U.S. Delivers Early Win in Asia Trade Pact, but Rifts Surface

Date: Wednesday, May 31, 2023
Source: Wall Street Journal

DETROIT—The U.S. and 13 other Asia-Pacific nations agreed to expand supply-chain cooperation Saturday, delivering an early win in a new U.S.-led initiative to strengthen economic ties with the region’s friendly nations amid rising tensions with China.

But some trade officials questioned the Biden administration’s growing focus on protecting domestic jobs and bolstering U.S. manufacturing, saying these policies hurt smaller or less-wealthy nations that rely on trade to grow their economies.

The supply-chain agreement is part of the Biden administration’s effort to work more closely with allies and friendly nations in the Asia-Pacific under a group called the Indo-Pacific Economic Framework, which covers issues such as digital trade, clean energy and tax policies, as a way to counter China.

Commerce Secretary Gina Raimondo said the U.S. hopes to conclude the overall IPEF negotiations by the summit meeting of the Asia-Pacific Economic Cooperation nations in San Francisco in November, which President Biden will host.

Under the new pact, the countries will begin working together to strengthen supply chains in critical sectors and set up a mechanism to prevent and respond to emergencies similar to the semiconductor shortages seen during the Covid-19 pandemic.

“We learned the hard way during the pandemic…how intertwined these global supply chains are,” Raimondo said, noting that shutdowns in Malaysian factories caused chip shortages that forced Michigan auto facilities to close and furlough workers. The new cooperation “absolutely would have helped us secure American jobs and keep supply chains moving.”

Amid continued skepticism of free-trade policy among U.S. lawmakers and policy makers worried about trade’s impact on American jobs, the IPEF doesn’t include tariff reduction and other enforceable market-opening measures that were the trademark of traditional free-trade agreements.

At the Detroit meetings this week, U.S. Trade Representative Katherine Tai emphasized the administration’s worker-centric trade policy that maximizes benefits for the U.S. middle class.

“For too long, our trade policies have been focused on liberalization, efficiencies and lowering costs,” she said at a panel featuring U.S. labor union leaders.

Those remarks drew skeptical responses from some officials of other nations.

“We see trade as the solution, not the problem, because the people who work in industries involved in trade in our country are paid significantly more than those who are not,” said Damien O’Connor, trade minister of New Zealand.

O’Connor expressed his preference for using commerce policy or tax policy to address inequality and worker rights, not trade policy.

Liew Chin Tong, Malaysia’s deputy trade minister, said he was sympathetic to the view that workers in the U.S. have to benefit from trade. “The challenge is this cannot be done at the expense of our workers.”

Ngozi Okonjo-Iweala, director general of the World Trade Organization, urged Tai to have closer conversations with small nations and developing countries to avoid resistance to the U.S. stance.

“They’re afraid that this is one more thing that’s going to stop them from having market access,” she said. “That there will now be demands that workers are paid a certain amount and meet certain standards, that it’s just a ploy to stop their products.”

The administration’s stance on IPEF has also frustrated many in the U.S. business community.

The U.S. Chamber of Commerce and more than two dozen other business groups wrote to Tai and Raimondo on Friday saying they were “increasingly concerned that the content and direction of the administration’s proposals for the talks risk not only failing to deliver meaningful strategic and commercial outcomes but also endangering U.S. trade and economic interests in the Indo-Pacific region and beyond.”

Raimondo said at a press conference Saturday that the claims of the business groups were “flatly wrong” and reflected the misunderstanding of what the IPEF is. “I can’t imagine at all a scenario in which the IPEF would hurt the U.S. economy,” she said.

Tai emphasized the IPEF is not a traditional free trade agreement. She said the administration will hear out “the big corporate interests,” adding, “We all need to wrap our minds around the fact that we need a new model that’s going to be better for all of us,” including workers and small businesses.

The IPEF gathering in Detroit on Saturday followed an APEC trade ministers’ meeting this week, which created a rare occasion for conversations between Chinese officials and those from the U.S. and other Asia-Pacific nations.

The Chinese delegation led by Commerce Minister Wang Wentao sat across from his counterpart from Taiwan, John Chen-Chung Deng, at a large oval table for the group’s 21 members including Russia.

While many delegates appreciated having countries together at a time of geopolitical tensions, the group failed to deliver a joint statement due in part to opposition from Russia and China to a phrase that said  “security issues can have significant consequences for the global economy.”

Following his meeting with Raimondo in Washington on Thursday, Wang met with Tai on Friday. She emphasized the need to address the “critical imbalances caused by China’s state-led, nonmarket approach to the economy and trade policy” and raised concerns about China’s action taken against U.S. companies recently.

“The benefit of sitting down and having a conversation with the minister from Beijing is so that we can understand each other better, and understand how we are experiencing the impacts that we have on each others’ economies,” Tai said.

[Read from the original source.]