From CPTPP to IPEF, Experts Weigh in on What These Mean for the U.S. Position in the Indo-Pacific

A central tenet of free trade is that reduced barriers lead to increased prosperity for businesses and workers. Perhaps nowhere is this more important for the U.S. right now than in the Indo-Pacific region, where President Biden recently indicated that “the future of the 21^st century economy is going to be largely written.”

This statement was made during the formal introduction of his Asia-Pacific economic strategy, the Indo-Pacific Economic Framework (IPEF). It’s not a free trade agreement like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), formerly known as the Trans-Pacific Partnership (TPP), which was signed by 12 countries in Asia-Pacific, North America and South America and which the U.S. unilaterally withdrew from five years ago under President Trump.

Instead, it’s a new U.S.-led framework with four pillars designed to solidify relationships and engage on crucial economic and trade matters that concern the region, such as building resilient supply chains battered by the pandemic. And while there are no market access or tariff reductions like you see in trade agreements, some experts believe it can pave the way to trade deals.  

The Framework’s Four Pillars are:

1. Connected economy: Higher standards and rules for digital trade, such as cross-border data flows
2. Resilient economy: Resilient supply chains that will withstand unexpected disruptions like the pandemic
3. Clean economy: Green energy commitments and projects
4. Fair economy: Fair trade, including rules targeting corruption and effective taxation

We recently spoke to two Northern California-based economic and international policy experts about the IPEF, what it means and if it can be as effective as a real trade agreement:

Sean Randolph is senior director at the Bay Area Council Economic Institute, a leading think tank on the regional and California economies, where his role is to help members and partners understand what’s driving the economy and how to address both the opportunities and issues they present. He has a J.D. in international law and a Ph.D. in international affairs and has done everything from working on Capitol Hill and at the White House to running an international association of companies doing business in Asia.

Susanne Stirling is vice president, international affairs at the California Chamber of Commerce, the statewide business organization that’s one of the largest chambers in the U.S. next to the U.S. Chamber. The California Chamber works closely with 15,000 business members as well as hundreds of local smaller chambers in the state. It’s focus is on domestic and international policy as well to make California a better place to live, work and do business.

WHY DOESN’T THE U.S. RE-ENGAGE IN THE CPTPP?

Sean: “At the time of the 2016 election, Hillary Clinton, who had a big part in shaping the original (TPP), distanced herself from the agreement, thinking the association would be a liability. President Trump then pulled us out immediately after taking office. It was clear even before President Biden took office that he would have a reserved view of the CPTPP for a few reasons. He and his team are very focused on domestic jobs in part because they’re close to the labor movement and are reluctant to enter into any agreements that would potentially open up the U.S. market further to imports. So the messaging is that they won’t consider any new trade agreements until priorities at home are sorted out.

The Biden Administration may also have calculated, given all the domestic things they want to achieve in their first two years, that they don’t have the political capital needed to pull it off in Congress. That’s a choice. The Obama Administration embraced the agreement; the Clinton Administration was initially critical early but embraced the North American Free Trade Agreement (NAFTA); and with great care, the Bush Administration moved trade agreements forward as well. In every case, they chose to fight very hard to get them through. In this case, it’s a conscious choice not to spend limited political capital on new trade agreements, including the CPTPP.”

Susanne: “The Trans-Pacific region is incredibly important economically to California and the U.S. as well as on a broad national security and geopolitical level, so the California Chamber is always pleased when the U.S. engages in this area. There are a variety of different ways in which Presidents have done that. President Obama had his Pivot to Asia program. Then, in regard to pulling out of the TPP, it’s important to realize that Bernie Sanders was first to call for the U.S. to be pulled out and then the idea swept from left to right and everyone was opposed to it, including Hillary Clinton, who was originally on the record as a supporter. The business community was dismayed because we saw the TPP as important not only from the trade, investment and economic perspective, but also on a broader national security level. President Trump then engaged with federal agencies to put together his own counter to the Chinese, which he called The Indo-Pacific Strategy, which had more emphasis on U.S. infrastructure projects in the Pacific Rim.

Now we have the newest version from President Biden and we’re certainly pleased it was launched and looking forward to seeing what the negotiations between the countries involved will actually bring. It’s no secret that the business community and California Chamber would prefer that the U.S. re-engage in the CPTPP, but that’s not going to happen under this Administration as there is not the appetite to bring anything to Congress in this area.”

WHY THE IPEF?

Sean: “This goes back to the political difficulty of getting bipartisan agreement on anything these days except for Ukraine and maybe China. Trade has become more difficult over the past eight to 10 years in part because Republicans in Congress were always a reliable constituency for free trade. You could count on most to be in favor. On the Democratic side, it was more mixed with moderate or business Democrats being supportive. The Republican party today is very different, and Trump was a driver or maybe a reflection of that. They’re more skeptical of global agreements as well as immigration. Now, you have a split among Republicans in Congress where there are traditional Republicans who are pro-trade and supportive of the CPTPP and a populist wing that is not internationally oriented and very skeptical of trade. There are similar splits in the Democratic party, with labor and progressives largely opposed to these agreements. It’s harder than in the past for any Administration to move a major trade agreement through Congress, so the Biden Administration has opted to launch this new framework instead. The CPTPP, however, is by far the most progressive and advanced trade agreement to date with its environmental and labor provisions, protections for intellectual property and provisions that support cross-border data flows. For these reasons, it’s the preferred option for most of the business and the trade community.”

HOW IS IT DIFFERENT?

Susanne: “The IPEF has four pillars. The first is focused on the economy and trade and includes the digital economy in particular, which is something the business community has pushed for. The second on the resilient economy speaks to the supply chain issue and making sure we anticipate and try to prevent any interruptions in the future. The third is the energy portion and the fourth is back to the fair economy and looking at things like taxes and cracking down on corruption. These are all very valid, but I think the missing ingredient is the framework itself doesn’t go into great detail as far as market access and to some extent, the tariff discussion. The deeper you go into that, the more you’ll actually need a free trade agreement. Also, the IPEF is not binding in any way. It has the potential of being one in a line of many versions of what the U.S. does in the region with future Administrations. Still, overall it’s positive and we want to be supportive and engaged and this is the way to be engaged in the current times with our trade partners in this region.”

ARE THERE ANY PARALLELS?

Sean: “They’re not parallel, because we’re not members and have no role in the CPTPP. This would be an alternative U.S. mechanism. The one area where there is a clear parallel is in the digital space, where both CPTPP and IPEF place a premium on the rules of digital trade and cross-border data flows. A lot of people believe that U.S. leadership in the Asia-Pacific region is weak at the same time that China has become more economically ambitious and aggressive.  China is the #1 trading partner for every country in the region right now. The Chinese-backed agreement (see RCEP below) is also in place and we see China being increasingly forward in wanting to set standards and trading rules. If the U.S. won’t pursue the CPTPP, this new framework is the Administration’s alternative to put the U.S. back in a leadership role by shaping key areas of the economy that we believe are important in the long term. So while this is Plan A for the Administration, for many observers, it’s seen as the fallback alternative to pursuing the CPTPP—vague and undefined but still important.”

CAN THIS REALLY LEAD TO INCREASED TRADE?

Sean: “It can be beneficial. The things they want to talk about are important. Most important is digital policy and avoiding the imposition of national requirements that all data generated stay within the borders of the countries where the data was generated. While rules governing data flows are necessary, in some ways, this has become a new form of nationalism and ultimately of protectionism. The Administration also wants to focus on clean energy, addressing climate change as an American priority. I think all this is good. The bigger question is: Is it enough to meaningfully reinsert America’s economic leadership in the region? There are no incentives to grow trade or create new trade opportunities, which is what other countries are looking for, so it’s very different from the CPTPP and other traditional trade agreements. Handled well, however, IPEF could prove to be a useful vehicle for negotiating forward-looking provisions that could be included in future trade agreements. Because it still lacks substantive detail—which will emerge from future negotiations—we don’t know how interested our partners will be in this. What do they have to gain and how important are these issues in their scale of economic priorities?”

Susanne: “The California Chamber wants to be supportive and we see this as a great start. We would like to see as much meat on the framework as possible, so we’re optimistic, but we always want more substance.”

Why Indo-Pacific Region?

• The combined gross domestic product (GDP) of the countries in this region represent 40 percent of the global GDP.
• About 60 percent of the world’s population reside in the Indo-Pacific.
• The region is expected to be the biggest contributor to global growth over the next three decades.

Other Trade Agreements/Initiatives to Watch

• The Regional Comprehensive Economic Partnership (RCEP), which went into effect in January 2022, is a free trade agreement among 15 of the Asia-Pacific nations signed that account for 30 percent of the world’s population, including China.
• The Belt and Road Initiative (BRI) is one of the most ambitious infrastructure projects ever conceived. Launched in 2013 by China’s President Xi Jinping, the vast collection of development and investment initiatives would stretch from East Asia to Europe, significantly expanding China’s economic and political influence.
• The U.S. and Taiwan are currently looking at other avenues to do more with their relationship after 52 members of U.S. Congress agreed that Taiwan (who wasn’t invited) should be part of the IPEF.