Friends, Allies, and the Trade Dilemma
– Shihoko Goto
As economic competition heats up, partners are key to US success.
The 20th century was America’s century. From recovering from the devastation of war to promoting prosperity and the rule of law worldwide, it was the United States’ capital and values that came to define much of the world’s military, political, social, and economic road map, even into the 21st century. Since 1945, it became clear that it was in Washington’s interest to ensure that the global economy recovered steadily, and that it should stimulate demand worldwide. Boosting global growth was not simply an altruistic goal, nor was it guided solely by the fear of communism’s rise—it was also a means to further US corporate interests. Access to global markets, operating under clear rules driven by US standards, also became part of the US national interest. Global trade enjoyed clear prioritization across US public and private sectors.
Clarity about the United States’ commitment to global trade no longer holds.
Even the staunchest US allies have come to question Washington’s commitment to free trade in Asia.
To be sure, grinding poverty persists in much of the world. Currently, 46 nations are deemed the least developed countries, representing 12 percent of the world’s population. Of these, 33 are in Africa and 9 are located in Asia, including Bangladesh, Cambodia, Laos, and Afghanistan. But from Japan and the earlier Asian Tigers of South Korea, Singapore, and Taiwan, to rapidly rising India, Malaysia, Indonesia, the Philippines, and beyond, the Indo-Pacific region is home to the world’s most dynamic, populous, and ambitious countries, which have emerged as economic rivals to the United States. In short, Washington’s 20th-century goal of lifting all boats to greater prosperity out of the ruins of war has largely been achieved—not only in Europe but also in most of Asia. As a result, market access to the Indo-Pacific has become more lucrative, and more competitive, with Washington’s voice no longer dominating the field as countries look to redefine and enhance the rules of trade that better meet the needs of the 21st century.
The fact that China has emerged as the single biggest trading partner for all countries in the Indo-Pacific, with the exception of Afghanistan, has also caused US economic influence in the region to falter. At the same time, Beijing is steadily investing in matching its military might to its economic influence, both within and well beyond Asia—not simply by building up its arms but also by making strategic use of advanced technology to enhance its military capabilities. With Washington increasingly aware of the multifaceted threat posed by Beijing’s economic and technological advancements, the Biden administration is going on the offense and developing its own economic strategy that resets US trade ambitions and prioritizes national security in defining economic relations with like-minded countries. The question, however, is whether the United States can succeed in bringing its allies and partners in line with its own reassessment of the international economic challenges that lie ahead.
Coupled with Washington’s own decision to pull out of the Indo-Pacific’s most ambitious trade deal in 2017, and with no US plans to join the subsequent Comprehensive and Progressive Trans-Pacific Partnership agreement, even the staunchest US allies have come to question Washington’s commitment to free trade in Asia. What the Biden administration has instead decided is to develop a two-pronged strategy. First, it is focusing on dealing with the economic threat posed by China’s violations of trade agreements. And second, the administration has drawn a clear line in cracking down on Beijing’s access to advanced technology by choking off China’s ability to acquire the most sophisticated semiconductor capabilities and chip manufacturing technology, which in turn would curtail Chinese development of artificial intelligence and supercomputing. Together, these new approaches to trade and technology acquisition are key to enhance US economic competitiveness and boost US security. But they can only be effective if the United States works in conjunction with other countries. After all, along with the United States’ success in lifting economic standards worldwide, its solo ability to tip the global scale in its favor and induce adherence to its standards has also diminished.
Yet the Biden administration’s vision for a new trade framework focusing on four key areas—digital trade, supply chain resilience, environmental sustainability, and good governance—has been lackluster. While 13 countries—including Vietnam, Malaysia, and Indonesia—have agreed to start negotiations on the key issues, India has already declined to join in talks regarding trade under the Indo-Pacific Economic Framework, due to domestic political considerations. India’s walkout highlights just how difficult it can be for countries on divergent paths of development to reach a consensus, even on critical issues such as supply chain resiliency, given that national leaders must reckon with their domestic constraints as much as their economic needs. The true value of the framework’s road map, however, is to clearly show that Washington needs to work with its partners to address the region’s biggest challenges. And nowhere is the need to form partnerships more apparent than in the effort to push back against China’s aggression and its abuse of its economic might.
Victory will necessitate humility on the part of Washington, and recognition that it can no longer alone meet the challenges that lie ahead.
The Biden administration’s success in pressing ahead with three key proposed laws over the past 12 months despite a deeply divided Congress speaks volumes about the emerging national consensus to push for growth and industrialization policy. The United States is hardly alone in increasing spending on securing critical infrastructure, investing in cybersecurity, and boosting commitments to innovate in advanced technologies. From Japan legislating to enhance economic security to South Korea’s budget to speed up economic recovery, key US allies in the Indo-Pacific region have boosted spending to enable them to rebound from the disruptions caused by the global COVID-19 pandemic, and to stave off risks of China weaponizing its global economic dominance. Enhancing resilience no longer means simply preparing for the unexpected, such as natural disasters; it also means being able to withstand pressures that China could place on accessing goods that could make countries vulnerable. Nevertheless, there is a growing wariness across the board that efforts to become more resilient are also leading to a path of less global interdependence and the rise of unilateralism, especially in the United States. Far from advancing globalization, as Washington sought to do in the 20th century, its de facto new industrialization policy is seen as a potential driver of economic nationalism.
Meanwhile, Washington’s trade policy has focused more on encouraging overseas investments into the United States, with no clear, immediate gain for countries that are actively committing to strengthening crucial US industries such as semiconductors and large-capacity batteries. This has been especially disconcerting for South Korea, which is concerned the US will take away its global chip lead. In the longer term, however, the Biden administration’s measures to safeguard US technological advancement and to stop the transfer of advanced technologies to China could lead to a potential schism between the United States and its key allies.
Through the United States’ October 7, 2022, export control restrictions to stop China from acquiring advanced semiconductor technology, including manufacturing equipment and the talent to support chip development, it has made clear where it draws the line when it comes to engaging in a technology competition with China. The goal is not simply to stop Chinese access to the world’s most advanced chips and prevent their use in Chinese missiles and other military uses but also to stop China from furthering its goal of becoming the world leader in advanced technologies, including the development of artificial intelligence.
The strategic objective of stifling Beijing’s technology innovation has secured widespread congressional support. But for the Biden administration to succeed in keeping the United States’ most vital technology from being abused by the Chinese—and for the US to remain a global economic leader in a new era of competition—it must have the cooperation and support of the other advanced economies in Asia and Europe. A true victory for Washington requires protecting its own semiconductor technologies through export controls. But victory will also necessitate humility on the part of Washington, and recognition that it can no longer alone meet the challenges that lie ahead. Working together with like-minded partners is no longer simply a mantra—it must be at the core of Washington’s effort to win the strategic competition with Beijing.
Shihoko Goto is the director for Geoeconomics and Indo-Pacific Enterprise, and deputy director for the Asia Program, at the Wilson Center.
Cover photo: Japanese Prime Minister Fumio Kishida, left, President Joe Biden and Indian Prime Minister Narendra Modi pose for photos as they arrive at the Indo-Pacific Economic Framework for Prosperity launch event at the Izumi Garden Gallery, Monday, May 23, 2022, in Tokyo. AP Photo/Evan Vucci.