About the authors: Kurt Tonge is a managing partner at The Asia Group and previously served as US Mission Chief to Hong Kong and US Ambassador for the Asia-Pacific Economic Cooperation Group. Chuin Wei Yap is program manager for foreign trade research at the Hinrich Foundation. He was previously Trade Policy Manager at the Singapore Ministry of Trade and Industry and a correspondent for the Wall Street Journal.
What a difference a dozen years can make.
The last time the US chaired the Asia-Pacific Economic Cooperation Forum in 2011, the regional economic policy talks were all about market opening.
Negotiations for a regional comprehensive economic partnership linking the ten economies of the Association of Southeast Asian Nations with six other regional partners, including China, are being organized. The US-brokered Trans-Pacific Partnership, which set new and higher standards for market opening, was in its third year of negotiations and made a strong impression – attracting Japan while excluding China.
Fast forward to 2023. The US is once again hosting `EC and will convene a summit of leaders in San Francisco in November. But the economic policy landscape is very different.
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Most of the discussion today is about adapting supply chains to geopolitical imperatives. National leaders speak of “friend-shoring” and are exploring massive new subsidy programs to try to bend manufacturing to fit their borders. The US directs the bulk of its policy efforts toward creating barriers to doing business with China. Relatively little effort is being made to deepen its economic ties with its favored partners in Asia and the Pacific.
Economic leaders everywhere are talking about mitigating risk rather than creating opportunity.
When Asian business leaders look to Washington, they tend to see a focus on export controls, investment restrictions, and nationality-based subsidies.
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The US abandoned the Transpacific Partnership in 2017 and instead introduced the Indo-Pacific Economic Framework in 2022. Asian and Pacific partners find the new framework confusing and uninspiring – but are still open to exploring it, a testament to the region’s continued interest in working with the US
In Asia, big trading economies like Japan, Vietnam, Singapore and South Korea have become accustomed to operating in the narrow straits between two superpowers. But they will face tougher choices in the coming years, particularly around trade and investment ties, as strategic competition between Washington and Beijing deepens.
Take the friend-shoring concept championed by Washington, for example. It’s easy to see what the term means in a political sense: policymakers would prefer sensitive technologies to be traded between allies rather than adversaries.
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But investment and manufacturing decisions, once initiated, are difficult to reverse, especially when they affect multiple jurisdictions. In practice, it is difficult for private companies and foreign governments to predict how restrictive the new friend shoring rules will become and calculate future real-world costs of doing business.
Furthermore, one nation’s friend-shoring — which is sometimes just another word for “on-shoring” — can be another nation’s unfriendly trade distortion. The recorded employment of one jurisdiction may be the inflation of another jurisdiction.
Now the world’s major economies are shaping their own industrial policies modeled after the US CHIPS and Science Act and the Inflation Reduction Act. Governments from Tokyo to Brussels are budgeting for a variety of trade-distorting subsidies to rival America’s.
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Economists fear the recent emphasis on economic security and post-Covid supply chain integrity will result in lower incomes and higher prices around the world.
But political historians like us worry about something else. We fear that by focusing on China’s displacement, the US is missing opportunities to draw the rest of Asia closer.
This is as much a question of leadership emphasis as anything else.
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President Biden has often spoken and acted personally on issues related to Western Pacific military security, always with concerns for China at the forefront. His list of geopolitical and diplomatic achievements is impressive and comes in a variety of bilateral and minilateral configurations, such as the US-Australia-Britain military pact and the US-India-Japan-Australia quadripartite leadership process.
But President Biden has been virtually silent on the purpose of hosting `EC in 2023. Nor has he commented on the content and rationale of the 14-member Indo-Pacific Economic Framework since its inception nearly a year ago.
Visiting Washington in January, Japanese Prime Minister Fumio Kishida drew on his new National Security Strategy to make a clear, almost impassioned, statement on the importance of the Group of Seven nations turning to the Global South and focusing on theirs most important concerns – namely everything related to economic development. However, the US media only reported on Kishida’s expanded military spending plans.
The Washington echo chamber, which has chosen to focus on a zero-sum economic struggle rather than plus-sum economic cooperation, may be poised for decline.
This is not just an economic policy problem. It’s a geopolitical risk. Washington’s failures in global economic engagement may ultimately undermine its military and diplomatic achievements.
`EC is a looming test for the White House. Can President Biden seize this trans-Pacific opportunity to create inclusive economic policy achievements that align with US national goals and resonate in Asian capitals? Can the US sort through the long agenda it has proposed for the Indo-Pacific economic framework to find some concrete and meaningful arrangements for the near-term harvest?
There’s a window for some follow-up achievements in 2023, but that window is closing fast.
Opinions like this one are written by writers outside of the newsrooms at Barron’s and MarketWatch. They reflect the perspective and opinion of the authors. Send suggested comments and other feedback to [email protected]
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