The Problem With IPEF

It’s no secret that the Biden administration has been sorely lacking a strategic economic vision for Asia. The good news is that the White House is quick to acknowledge that a strategy for economic leadership in the world’s most populous and dynamic region has increasingly become an issue. The problem, though, is that efforts to address the gap are inadequate – and the steps we have seen thus far neither address the economic needs of the United States in the Indo-Pacific nor meet the demands of the countries in the region.

The core weakness of the Biden administration when it comes to economic leadership has been the inability of the United States to sign onto existing mega-trade deals. With the Indo-Pacific home to two multilateral agreements, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP), Washington’s absence from the former when it was instrumental in establishing it in the first place has become all too apparent.

But its bid to fill that gap by creating an alternative initiative for the United States to lead is hardly gaining traction. In fact, U.S. efforts to rally support for its Indo-Pacific Economic Framework (IPEF) are only increasing cynicism about Washington’s need to lead, rather than to be part of multilateral efforts. That’s especially glaring as CPTPP can lay the groundwork for much of the IPEF’s four pillars of interest: fair trade, supply chain resilience, infrastructure development, and anti-corruption mechanisms.

Among Washington’s allies in Asia, the biggest concern is about the lack of market access into the United States. That certainly is a concern for the critical Southeast Asian nations, and one that ultimately highlights U.S. domestic reluctance to join any trade deal due to political opposition at home.

The real weakness of the Biden administration’s Indo-Pacific Economic Framework, and what marks its lack of credibility as an alternative to existing regional trade deals, though, is its inability to go beyond trade. For some of Washington’s staunchest supporters including Japan and Australia, market access is not what they need the most from the United States. Rather, it is U.S. presence and Washington’s commitment to push back against Chinese economic coercion and Beijing’s efforts to use existing multilateral deals to further China’s influence.

Certainly, without the United States, any coordinated effort to counterbalance the China threat is ultimately weak. Yet there are far more pragmatic interests at stake for both Washington and U.S. allies in furthering economic rules of engagement in the Indo-Pacific. One such area is the challenge to the power of the U.S. dollar.

For all of the concerns about waning U.S. economic leadership in Asia, few would deny that the U.S. dollar remains the dominant international currency, thus making the Federal Reserve the most powerful monetary authority in the world. Even amid growing speculation about the prospect of China matching the United States as an economic power, there has not been serious discussion about the renminbi overtaking the greenback as the most influential currency in the world. Moreover, the United States has been the standard-setter in financial markets since the end of World War II.

Yet in recent years, there has been increasing concern about the dollar’s future, and new forms of power projection in financial markets are emerging, especially in foreign exchange markets.

Not only has China bolstered its presence as an economic power in emerging markets through financing infrastructure projects worldwide, but it is also becoming a growing presence in defining the future of currency markets too. At the latest IMF-World Bank annual meetings in Washington, for instance, the future of digital money and assets has become one of the key topics for discussion among finance ministers and central bankers. Yet when it comes to piloting the use of central bank digital currency (CBDC), it is China that is taking steady steps, with an eye to boosting the use of the digital yuan beyond its borders, especially in developing countries.

Washington, on the other hand, is far more cautious and taking a restrained approach when it comes to developing a CBDC, to the extent that it has shown interest at all. Given the power and influence of the dollar, such a cautious approach is necessary and should be encouraged, but there is clearly a need for the United States to lead in ensuring that there is coordination and a common framework for countries to deal with the developments in digital assets.

Digital currencies are just one example of a larger point: The range of economic issues that actually need U.S. leadership continues to rise, and yet there is hesitancy in Washington to address evolving economic needs beyond its borders. While the United States may be unable to join existing trade regimes due to domestic political considerations, that should not hamper it from thinking creatively to address emerging issues that will require greater oversight in order to ensure global economic stability in the future.