Should Southeast Asia Try to Pick Up the Pieces On IPEF?

One of Donald Trump’s first orders of business after taking the oath of office as President of the United States next January will be to pull the US out of Joe Biden’s signature trade initiative, the Indo-Pacific Economic Framework Agreement (IPEF). Trump has vowed to do so, and there is ample reason to take him at his word. In 2017, he pulled the US out of the Obama administration’s most important trade initiative, the Trans-Pacific Partnership (TPP), on his first full day in office.

After an initial period of uncertainty in which it appeared that the remaining TPP members would simply allow that agreement to lapse, the “TPP 11” regrouped, negotiated modifications to the accord, and implemented the TPP successor agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). A similar approach might make sense for IPEF from the perspective of the seven Southeast Asia members (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam).

It should be recognised from the onset that IPEF has been a US-driven initiative that has generated only muted enthusiasm among its partners. It is far more reflective of US priorities (under the Biden administration, at least) rather than regional priorities. It is an attempt to craft an agreement based not on the traditional pursuit of freer trade and lower trade barriers, but rather, Biden’s concept of a worker-centric trade policy, which sees trade as a tool that can be used to build up the US middle class and achieve wider goals such as environmental protection, anti-corruption, and encouragement of resilient supply chains among “friends”.

Regional partners most desire market access commitments from the US, but the Biden administration explicitly omitted these commitments from IPEF, fearing it would subject US workers to additional import competition and run counter to its strongly articulated pro-US worker trade policy. IPEF’s four independent pillars — trade, clean economy, fair economy, and supply chains — are intended as a somewhat amorphous, cooperative framework for collaboration rather than a binding legalistic document aimed at reducing tariff and non-tariff restrictions.

Why then did seven Southeast Asian countries sign up for IPEF if it omitted what they wanted most? The reasons are geopolitical as much as economic. For most countries in the region, their national interests are best served by maintaining a balance between China and the US and avoiding scenarios in which one side exercises preponderant influence. In recent years, that balance has tilted decisively in China’s favour. China long ago became the leading trade partner for most in the region through China-centric supply chains, and its Belt and Road Initiative continues to build out impressive connective infrastructure with countries in Southeast Asia. China has also taken the lead in forging free trade agreements, driving the successful conclusion of the Regional Comprehensive Partnership Agreement in 2020.

The conclusion of the IPEF, however, has faltered. While the clean economy and fair economy pillars have been substantially wrapped up and the supply chain pillar has been signed and entered into effect in February 2024, the cornerstone trade pillar remains incomplete.

Although IPEF will not achieve the important goal of drawing the US deeper into the region to counterbalance China, there is sufficient value in it to justify finishing the job.

It was expected to be concluded at the APEC meeting in San Francisco in October 2024, but it was derailed at the last minute by concerns raised by Congressional Democrats that labour provisions were not stringent enough. Since then, the agreement has been in a state of limbo, as all parties awaited the outcome of the US election in November. Trump’s election has emphatically brought US participation in IPEF to an end.

Does IPEF still make sense for its Southeast Asian members if its primary proponent is no longer on board? The short answer is: yes. 

Although IPEF will not achieve the important goal of drawing the US deeper into the region to counterbalance China, there is sufficient value in it to justify finishing the job. The region is dominated by SMEs, and digital trade holds transformational potential for these firms. IPEF’s provisions to facilitate the ability of SMEs to enter and succeed in the digital marketplace are worthwhile, with or without the US. This includes advancing resilient and secure digital infrastructure and platforms, addressing discriminatory practices, and expanding cooperation on business promotion. Given the criticality of participation in regional and global supply chains, IPEF’s provisions to build greater resilience across supply chains — and to anticipate and prevent disruptions — likewise hold value for the region. For countries with abundant but not always highly skilled workers, IPEF’s workforce development provisions should also be welcomed.

The accord should be reworked to provide greater policy space on labour and the environment provisions that raised concern among Southeast Asian members. Digital discussions on issues like cross-border data flows and data localisation requirements might also be revisited to ensure any final agreements are more reflective of regional rather than US interests.

A “post-US” IPEF would be a modest beginning, bringing perhaps only marginal benefits to its Southeast Asian members. But it is a forward-looking experiment in attempting to craft a new style agreement more suited to current-day realities. It is envisioned as a “living” agreement with built-in flexibility to evolve to meet new conditions — a feature that could grow in importance over time. 

In thinking about a revised IPEF, the TPP/CPTPP experience might be instructive. A number of the more difficult provisions insisted upon by the US were “suspended”. If a similar approach were taken to IPEF, it might even open the door for the three ASEAN members not currently on board (Laos, Cambodia, and Myanmar) to join. The big question on potential additional members, of course, would be China — an important common thread that runs through so many regional supply chains. The inclusion of China would almost certainly magnify the benefits that accrue to supply chain participants.

IPEF’s success and ultimate impact are open questions that will not be answered for years. Nonetheless, for a region whose impressive development has been built on small and medium-sized companies accessing global trade opportunities frequently through global supply chains, it is an experiment worth continuing.

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