Three Pillars for a US Trade Strategy in Asia-Pacific

Marianne Schneider Petsinger, Senior Research Fellow, US and the Americas Programme, Chatham House. Chatham House is a partner in the AIG Global Trade Series.

Original Source: https://www.chathamhouse.org/2021/03/three-pillars-us-trade-strategy-asia-pacific 

After four years of the Donald Trump administration’s piecemeal approach to trade with Asia-Pacific, the US now finds itself on the outside of the region’s most important trade agreements, and in a difficult position to re-engage with key players for global economic growth, security, and technological innovation.

As the US sat on the sidelines, other major players – especially the European Union (EU) and the UK – have marched forwards in negotiating free trade agreements with key partners in the region. Meanwhile, regional integration in Asia-Pacific has advanced.

The Regional Comprehensive Economic Partnership (RCEP) – a trade deal between 15 Asia-Pacific nations including China struck in late 2020 – and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – an agreement between 11 countries following the US withdrawal from the more ambitious Trans-Pacific Partnership (TPP) – are the two biggest elements of the new Asia-Pacific trade architecture, and the US is part of neither.

Joining the CPTPP would still make sense for the US, but the Joe Biden administration has now parked any trade agreements until the domestic priorities of COVID-19 and economic recovery are addressed. Even then, stitching back together the trade deal torn apart by Trump requires tackling longstanding concerns around labour and environmental provisions.

But there is a way forward, if a three-pillared approach could be adopted which ties new initiatives together into a coherent and comprehensive US trade strategy for the Asia-Pacific region.

1. Sector-specific agreements, starting with digital

In the absence of fully-fledged bilateral or regional free trade agreements, the US should prioritize sectoral agreements consistent with the requirements of the World Trade Organization (WTO). While sectors such as medical goods – in light of the pandemic – or the environment – in light of the climate crisis – could be considered, digital trade is actually the most obvious area to focus on.

An agreement could build on the digital trade rules of the CPTPP and the 2019 US-Japan digital trade agreement, as well as go hand-in-hand with an existing initiative for a plurilateral agreement on e-commerce. Spearheaded by Australia, Singapore, and Japan, negotiations were launched in 2019 and currently include 86 of the 164 WTO members.

India is notably absent from the e-commerce negotiations as well as from both RCEP and CPTPP. The US knows that engagement with India – one of the world’s largest and fastest-growing digital markets – is critical, but it involves addressing large differences regarding cross-border data flows.

However, the ten member countries of the Association of Southeast Asian Nations (ASEAN) are pushing ahead on digital trade and therefore could be a natural partner for the US on advancing a sectoral agreement.

2. Initiatives to strengthen supply chains

Collaboration with key allies in the Asia-Pacific region is important for US efforts to strengthen the resilience of critical supply chains, such as pharmaceuticals and semiconductors. In 2020, Japan, Australia, and India launched the ‘Supply Chain Resilience Initiative’ for the region but the initiative is open to other like-minded countries, and the US should join.

The US shares many of the group’s supply chain concerns, particularly regarding an overdependence on China. But more importantly, if the supply chain resilience initiative includes the US, the partners could then align it more closely with the formation and efforts of the ‘Quad’ – the four-country security-focused dialogue between the US, Japan, Australia, and India.

Taiwan is a chokepoint in the global semiconductor supply chain, as the Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest chipmaker and has already been drawn into the crossfire of geopolitical tensions and tech competition between the US and China. The US and Taiwan would both be well-served by deepening trade cooperation – although a comprehensive trade agreement is unlikely – and strengthening the supply chain security for semiconductors.

3. A strategic and coherent approach to China

A new US trade policy for China is needed, but so far the Biden administration has signalled no immediate changes to the flawed tariffs imposed by the Trump administration and seems likely to hold China accountable to the commitments under the phase-1 agreement from January 2020.

The one element of Trump’s China trade policy definitely worth keeping – and expanding – is the US-EU-Japan trilateral initiative to address non-market-oriented trade policies and subsidies. Greater coordination by the US with its allies puts pressure on Beijing to change its market-distorting trade policies and can help efforts to hold China more accountable for human rights violations.

But a new US trade policy for China also requires a carefully balanced multilateral approach – one that is firmly grounded in enforcing WTO rules to get China to comply with its commitments, while at the same time engaging with China to update the rulebook and create meaningful WTO reform.

For a comprehensive approach, the two pillars of the broader Asia-Pacific trade strategy should strengthen and support the new US trade strategy towards China but, undoubtedly, this involves navigating complex relations and strong trade ties which many US allies in the Asia-Pacific region have with China. However, delivering a strategy focused on these three interlinking pillars offers the solid underpinning needed for a successful transformation of US trade policy in the region.