The IPEF Mirage: Is America Losing The Trade War With China?

→ Winning any war requires strategic vision. The U.S. is losing the Sino-American Trade War. A key element in America’s War strategy, the Indo-Pacific Economic Framework, is not what it claims.

In March 2018, then U.S. President Donald Trump’s administration launched a trade war with China. After 52 months, the last 18 of which President Joe Biden’s administration exercised command, query whether America is winning.

‘Victory’ in war can be defined to suit political ends. Section 301 of the Trade Act of 1974, as amended, is the statute that authorised the United States to start the trade war with China with a strategy of punitive tariffs on Chinese-origin merchandise. Empirical research suggests in roughly 50% of Section 301 cases, the foreign government target changes the act, policy, or practice that the United States Trade Representative determined to be offensive.

Not so in this case.

Indeed, the Jan. 15, 2020, Phase One Agreement expired after two years with China meeting just 62.9% of its scripted purchases of U.S. goods. Notwithstanding pledges to the contrary, no Phase Two Agreement on deeper structural reforms has ever been negotiated.

But the Biden Administration ballyhoos a new, five-element strategy:

1. Reconsider the Section 301 tariffs;

2. Sanction Chinese military-industrial complex entities;

3. Delist from U.S. securities exchanges Chinese companies that do not adhere to American auditing and transparency rules;

4. Regulate outbound foreign direct investment into China; and most importantly,

5. Build an Indo-Pacific Economic Framework with India and 12 other countries (Australia, Brunei, Fiji, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam).

Element 1 is an implicit concession the U.S. isn’t winning the trade war through its four Waves of up-to-25% tariffs on roughly $380 billion worth of Chinese imports into the U.S. The combined firepower of elements 2, 3, and 4 matters as to decoupling partially the two giant economies. But whether they can induce structural reform in China is uncertain.

So, especially following the Trump administration’s disastrous January 2017 withdrawal from the Trans-Pacific Partnership, the rules of which the Obama Administration helped craft to counter China, hopes ride high for American reengagement in the Indo-Pacific region on Element 5. The Biden Administration launched IPEF on May 23, and it’s expected to issue negotiating texts by the end of this summer and complete a deal by June-December 2023.

True, Biden Administration opponents haven’t put ‘country first’ and supported either America’s re-entry into the Trans-Pacific Partnership or granted the President trade negotiating authority for a ‘TPP-Plus’ free trade agreement. Nevertheless, President Biden and his trade warriors at the USTR and Department of Commerce cannot credibly answer “yes” to two questions that India, indeed any Indo-Pacific nation, ought to pose:

Is IPEF –

Intellectually coherent, meaning is it organised around a central theory?

Socially just, meaning does it treat preferentially the marginalised?

Combined, intellectual coherence and social justice make for a strategically visionary trade agreement.

Traditionally, America’s FTAs cohere around market access, with duty-free, quota-free treatment upon entry into force their lodestar. To the extent they manage trade, they may be said to manifest a modicum of social justice, as they spread out across staging categories of approximately five to twenty years the adjustment costs that would afflict sensitive sectors that otherwise would be hit with DFQF EIF import competition. TPP had plenty of staging categories. Likewise, the United States Mexico Canada Agreement included a socially just ‘rapid response mechanism’ to enforce labour rights.

Intellectual Coherence?

What common bond weaves together IPEF countries?

Contrary to America’s rhetoric, the answer isn’t a “free, open” Indo-Pacific. IPEF has nothing to do with free trade. That’s obvious from examining its four pillars, as shown in the table below Their names changed between March and May, but each pillar remained a laundry list of stuff other than market access.

Some stuff overlaps:

Corporate behaviour is in Pillars I and IV. Labour standards in Pillar I are inseparable from supply chain management in Pillar II. Climate change is in Pillars I and III.

Other stuff is bizarre:

Pillar III topics are best dealt with through multilateral environmental agreements. Pillar IV is chock full of topics that traditionally fit within mutual legal assistance and tax treaties, and/or are dealt with by the Organization for Economic Cooperation and Development.

Key stuff is missing:

There’s no mention of ridding supply chains of forced labour. That’s stunning, given that on June 21, the most dramatic change in U.S. import law in decades took effect: the Uyghur Forced Labor Prevention Act. Why doesn’t IPEF contain the same rebuttable presumption as UFLPA?

Two other facts adduce IPEF’s incoherence.

First, America surrendered from the get-go the ambition of a single undertaking, that all Framework countries would agree to all Pillars, and nothing would be agreed upon until everything was agreed.

Hence, IPEF is a thali: countries can choose to eat from just one katori and discard the others. The leftovers will be a messy khichadi.

Second, IPEF and two other American-led partnerships are unconnected.

At their June 26-28, 2022, meeting, the G-7 countries pledged to counter China’s Belt and Road Initiative with $600 billion worth of public and private funds ‘Partnership for Global Infrastructure and Investment’ in developing countries. On June 25, the U.S., with Australia, Britain, Japan, and New Zealand – alarmed by China’s April security pact with the Solomon Islands, and its ongoing efforts to ink trade and fisheries deals with Pacific Island nations – announced a ‘Partners in the Blue Pacific’ scheme to boost economic and defence collaboration with Pacific Islands.

With 14 Framework partners, 152 developing countries as infrastructure partners, and 15 Pacific island nations, the USTR is starting three medium-sized law firms. Why not synchronise 181 ‘IPEF Partners’ to maximise synergies in dealing with China?

Social Justice?

If IPEF doesn’t cohere around freer trade, is it, at least, about ‘openness’?

Nope, not if ‘openness’ refers to including four marginalised communities.

First, women:

Their mistreatment is documented in China, and their rights in post-Roe v. Wade America are imperiled. The Biden Administration ought to import into the Framework a strengthened version of TPP Article 23:4 and USMCA Article 23:9.

Its failure to do so is inconsistent with its joining, on June 17, the consensus at the World Trade Organization’s Twelfth Ministerial Conference in favour of the Outcomes Document. Paragraph 13 thereof concerns “women’s economic empowerment.”

Second, ‘family’ should include LGBTQ+ persons:

The Trump Administration wrongly neutered—in footnote 15 to USMCA Article 23:9—a precedent-setting, albeit mild, provision against discrimination based on sexual orientation and gender identity. To combat the far-left Chinese Communist Party and far-right homophobic, transphobic Americans, the Biden administration should promote the human dignity of all sexual orientations and gender identities through anti-workplace discrimination rules.

Third, the poor, about 63% of whom globally live in the Indo-Pacific region:

The Biden Administration needs to appreciate that for India, poverty alleviation and trade policy are two sides of the same rupee.

These omissions, coupled with the Administration agreeing to the Outcomes Document, the second paragraph of which expressly endorses special and differential treatment, are a(nother) instance of callous trade policy toward the most vulnerable.

Fourth, Taiwan:

The U.S. should align its trade and national security policies by including this “other customs territory” of China in IPEF. That’s the international legal category in which Taiwan acceded to the WTO in January 2002. China didn’t object then. Doing so now would be hypocritical. Taiwan’s inclusion in the Framework would mesh with the ‘U.S.-Taiwan Initiative on 21st Century Trade,’ which was launched on June 1, and which lists on its agenda much of the same stuff as IPEF. Better yet, it could lead to what Taiwan deserves, and what four Framework partners (Australia, Brunei, Korea, and Singapore) have: a comprehensive, bilateral FTA with America.

Simply put, a ‘Framework’ that frames extant barriers is a wall.

India Should See Through The Mirage

India could pick an item from the IPEF thali, probably Pillar I given India’s interest in digital economic competition with alien Big Tech behemoths.

But to be so abstemious would be to squander a leadership opportunity.

Sometimes winning a war requires a local ally (India) to remind a foreign self-appointed commander (U.S.) what strategy is most likely to win local hearts and minds. A cogent synthesis of socially inclusive trade reforms to promote pan-Asian integration might go far toward victory in the Sino-American Trade War.

Raj Bhala is Senior Advisor to Dentons U.S. LLP, Member of the U.S. Department of State Speaker Program, and Brenneisen Distinguished Professor, The University of Kansas. The views expressed here are his and do not necessarily represent those of Dentons or any of its clients, the U.S. government, State of Kansas, or University, nor do they constitute legal advice.

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.