On Monday, the Biden administration announced the Indo-Pacific Economic Framework (IPEF) – a new trade initiative with a dozen Asian partners including Australia, Japan, and Korea, framed around counterbalancing China’s dominant role in the region. The framework is neither a security pact nor a free trade agreement. It is a sweeping plan intended to shape international rules on the digital economy, supply chains, the environment, and labor; in the process to tackle inflation and expand US “economic leadership” in the Indo-Pacific.
In short, the Framework is detail, and commitment, lite. It seeks to address a critical imperative: China’s growing economic and industrial dominance, in the Indo-Pacific as globally, and the continued failure of the US-led order to compete. But the IPEF is hardly the answer. It appears to be an agreement for the sake of an agreement; a balancing act of domestic US political pressures plus juggling act of incompatible priorities among Indo-Pacific partners – leading to a compromise that everyone can sign off on because it does nothing at all. In other words, the Framework is much like the US-EU Trade and Technology Council, and the broader series of multilateral agreements led by the US that have preceded it.
But while the Framework is has not exactly encouraging, the events surrounding its launch have been. The Biden Administration timed its IPEF announcement to coincide with the President’s visit to Asia this week. And that visit in turn has coincided with a series of private sector-led industrial partnerships that do seem to have some teeth to them, and that could augur a new era of movement on, and opportunity for, effective allied industrial cooperation.
On March 22, Hyundai announced that it will invest over 10 billion USD into the US between now and 2025, with half of that funding EV and battery facilities in Georgia and another half fueling efforts to strengthen US partnerships on advanced technology. Just two days later, Samsung SDI declared that it would partner with Stellantis to build the automaker’s first EV battery plant in the US. Both constitute major investments on the part of allied industrial champions in the United States – and in critical industries where the US needs capacity.
Of course, these agreements are only starting points. They don’t address the dearth of upstream investment in the EV supply chain, for example, and that industry’s reliance on China. But they do suggest a clear takeaway: The US needs to strengthen both its domestic industrial capacity and its economic ties to allies and partners, especially in Asia. Sweeping international agreements may be inadequate for the task at hand. But public private partnership in which the US government incentivizes key private sector players, at home and abroad, to invest in strategic nodes in strategic industries and in the United States? Those can have an effect. And it seems that the private sector is willing to play ball.
Now, it falls to the US government to keep up its side of the bargain, and to do so intelligently. Washington will have to get smart about where it encourages investment – looking not only at EV battery manufacturing, for example, but also lithium processing so that those batteries don’t depend on Chinese inputs; not only semiconductor technology but also microelectronics production so that the industry isn’t reliant on sales into China. Washington will also have to get smart about pairing carrots with sticks: What competitive value is there to developing a partnership with Japan on cutting-edge information technology if the companies carrying out that cooperation are dependent on, influenced by, or vulnerable to Beijing? And, of course, Washington will have to keep at it. This is a marathon not a sprint. Plans and commitments made today will have to endure well beyond the end of this administration. Otherwise, the United States will not have a second chance.
The United States needs to reclaim control over international industry. Doing so requires working with its allies and partners. But the United States will have to do so from the ground up: The players that matter here are not primarily, or perhaps even at all, heads of state. They are heads of industry. The agreements that matter are contracts not international frameworks. This is not an efficient way to compete: It requires countless compromises and skirmishes not one grand multilateral one. But it this is the only way to be effective.
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