Absent U.S. Leadership, Trans-Pacific Trade Pact Moves Forward

President Trump walked out of a major trade agreement with Pacific trading partners to the shock of many around the world. While President Biden is trying to forge a new path, China seeks to fill the void and U.S. allies are already stepping in, leaving the United States in the dust. 

While U.S. negotiators were in South Korea last month for the fourth round of talks under the Indo-Pacific Economic Framework (IPEF), the United Kingdom became the first non-founding party to join the Comprehensive & Progressive Trans-Pacific Partnership (CPTPP) from which the Trump administration withdrew in 2017. 

Both trade initiatives are intended to counter China’s growing influence in the region, but China has applied to join the CPTPP as the United States seeks to woo Pacific allies toward the IPEF without China, forcing our trading partners into quite the uncomfortable dance. 

The CPTPP vs. IPEF

The CPTPP, one of the largest comprehensive free trade agreements (FTA) in the world, establishes enforceable regional trade rules, liberalizes tariffs, and addresses nontariff barriers among participating nations. The CPTPP has U.S. fingerprints all over it, but of the now twelve signatories, America’s name is nowhere to be found. 

Instead, the U.S. is attempting to create a new approach to trade through IPEF, which the Biden administration is undertaking with thirteen partners across the Indo-Pacific. The initiative consists of four pillars to address issues on trade; supply chains; clean energy, decarbonization, and infrastructure; and tax and anticorruption. And while the U.S. has gone to great pains not to  frame it as a trade agreement, IPEF is designed to enhance U.S. economic engagement in the region.

How did we get here? 

In 2008, President George W. Bush announced the U.S. would join negotiations on what became known as the Trans-Pacific Partnership (TPP). When President Barack Obama took office, he made the trade agreement the hallmark of his trade policy and strategic engagement in the Asia-Pacific. His administration completed negotiations and signed the agreement, which would have covered nearly 40% of global GDP, in 2016. However, Congress did not hold a vote to ratify it before President Obama left office.  

The 2016 presidential campaign all but destroyed any chances of ratification when President Donald Trump villainized the global trading system, and the TPP in particular, throughout his campaign. He went to bat against Democratic candidate Hillary Clinton (who championed the TPP as Obama’s Secretary of State) over who could attack the deal more.

On his first day in office, President Trump signed an Executive Order withdrawing the U.S. from the agreement. With the stroke of a pen, U.S. leadership in this historic agreement was erased. Those who believed the deal to be a bridge to stronger engagement in the Asia-Pacific region and a potential counter to China’s increasing influence would have to look elsewhere. 

The remaining parties then made slight modifications to the agreement – mostly on U.S. led provisions – and renamed it the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). The door was left open for America’s return, but the Biden administration decided to walk in a different direction. Early in his term, President Biden made clear that his administration would not pursue traditional trade agreements like the CPTPP, opting instead to forge a new approach to trade policy that is “worker-centered” and emphasizes cooperation in areas such as supply chains, labor, and the environment. 

A New Framework for Trade

The Biden administration intends for the IPEF to “create a stronger, fairer, more resilient economy for families, workers, and businesses" in the U.S. and Indo-Pacific region, thus arguably serving as a substitute for CPTPP – but real questions about its effectiveness remain.

IPEF’s trade pillar, led by the Office of the U.S. Trade Representative (USTR), does not include market access (AKA tariff negotiations, for trade newbies), begging critics to ask what incentives there are for participants to agree to high-standard labor and environmental commitments. Other skeptics are concerned about the durability of IPEF without binding enforcement mechanisms. 

On the incentives piece, USTR has suggested that technical assistance, capacity building, and private sector investments will serve as carrots. Indonesia, Malaysia, and the Philippines are taking advantage of the framework to suggest the inclusion of a critical minerals deal – one that would grant them FTA eligibility under the Inflation Reduction Act (IRA) electric vehicle tax credits. The U.S. has not yet agreed to this proposal. 

Ceding Leadership in the Indo-Pacific

The United Kingdom is the first new country to accede to the CPTPP, but it certainly won’t be the last. Whether China will be considered, much less meet the accession criteria, is not yet ironed out. But China’s entry, however unlikely, would have an outsized impact on the agreement due to its economic heft. Further, any remaining hope of the U.S. joining would be dashed.

As it awaits a decision, China is not sitting on the sidelines. The nation is reaping the benefits of the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trading bloc with fifteen member countries across the Asia-Pacific. The deal may be weaker than the CPTPP, but China has already capitalized on the opportunities it created; namely, to elevate its economic and political heft in the region. 

Could the U.S. rejoin CPTPP? 

The politics of the U.S. rejoining CPTPP are complicated for President Biden, but support for more engagement in the Indo-Pacific is ubiquitous and arguments for rejoining are vast. 

For starters, U.S. negotiators had a heavy hand in drafting the agreement. Six CPTPP members are already party to a traditional FTA with the U.S., and other participants, such as Japan and the UK, are close allies and trading partners. 

It’s also true that with RCEP in force, there are two behemoth trade agreements in the Asia-Pacific, and the U.S. is party to neither. U.S. exporters will remain at a competitive disadvantage in the region as long as the U.S. is not a part of CPTPP and especially if China joins.

These views are also present in Congress. Some members openly champion a U.S. return to CPTPP, while others express concern over what they deem to be the Biden administration’s lackluster trade agenda, particularly as the country aims to compete with China. 

It will be many years until the economic effects of CPTPP can be fully evaluated. In the same vein, IPEF’s impact and durability will take time to discern. But in the short-term, CPTPP members are developing strong, integrated trading relationships, and the U.S. is lagging.