After 2½ years, US President Joe Biden’s Indo-Pacific Economic Framework for Prosperity (IPEF) is increasingly irrelevant due to its own limitations and broader US foreign policy shifts.

IPEF pillars

Unlike free trade agreements (FTAs), IPEF does not offer better market access by reducing tariff or non-tariff barriers. Instead, it has been styled as a standards agreement involving four “pillars”:

Fair and resilient trade: This imposes “high standard” rules, particularly for the digital economy, labour and environment. Enforcing such standards is now widely seen as protectionist.

Supply chain resilience: This seeks to establish reliable supply chains, bypassing China. Many countries hope to benefit from such “friendshoring”. However, most recent inflationary supply disruptions have been due to the new Cold War, pandemic and sanctions.

Infrastructure, clean energy and decarbonisation will supposedly enhance mitigation efforts, ignoring the adaptation priorities of developing countries.

Tax and anti-corruption: IPEF promises to improve tax information exchange and curb money laundering and bribery. But most developing countries have retrieved little from such efforts. Their recent experience with the Organisation for Economic Co-operation and Development-led Inclusive Framework for taxation has deepened such suspicions.

Each IPEF pillar involved separate negotiations, allowing partners to opt in or out. While this accommodates diverse interests, the resulting fragmentation undermines likely effectiveness. Even worse, IPEF is a White House initiative that lacks Congressional support, raising doubts about its longevity.

Great expectations, humble reality

Yet, Asia-Pacific interest in better US market access remains after President Donald Trump’s withdrawal from the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) agreements.

IPEF’s advent over half a decade after Trump withdrew from the TPP suggests it was never a Biden priority. The US caricatures and dismisses the RCEP as a “low standards” China-led agreement, but East Asia does not seem to agree.

Instead, the Biden administration has touted IPEF as a strong US-led response to the RCEP. However, its modest offer has further undermined Washington’s reputation, fuelling caution and scepticism.

Taiwan is part of the US-led Asia-Pacific Economic Cooperation, and Washington is believed to be surreptitiously promoting its independence. However, the island province has been excluded from IPEF, perhaps due to deliberate “strategic ambiguity”.

America First

The upcoming US presidential election compounds the uncertainty. If re-elected, former president Trump has promised to “knock out” IPEF, describing it as worse than the TPP.

Presidential candidate Kamala Harris has long been sceptical of international trade agreements, including the TPP. She is expected to replace Deputy Secretary of State Kurt Campbell, architect of President Barack Obama’s “pivot to Asia” via TPP and Biden’s IPEF.

The past decade has seen US domestic politics increasingly shaping foreign economic and trade policies, regardless of party affiliation, with protectionist sentiment surging in both parties.

Scepticism about FTAs and retreats from earlier US foreign policy “activism” have become bipartisan rather than only associated with Trump.

Bretton Woods exception?

Historically, the doctrine of Manifest Destiny drove territorial acquisitions in the American hemisphere, the US “backyard” since the Monroe Doctrine. At the same time, protectionist trade policies accelerated US industrialisation after the North won the Civil War.

Domestic politics favoured the US Neutrality Acts of the 1930s. The 1929 Crash led to the 1930 Smoot-Hawley Tariff Act, which raised import duties on thousands of goods.

The US’ international role grew significantly after World War II, creating post-war multilateral institutions such as the United Nations, International Monetary Fund, World Bank and General Agreement on Tariffs and Trade.

Creating regional blocs soon superseded President Franklin D Roosevelt’s multilateral legacy as the Cold War changed the perception of security threats and economic priorities. After the Cold War, the US briefly remained globally engaged as a unipolar power.

However, growing domestic discontent over economic globalisation and interventionist conflicts eroded support for earlier policies. Trump’s “America First” mantra has driven this shift, even challenging plurilateral trade agreements.

While the Biden administration has been “re-engaging” multilaterally to reassert dominance, protectionism has not been reduced, with some Trump-era tariffs on Chinese imports even increasing.

More actions against Chinese tech firms like Huawei reflect the bipartisan belief that previous free trade policies had inadvertently benefited China without securing the promised gains. With more rhetoric of “safeguarding” critical industries and technologies, bipartisan scepticism toward FTAs has grown.

Geopolitics, not geoeconomics

Neoliberals claimed economic liberalisation would lead to political liberalisation and strengthen the rule of law. Thomas Friedman even claimed countries with McDonald’s franchises would not go to war with one another.

China has not adopted the political reforms many in the West wanted. Instead, it looms larger on the world stage, pursuing policies at odds with US interests.

Likewise, the integration of post-Soviet Russia into the world economy via World Trade Organization and G8 membership was expected to align it with the West. But such efforts ended before Russia’s forcible entry into Crimea and, later, Ukraine.

Southeast Asian governments quickly realised IPEF was not a US political priority. Negotiating was intended not to offend the US. IPEF was supposed to reassert US leadership to counter China’s growing influence, but content-wise, it appears to be about setting standards serving US corporate interests.

US reluctance to offer tangible benefits, such as improved market access, has made IPEF less attractive, especially compared with China. IPEF’s limited ambition and commitments reflect the deeper malaise of US foreign policy.

As US domestic politics increasingly drive foreign policy, initiatives such as IPEF appear less viable. Hence, IPEF seems like the last gasp of a fast-fading approach to engagement rather than a blueprint for future cooperation.

Source: The edge markets

For Europe's economy, the Nov. 5 U.S. election offers a "least bad" outcome of a challenging Kamala Harris presidency or a second encounter with Donald Trump which threatens to be yet more bruising than the first.

On two key areas - trade policy and the sharing of rising security costs among NATO allies - Europe expects few favours from a Harris presidency which it sees as "Biden continuity".

Trump 2.0, on the other hand, presents multiple dangers: if he were to pull U.S. support for Ukraine, European governments would need to ramp up defence spending fast; and if he triggered a global trade war, Europe fears it would be the big loser.

"Whoever the winner of the U.S. election is, it is unclear whether Europe can continue to benefit from U.S. growth without reducing trade with China itself," said Zach Meyers of the Centre for European Reform (CER) think tank.

"Both U.S. candidates have the same direction of travel - Trump less predictable and perhaps willing to be more confrontational with the European Union."

For ASML, a Dutch supplier of hi-tech microchip manufacturing equipment, the risk of collateral damage from U.S. efforts to "contain" China is all too real - it already faces export bans on half its products to China after a U.S.-led campaign.

"There's a strong will in the U.S. to seek more restrictions - I think it's very clear and it's something that's bipartisan," ASML CEO Christophe Fouquet told a conference last month. "And so I think whatever happens in November, this will stay."

Half of Europe's output comes from trade, double the rate in the United States, while the region's 30 million manufacturing jobs - compared to only 13 million in the United States - mean it is highly vulnerable to anything that restricts commerce.

MORE TARIFFS?

Support for free trade in Washington has evaporated in the past decade. Joe Biden chose not to scrap outright tariffs levied in Trump's first presidency and has added his own focus on U.S. jobs with the Inflation Reduction Act (IRA) subsidies.

While Harris is seen pursuing a path similar to Biden, Trump has threatened to go further with across-the-board tariffs of 10-20% on all imports - including those of Europe, with whom America still has annual trade worth over one trillion euros.

Spanish olive producers have seen their exports to United States, once their main foreign market, slump by 70% after Trump in 2018 imposed tariffs which remain in place despite World Trade Organization (WTO) rulings against them.

"If Trump wins, this could get worse and we think it will be difficult to resolve this without pressure from Europe," Antonio de Mora, head of ASEMESA, the body which represents Spain's olive exporters, told Reuters.

For those European companies with U.S. presences, the added uncertainty is whether Trump will follow through on promises to scrap Biden's IRA green energy subsidies.

German machinery firm Trumpf, which employs 2,000 U.S. staff and supplies equipment for electric vehicle batteries and solar, told Reuters it was not expanding those activities in the United States due to uncertainty about the election outcome.

GROWTH DAMPENER

The U.S. election could also have major implications for the defence budgets of European governments struggling with debt levels inflated by post-pandemic recovery spending.

Again, the question is more one of timing than destination: Harris is expected to pursue U.S. pressure on Europe to pick up more of the tab for regional security while the lack of clarity around Trump's commitment to Ukraine hugely ups the ante.

"In our view, a Trump presidency increases the risk that spending needs to be ramped up sooner, while a Harris presidency may give Europe more time," UBS analysts said in a note.

Thus, while a Harris presidency could have little measurable impact on Europe's economy, the downside risks of a second Trump term in office are clearly tangible.

Goldman Sachs economists estimate that if Trump went ahead with his tariffs, their direct effect plus the trade uncertainty they would generate could shave one percentage point off output in the 20 countries of the euro area - more than the weak 0.8% growth they are forecast to eke out this year.

Any economic growth benefits to be had if an ebbing U.S. commitment to Ukraine forced Europe to boost defence spending would be cancelled out by the hit the regional economy would take from the resulting geopolitical risk, they noted.

The European Commission has a closed-door team of officials to study how the EU will be affected by the election outcome. But any policy conclusions they draw will need to secure an EU consensus - which, as shown by the bloc's divisions over how to deal with Chinese electric vehicle imports, can be elusive.

Pro-European optimists suggest the US election - especially in the event of a Trump victory - could have a salutary shock effect of finally spurring the region to adopt the type of deep reforms proposed by former ECB chief Mario Draghi last month.

"The prospect of more tense transatlantic relations should encourage the EU to address the reasons why its economic size has been shrinking relative to the US economy," noted CER.

Source: The edge markets

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