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Think Tank: US Needs to Lower Tariffs to Get in Game in Asia, IPEF Not Enough

A former Office of the U.S. Trade Representative career negotiator and a former Trump administration trade adviser say that even if the U.S. is not going to reenter into a tweaked Trans-Pacific Partnership -- as they advised in an earlier think tank piece -- the U.S. needs to take trade negotiations in Asia more seriously to not get left behind.

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Wendy Cutler, the vice president of the Asia Society Policy Institute, and Clete Willems, partner at Akin Gump and a former deputy director of the National Economic Council, wrote in a recent Asia Society paper that the Indo-Pacific Economic Framework for Prosperity (IPEF) is not enough to counter China's ability to deeply intertwine its manufacturers with manufacturers in Vietnam, Indonesia, the Philippines, Japan and Malaysia. All those countries are both in the Regional Comprehensive Economic Partnership (RCEP), a trade deal with China that lowers tariffs, and in IPEF, which does not. Malaysia, Japan and Vietnam are also in the revised TPP, which the U.S. decided not to join after working on its text for eight years. Cutler was the top negotiator for the U.S. during those talks.

"To put it bluntly, if the United States does not take a bolder approach, we risk becoming spectators as our partners work among themselves and with China to strengthen supply chain connectivity and regional economic integration," Cutler and Willems wrote. "This will substantially undermine the United States’ long-term economic, national security, and geopolitical influence."

The paper noted that not only is trade between southeast Asian countries and China growing rapidly -- 64% between 2017 and 2022 -- but China is seeking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, what the TPP became after the U.S. decided not to join in 2017.

"Despite otherwise wishful thinking by U.S. policymakers, numerous CPTPP members appear positively inclined toward China’s membership. If China succeeds in its accession efforts, it will have scored a strategic coup beyond its wildest dreams. Not only will the United States have failed to achieve its original objective of using the agreement to set regional standards and norms without China, but China would be able to flip the table and use the CPTPP to set regional standards and norms without the United States," they wrote.

The most straightforward counter would be for the U.S. to join the CPTPP, but it is not politically feasible without some renegotiation, they say. They described how that could be achieved in a previous paper (see 2212120048).

The authors said some countries have suggested they are willing to modify the CPTPP, and they said they think policymakers see that the U.S. is not properly countering China's ambitions in Asia.

"On the other hand, many U.S. policymakers point to the political baggage associated with the CPTPP as an obstacle to moving forward with this approach," they wrote.

So, while they think re-entering a tweaked CPTPP would be best, there are other ways the U.S. could engage more robustly in Asian trade, they wrote.

One would be by starting a phase two in IPEF that would lower tariffs. "Such negotiations are crucial to prevent the United States from falling further behind in efforts to link supply chains across a range of areas in the region," they wrote. "However, given the sensitivities, the United States could consider negotiating market access in an incremental way. For example, Washington could work with its partners to eliminate or reduce tariffs in targeted sectors, such as critical minerals, clean energy, or medical-related goods, which would help strengthen U.S. supply chains with like-minded countries."

Another would be to allow countries outside North America to join USMCA, such as Taiwan, the U.K. or others.

"The United States would need to seek the agreement of Canada and Mexico, and it is not clear whether they would go along. Expanding the USMCA membership may be a particularly tough sell to Mexico, which could be wary of welcoming potential commercial competitors into the pact. Its advantage as the lower-cost supplier in the trilateral agreement and an attractive destination for foreign direct investment could be undermined by the addition of new members," they wrote. Also, broadening the trade deal could dilute its strong rules of origin, and could open a can of worms in Congress.