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The Indo-Pacific Economic Framework for Prosperity: Containment by Another Name

There are times in American history when the country's leaders are seemingly caught napping, only to awaken and find dinner burning in the oven. Unfortunately, many such historical examples are deadly serious — think Pearl Harbor or the Cuban Missile Crisis. When considering U.S.-China relations, fortunately, we're not at that stage yet. Nevertheless, something about a new Biden Administration trade and investment framework agreement invokes a sense that America has arrived late to a dinner party with a burnt meal for its guests.

Have you ever heard of IPEF? It sounds like a new medical acronym. Maybe some new mRNA vaccine to combat Covid. But no, it couldn't be farther from its true meaning. IPEF was announced on March 23rd by the Biden Administration just ahead of the so-called "Quad" meeting in Tokyo with the heads of state of Australia, India, Japan, and the United States.

So, what is IPEF anyway? It's an acronym for "Indo-Pacific Economic Framework for Prosperity," an effort led by the Biden Administration to develop an economic counterbalance to China in the Pacific while expanding U.S. economic influence in the region.

IPEF is not a free trade agreement, nor is it some form of security pact. It's a framework for economic cooperation, alright, but it's also a smokescreen obscuring American objectives in the Indo-Pacific region to deter an increasingly assertive China, plain and simple. Signatories of IPEF include the United States, South Korea, Australia, Brunei, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.

So how will it work? Is IPEF a policy of containment by another name? The Cold War redux? We don't know enough yet to say definitively. Only time will tell.

Limited details

According to a White House release, IPEF will focus on four areas of cooperation:

Trade. "To build high-standard, inclusive, free, and fair trade commitments and develop new and creative approaches in trade and technology policy that advance a broad set of objectives that fuels economic activity and investment, promotes sustainable and inclusive economic growth, and benefits workers and consumers."

Supply Chains. "To improving transparency, diversity, security, and sustainability in our supply chains to make them more resilient and well-integrated."

Clean Energy, Decarbonization, and Infrastructure. "To accelerate the development and deployment of clean energy technologies to decarbonize our economies and build resilience to climate impacts, [while] supporting the development of sustainable and durable infrastructure and by providing technical assistance."

Tax and Anti-Corruption. "To [promote] fair competition by enacting and enforcing effective and robust tax, anti-money laundering, and anti-bribery regimes in line with existing multilateral obligations, standards, and agreements to curb tax evasion and corruption in the Indo-Pacific region."

Yikes, the smoke is thick! So far, all we have are statements that are long on concepts but short on details. But what we do know is the agreement (or, more appropriately stated, a framework) is an effort led by the United States to outflank Chinese ambitions in the Pacific.

Open doors

Globalization seems to be devolving into a geopolitical game of chess. And with globalization and geopolitics, not surprisingly, our industry is caught up as a pawn on a game board much more significant than we are.

For the United States, the rise of China was not preordained. Still, the policies and institutions promoted by the U.S. going back to the 1980s only supported and even encouraged the rise of China, wrongly based on the belief that economic prosperity would lead to political change. Indeed, a door opened, and China walked in to see it was the life of the proverbial globalization party. And it did so with the complicit support of the United States — and both of its political parties.

Smelling smoke

That was until Donald Trump was elected president. And since then, Joe Biden has expanded on policies aimed at containing China. IPEF is just the most recent example. But perhaps more significant was Biden's announcement that the United States would defend Taiwan from any military incursions by China; this is a new policy. U.S. policy was previously more opaque, but not now. Is this Biden's redline? Xi Jing Ping says that Taiwan is a renegade province — his redline. It's all frightening to me.

At the same time, though, China is challenging the U.S. on many fronts. For example, it has a partnership of sorts with Russia. And then there's the "Belt and Road Initiative," which has provided economic access to countries worldwide, including some countries in Latin America. It's as though the U.S. ignored growing Chinese assertiveness until it was hard to dismiss anymore.

So is dinner burnt? No, I think it's toasty, but it's certainly time to take dinner out of the oven. It seems like Washington just heard the smoke alarm. Late to the party? Maybe. But looming over all of this is where do we go from here?

Global apparel confronts geopolitics

Some in our industry may ask: why should we give a flip? Here’s why: As the war in Ukraine has shown, conflicts and geopolitics directly impact economies, particularly consuming-facing industries. Geopolitics inevitably affects international economics. And guess what, folks? As probably the largest industry on the planet, we're caught up in this. Inflation? It's a manifestation of the uncertainty of the times with supply and demand for goods out of alignment.

What's more, there are divisions in the White House. Is there a unified policy towards trade? It's hard to assess. We know that Biden maintains Trump-era tariffs on exports from China, and he had established international initiatives like IPEF at the same time. Although Biden is not a populist in the Trumpian sense, he does relate to the struggles of average American workers and the effects globalization has had on their livelihoods.

However, as hawks in the White House explain, eliminating Trump-era tariffs will only provide a win for China when stated U.S. policy in the region -- as realized by the IPEF -- seemingly states the exact opposite. Put bluntly: How does a policy of containment coincide with a loosening of trade, particularly when many of the clothes exported from China are tainted by forced labor abuses in the Xinjiang province? It's a kick in the head, that's for sure.

Make no mistake, though: Pressure from retailers and apparel brands has had an impact. Their central argument is to eliminate Trump-era tariffs and ease the cost on consumers who ultimately bear the brunt of these costs, particularly during these inflationary times. Indeed, free traders within the White House are more concerned with the upcoming mid-term elections and an inflation-weary, surly electorate. Elimination of the tariffs would provide the White House with a talking point to show that it is working to lower inflationary pressures.

Moreover, Biden faces critics claiming the U.S. has relied too heavily on military posturing in Asia while failing to include trade and other economic incentives to offer American allies in the region. So, taking a page from the carrot-versus-stick book of diplomacy, IPEF aims to redress that imbalance by offering economic carrots to balance out military sticks.

What does China think about IPEF?

So what was China's response to IPEF? To fly nuclear-capable bombers, along with Russia, over the Sea of Japan during the Quad meeting in Tokyo. It was hardly a subtle message. South Korea and Japan scrambled jets to keep a watchful eye on the foray as a precaution. We're far from contagion, but such actions should put sourcing executives throughout our industry on notice.

The days of peaceful cooperation have deteriorated into political kabuki and great-power posturing. As a result, we could fall into an abyss we'd prefer not to traverse. But, when mixed together, uncertainty, disruptions, and geopolitical positioning do not make for an enticing recipe for efficient movement of goods across the seas.

From Davos to disarray

It's ironic that the symbol of neoliberal, free-trade orthodoxy, the recent annual meeting of global elite in Davos, Switzerland, was not dominated by talk of trade. Instead, fear dominated the dialogue over Russian aggression in Ukraine, the specter of war elsewhere in the world, and a global economic cloud that seems to underscore the failings of a system put in motion years ago.

I think the party's over. The prospect of military conflict is rising — Ukraine may turn out to be just the opening act. And then we have economic uncertainty. Inflation, labor imbalances, recession, tenuous growth — it's all a formula for trouble. Let's hope Biden does not repeat the errors of the past. Although the guests of globalization may be leaving the party, there's still a casserole in the oven that needs tending.

Published in on June 6, 2022.

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