Joe Biden’s failures on trade benefit China

At the annual Asia-Pacific Economic Co-operation summit in San Francisco, all eyes were on the meeting between Xi Jinping and Joe Biden. But when it comes to competition between the two great powers in Asia, the most consequential decisions were to be made—or rather not made—behind the scenes.

Trade negotiators had hoped the summit would yield an announcement on the Indo-Pacific Economic Framework (ipef), America’s offering on trade to 13 regional economies, intended as its main weapon in the battle for economic influence in Asia. Instead, a decision by the Biden administration to halt discussions on digital trade has frozen an important part of an already limited agreement. There will be no announcement on the trade portion of ipef, one of the deal’s four pillars. With American elections now just a year away, further progress will be difficult.

Digital trade is a large and growing category, covering online services, cross-border flows of data and e-commerce. In 2017, when Donald Trump withdrew from the Trans-Pacific Partnership (tpp)—a more comprehensive agreement than ipef—Asian countries had little hope of greater access to American markets. Support for opening up digital commerce was one of America’s last claims to international openness. Indeed, the usmca agreement with Canada and Mexico, signed by Mr Trump in 2018, prohibited both customs on digital products and data localisation (the practice of forcing companies to store data in the country where it is collected).

But concerns about the sway of America’s tech giants have made Democrats, including Elizabeth Warren, a left-wing senator, sceptical about looser digital-trade rules. Those on both sides of the aisle want to ensure they are not restricted when regulating artificial intelligence (ai), says Sam Lowe of Flint Global, a consultancy. Mr Biden’s change of heart reflects these shifts.

For liberal economies in the region, this is only the latest disappointment. In 2020 Chile, New Zealand and Singapore signed a pact covering issues from paperless trade certification to co-operation on future areas of interest, such as ai and fintech. Just as the tpp grew out of a deal between New Zealand and Singapore in 2000, participants hoped to tempt America into broader agreements by getting the ball rolling themselves. That now looks unlikely.

In the wake of America’s retreat, data localisation may follow. India and Indonesia recently passed privacy laws without strict localisation requirements. That was in no small part due to American advocacy, says Nigel Cory of the Information Technology and Innovation Foundation, a think-tank. Without such pressure, countries will be more likely to take a nationalistic path.

American policy in Asia is now focused on limited bilateral deals that support Mr Biden’s industrial policy, which seeks to boost domestic manufacturing. The visit by Joko Widodo, Indonesia’s president, to Washington this week is an early step in negotiations over minerals for batteries (Indonesia accounts for almost half the nickel that was mined globally last year). And the government of the Philippines is pushing for a similar agreement.

At the same time as America is withdrawing from multilateral deals, China is throwing its hat into the ring. The Asian superpower has little chance of joining the Comprehensive and Progressive Trans-Pacific Partnership, which succeeded the tpp. But the Regional Comprehensive Economic Partnership, a 14-member trade deal that came into effect last year, will bind Asian economies more tightly to it.

In the contest between America and China for influence over Asian trade, only one side is making progress. Few Asian governments started out with great hopes for the ipef, which even its most ardent supporters conceded was no equivalent to the formal trade deals once pursued by American negotiators. Yet the agreement, whenever it comes, will now fall short of the low bar it faced. ■

For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter.