The launch of a new economic framework involving countries in the Indo-Pacific region on Monday touts an intertwining domestic and foreign policies, strengthening of ties between participating countries, and recalibrating American domestic policy to put the American families front and center of a major economic policy.
“We’re writing the new rules for the 21st century economy that are going to help all of our countries’ economies grow faster and fairer. We’ll do that by taking on some of the most acute challenges that drag down growth and by maximizing the potential of our strongest growth engines,” said U.S. President Joseph R. Biden at the Izumi Garden Gallery, Tokyo, Japan last May 23.
The Indo-Pacific Economic Framework, or IPEF, involves 13 countries: United States, India, Japan, Australia, Brunei, Indonesia, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam.
The Indo-Pacific region covers half the world’s population and more than 60 percent of the global GDP.
Under IPEF, the group will start new rules governing trade in digital goods and services “so companies don’t have to hand over the proprietary technology to do business in a country.”
In his remarks during Monday’s launch of the IPEF, President Biden announced that the framework will create a first-of-its-kind supply chain commitments to obviate bottlenecks to critical supply chains, by creating early warning systems so they can identify problems before they happen.
Also integral to plans of the IPEF is dealing with climate change head-on. “Let’s pursue other first-of-its-kind commitments to clean energy and decarbonization. The climate crisis is an existential threat that is costing us trillions in economic damage, but there’s also incredible potential and opportunity to solve problems and create good jobs by transitioning to a clean energy economies.”
Let’s pursue other first-of-its-kind commitments to clean energy and decarbonization. The climate crisis is an existential threat that is costing us trillions in economic damage, but there’s also incredible potential and opportunity to solve problems and create good jobs by transitioning to a clean energy economies.President Joseph R. Biden in Tokyo, May 23
And IPEF is also going to combat corruption, which according to President Biden, saps between 2 to 5 percent of global gross domestic product. “It exacerbates inequality. It hollows out a country’s ability to deliver for its citizens.”
Biden also underscored how trade and tax belong to the same framework. “If companies aren’t paying their fair share, it’s harder for governments to pay for Trade Adjustment Assistance or to fund education or health services, or a range of public investments — that make it so hard for families, it feels like they can’t raise their children and give them a better life.”
So in Roppongi District in Tokyo, last Monday, President Biden was joined by leaders and representatives of 12 pioneer members of the IPEF — 13 economies that represent diverse sets of perspectives “as we work on pursuing our common goals.”
Moreover, he pointed out that IPEF is an open platform for other countries interested to join the group in pursuit of a collective economic pursuit.
The founding members of the framework, in a statement, collectively stated, “We share a commitment to a free, open, fair, inclusive, interconnected, resilient, secure, and prosperous Indo-Pacific region that has the potential to achieve sustainable and inclusive economic growth. We acknowledge our economic policy interests in the region are intertwined, and deepening economic engagement among partners is crucial for continued growth, peace, and prosperity.”
The new framework will bolster efforts at building robust digital economy. Through the framework, the member economies will strive to coordinate crisis response measures to preclude any future supply chain bottlenecks aimed at seamless flow of critical minerals, raw materials, products, and technologies.
And in keeping with their commitment to the Paris Agreement, the group plans to accelerate deployment of clean energy technologies to decarbonize their economies and build resilience to climate impacts.
More crucial to the success of the IPEC is the common drive of the members is to weed out corruption and enforcing robust tax measures, enforcing anti-money laundering and anti-bribery mechanisms. “This involves sharing expertise and seeking ways to support capacity building necessary to advance accountable and transparent systems.”
IPEF is good for America
Meanwhile, National Security Advisor Jake Sullivan, in a press call Monday, said the goals of the IPEF is good for the country.
“We believe that expanding U.S. economic leadership in the Indo-Pacific through vehicles like IPEF is good for America — American workers and businesses as well as for the people in the region. With 60 percent of the world’s population, the Indo-Pacific is projected to be the largest contributor to global growth over the next 30 years. And trade with the Indo-Pacific supports more than 3 million American jobs, as well as being the source of nearly $900 billion in foreign direct investment in the United States.”
For Sullivan, the United States is an Indo-Pacific economic power. “Foreign direct investment in the region from the United States totaled more than $969 billion in 2020 and has nearly doubled in the last decade.”
He also said the U.S. is the primary exporter of services to the region, “which in turn not only fuels regional growth and prosperity and greater security, but it also supports American jobs at home.”
New landscape, new challenges, new approach
Sullivan said there is a consensus among the participating nations “that much in the coming decades will depend on how well governments harness innovation, especially the transformations underway in clean energy and the digital and technology sectors, while at the same time fortifying our economies from a range of threats from fragile supply chains, to corruption, to tax havens.”
For Sullivan, previous economic models did not address the above-stated challenges or did not take them on fully that left workers, businesses, and consumers vulnerable; hence, the need for a new model that can move on quickly to take on these challenges.
“We’ve spent months engaging with major partners in the region. And the broad participation is a reflection of that investment of time and effort and energy, as well as with organized labor, the business community, bipartisan members of Congress and other key stakeholders to chart the way forward,” he added.
Sullivan also underscored that IPEF is not a traditional free trade agreement.
“One, the fact that this is not a traditional free trade agreement is a feature of IPEF, not a bug. There are free trade traditionalists who have raised questions about it. Our fundamental view is that the new landscape and the new challenges we face need a new approach, and we will shape the substance of this effort together with our partners.”
U.S. Secretary of Commerce Gina Raimondo echoed Sullivan’s view.
“This framework is intentionally designed not to be a ‘same old, same old’ traditional trade agreement. But it’s designed as a more innovative and flexible approach, designed to reflect the fact that our economies have changed. The most pressing issues that we need to tackle with our allies have changed, and we need a new approach going forward if we’re going to meet the needs of our citizens,” Raimondo told reporters.
She said that by focusing on economic priorities that “affect all of our economies, this framework is designed to reflect the shared realities we face, which is climate change; the opportunity and challenges presented by moving, meeting the need of climate change and the opportunity of clean tech jobs; supply chain disruptions; and the need for a better-coordinated, high-tech manufacturing economy.”
She said that of the four pillars in the framework, Raimondo’s department will be taking the lead in three: the supply chain resiliency pillar, clean energy and decarbonization pillar, and tax and anti-corruption.
She took note how the pandemic has exposed severe outcomes of insufficient supply chain.
“We saw — frankly, we continue to say all the ways that bottlenecks and lack of transparency in the Indo-Pacific cause ripple effects throughout the United States economy, hurting workers and driving inflation. And, you know, we’ve learned that ‘just in time’ leaves much to be desired,” added Raimondo.
She believes that had the new framework been in place before the pandemic set in, the global economies would have experienced less disruption.
Raimondo cited an example, how a breakdown in the supply chain in Malaysia ramified into the layoff of thousands in the United States. “During COVID, we saw semiconductor packaging operations in Malaysia be closed on account of COVID outbreaks. The result of that was thousands of workers were put out of work in Michigan auto-manufacturing plants. And if we had had more transparency, more communication, more data-sharing, and an early alert system, that may not have happened. And the workers who were furloughed in a Michigan plant would not have experienced that.”
She explains that through IPEF, the group will be seeking “to develop a first-of-its-kind supply chain agreement that better anticipates, predicts, and, importantly, prevents disruptions in supply chains.”
Regarding the pillar on clean energy, Raimondo said the jobs of the future are in clean tech manufacturing and innovation. “So we want to work with partners in this agreement to view clean energy as a driver of job creation and economic growth.”
She further elucidated that to support this pillar, the US and the IPEF will be signing agreements to “pursue concrete, high-ambition commitments such as renewable energy targets, carbon removal purchasing commitments, energy efficiency standards, and new measures to combat methane emissions.”
With regard to tax and anti-corruption pillar, Raimondo said they would make sure that everybody plays by the same set of rules because corruption is a huge drag on everyone’s economy. Under IPEF, they will be seeking commitments to enact and enforce effective tax, anti-money laundering, anti-bribery schemes in line with their values.