Free trade or be scrapped: IPEF’s trade pillar

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The Biden administration offered a major trade initiative aimed at expanding America’s trade partners and countering China’s economic influence over its neighbors. The Indo-Pacific Economic Framework (IPEF) includes 14 countries that together represent 40 percent of the world’s GDP. The problem is that the framework, as currently designed, has no chance of success. The administration should start by jettisoning provisions in the framework’s trade pillar that are unrelated to trade.

The framework is unnecessarily complicated by four “pillars” aimed at advancing politically driven goals like “resilience, sustainability, inclusiveness, and fairness, in addition to economic goals of growth and competitiveness.” Particularly in the trade pillar, it touches on issues related to labor, the digital economy, and the environment – similar to provisions included in the US-Mexico-Canada Agreement (USMCA).

Current US Trade Representative Katherine Tai referred to the IPEF as “a new model for trade agreements.” That’s unfortunate, as the framework includes no tariff relief or elimination of trade barriers. Far from “new,” these non-traditional trade issues merely continue America’s turn away from traditional trade that began in 2017.

The executive branch attempted to bypass Congress’s approval for the agreement, leading to significant consequences in clarifying the framework’s intended purpose. This made the US withdraw from IPEF’s trade pillar last November, terminating negotiations involving any trade provisions under the so called “new model for trade agreements.”

This also proves that using the USMCA as a template for the IPEF trade pillar failed. The USMCA’s success in implementing the provisions on labor, digital economy, and environment stemmed initially from a free trade agreement under the North American Free Trade Agreement (NAFTA). Additionally, the IPEF trade pillar’s failure can be attributed to the framework’s lack of initial design as a free trade agreement that did not have binding commitments.

National conservatives and progressives argue that free trade caused US manufacturing job losses and wage stagnation, while also enabling a select few companies to establish monopolies or near-monopolies. They claim that this has precipitated stark inequality, conspicuous rent-seeking, and exploitative practices.

Nevertheless, liberalized trade has in fact significantly benefited American consumers, and manufacturing output is back near its all-time high, which was set in 2018, right before President Trump began his trade war with China. Rather than a retrenchment in traditional free trade approach, the US should modernize it by ensuring agreements focus solely on trade to provide the most benefits for Americans.

If negotiations were to resume for the trade pillar, the focus should be simple – focus on tariff relief and trade liberalization. This would enhance US manufacturers’ competitiveness and rectify the tariff system’s impact on the poor. It would be a win-win; notably, trade liberalization would particularly benefit lower-middle income IPEF members – Indonesia, the Philippines, and Vietnam. These nations could see their economic growth outpace other developing countries by three percent.

Trade-unrelated provisions are often hijacked by special interests, diluting otherwise worthwhile trade agreements and creating additional points of contention that make agreements unnecessarily difficult to pass through Congress. Therefore, negotiators should limit these provisions in trade agreements.

Trade may not take center stage in American foreign policy, but it plays a crucial supporting role. This is particularly evident in our strategic approach to counterbalance China’s economic influence in Asia.

The true spirit of trade agreements should nurture stronger bonds between partner nations by reducing trade barriers. New trade issues, such as labor standards, environmental provisions, and digital economy, should be negotiated separately.

As it stands, the IPEF framework is unworkable without traditional trade components. It should either stick to trade issues or be scrapped. An alternative is to negotiate smaller trade-only bilateral agreements with China’s neighbors. This would help their economies as well as American workers and farmers, while strengthening important diplomatic alliances based on openness, accountability, and fair play.