptical on benefits
May 22, 2022 at 19:05 JST
President Joe Biden arrived in Japan on Sunday to launch a plan for greater U.S. economic engagement with the Indo-Pacific, facing criticism even before the program is announced that it will offer scant benefit to countries in the region.
On the second leg of his first Asia trip as president, Biden is to meet with leaders of Japan, India and Australia, the „Quad,“ another cornerstone of his strategy to push back against China’s expanding influence.
Biden meet with Japanese business leaders, including the president of Toyota Motor Corp., at the ambassador’s residence in Tokyo shortly after arriving, said a person familiar with the matter.
On Monday, he is to call on Emperor Naruhito before talks with Prime Minister Fumio Kishida. He and Kishida are expected to discuss Japan’s plans to expand its military capabilities and reach in response to China’s growing might.
Biden on Monday plans to roll out the Indo-Pacific Economic Framework for Prosperity (IPEF), a program to bind regional countries more closely through common standards in areas including supply-chain resilience, clean energy, infrastructure and digital trade.
Washington has lacked an economic pillar to its Indo-Pacific engagement since former President Donald Trump quit a multinational trans-Pacific trade agreement, leaving the field open to China to expand its influence.
But the IPEF is unlikely to include binding commitments, and Asian countries and trade experts have given a decidedly lukewarm response to a program limited by Biden’s reluctance to risk American jobs by offering the increased market access the region craves.
The White House had wanted it the IPEF announcement to represent a formal start of negotiations with a core group of like-minded countries, but Japan wanted to ensure broader participation to include as many Southeast Asian countries as possible, trade and diplomatic sources said.
Given this, Monday’s ceremony will likely signal an agreement to start discussions on IPEF rather than actual negotiations, the sources said.
LACK OF INCENTIVES
Beijing appeared to take a dim view of the planned IPEF.
China welcomes initiatives conducive to strengthening regional cooperation but „opposes attempts to create division and confrontation,“ Foreign Minister Wang Yi said in a statement. „The Asia-Pacific should become a high ground for peaceful development, not a geopolitical gladiatorial arena.“
Wang said the „so-called ‚Indo-Pacific strategy‘ is essentially a strategy to create division, a strategy to incite confrontation and a strategy to undermine peace.“
Some members of the Association of Southeast Asian Nations (ASEAN) could join the IPEF launch ceremony, an Asian diplomat said, but a Japanese Finance Ministry official said many in the region were reluctant because of the lack of practical incentives like tariff reductions.
„It seems the White House has decided to make the IPEF launch more like a party with an open bar that all are invited to, with the real work to start on Monday morning,“ said Matthew Goodman, a trade expert at Washington’s Center for Strategic and International Studies.
„Eventually the administration is going to have to offer more tangible benefits if it wants to keep countries on board.“
U.S. National Security Advisor Jake Sullivan told reporters on Air Force One that Taiwan would not be a part of the IPEF launch but that Washington is looking to deepen its economic relationship with the self-governing island.
On Tuesday in Tokyo, Biden will join the second in-person Quad summit.
The four countries share concerns about China, but the Quad as a group has avoided an overtly anti-China agenda, largely due to Indian sensibilities.
India’s strong security ties with Russia and refusal to condemn its invasion of Ukraine will likely prevent any strong joint statement on that issue, analysts said.
At their last summit in March, Quad leaders agreed that what has happened to Ukraine should not be allowed to happen in the Indo-Pacific – a reference to the threat posed to Taiwan by China, though Beijing was not mentioned by name.”
The Global Times even calls IPEF a “empty shell”:
GT Voice: IPEF may just be an empty shell as US can offer nothing concrete
By Global Times Published: May 24, 2022 11:08 PM Updated: May 24, 2022 11:05 PM
US President Joe Biden announced on Monday that its Indo-Pacific Economic Framework (IPEF) will start with 12 founding members – Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.
The White House touted that those countries account for about 40 percent of the world’s GDP, but the high-profile launch doesn’t obscure the fact that the US economic scheme, which reportedly covers supply chains, digital trade, clean energy, and anticorruption efforts, lacks specific content.
The US might be able to attract some economies to the IPEF with its seemingly ambitious pledges about digital economy and a new supply chain. However, when it comes to specific negotiations of rules, if the US cannot provide countries with practical benefits to really push for the establishment of a win-win mechanism, the IPEF will not lead to any concrete results.
It is no secret that the IPEF will be used by the US as an important geopolitical tool to contain China in the Asia-Pacific region, but the participation of the other 12 founding countries doesn’t necessarily mean they will be all sided with the US in „decoupling“ from China. To a certain extent, their participation in the IPEF is largely because they want to be engaged in the establishment of the new economic and trade mechanism from the beginning so as to have a greater say in the rule-setting for their own interests.
For instance, from the perspective of the seven ASEAN members, it is understandable that they hope to benefit from bigger market access, tariff elimination and other preferential trade policies through the new economic scheme, with the view of further promoting the development of their economies and industrial chains. But it is also important to note that most of the ASEAN members are at a different development stage from that of developed countries such as the US and Japan, resulting in a sharp division when it comes their respective requirements for standards in areas like digital economy, labor rights, market regulation, environmental protection, and anti-corruption. And it remains to be seen how the voices and interests of these developing countries can be assured during the detailed negotiations.
In this sense, the game between the US and the other 12 countries may have just started. US Secretary of Commerce Raimondo stated that the IPEF is to „make Indo-Pacific countries beyond China more attractive as manufacturing hubs,“ according to the South China Morning Post. But that raises a new question: since China is the largest trading partner for more than 120 countries, how can the US ensure the stability of the regional supply chain without China? Maybe that’s not the intention of the US at all, because supply chain chaos may actually create new opportunities for the US to bring back manufacturing companies.
However, most of the Asia-Pacific countries see the US as their major export market and China as their major supply chain partner, so they want to see their cooperation with the US under the IPEF could increase their chances of exporting their manufactured goods to the US – and not necessarily trying to hurt trade with China.
From the US‘ perspective, since Donald Trump’s administration, many in Washington blame multilateral free trade for US economic problems, including unemployment and a weakening manufacturing sector. With that protectionist sentiment continuing, the Biden administration is unlikely to give Asian countries more access to the US market.
In fact, if the US opens its market wider to Asian countries, its imports will increase, especially from China, because the Asia-Pacific supply chain is essentially intertwined closely with the Chinese industrial chain. Moreover, China is becoming a major export market for these Asia-Pacific countries, with even stronger demand compared with the US in some fields.
The bottom line is that the decline of American manufacturing has deprived the US of the ability to dominate the regional industrial chain to achieve its strategic goals. The IPEF can offer nothing to make Asia-Pacific countries compromise their massive economic ties with China just to appease Washington.”
However as China is not just offering the New Silkroad and RCEP and thereby development, but is also bullying a lot of its Indo-Pacific neighbours and alleged partners, as US investment is still pretty strong in the Indo-Pacific beyond America First slogans , the Global Times also thinks that the US effort “may” have no success, but is not sure if it “will” have no success.
Another important topic which is discussed in Asa and Europe economic circles at the time is the new strength of the US dollar, the rise of the the US interest rates and the weakening of Asian currencies and the value of the Euro. Despite Beijing´s expectation of the US decline, the USA and the dollar seems to be a safe haven at the moment, if not a new financial crisis or the formation of an alternative financial currency system due to the sanctions will emerge. Or as the Asia Times quotes Noxon´s former Treasury Sectretary: “The dollar is our currency, but your problem”:
“Dollar rally could signal trouble for Asia
Episodes of dollar strength over the past 25 years have often exposed the region’s underlying financial weaknesses
by William Pesek May 10, 2022
The US dollar keeps strengthening despite high inflation, a $30 trillion debt load and rising geopolitical risks. Image: Getty / AFP
TOKYO – It was Nixon-era Treasury Secretary John Connally who famously said the “dollar is our currency, but it’s your problem.” And doesn’t Asia know it 50 years on as the region witnesses the dollar skyrocketing in unexpected ways?
The US currency was supposed to be on life-support right about now. With inflation surging, Washington’s debt topping US$30 trillion, politics as polarized as ever and governments from China to Russia to Saudi Arabia searching for alternatives, it was almost certain to tank.
The opposite is happening as capital zooms out of the yuan and yen into greenbacks. This makes Connally’s 1971 maxim more relevant than ever. In fact, the gravitational pull toward the dollar now threatens to unnerve Asia’s biggest economies.
Over the last 25 years, episodes of dollar strength have often signaled trouble for Asia.“