In an era marked by grandiose moves and countermoves of geopolitical chess, the Indo-Pacific region stands at its epicentre. At the heart of this game is the clash of the titans of the 21^st century—China and the United States. President Joe Biden, while not inheriting an easy job from his predecessor, has faced huge challenges in his approach to diplomacy in the region. In this article, I aim to dissect the complex task that Biden has faced thus far in his economic diplomacy in the Indo-Pacific, and further seek to uncover how these actions, or perhaps notable inactions, serve as unwitting boons to China’s ever-expanding influence in the region.

American Indo-Pacific Strategy

President Biden’s approach to the Indo-Pacific has been characterized by a largely strategic focus, centred on strengthening alliances, emphasizing democratic and liberal values, and very heavily boosting security ties and presence in the region. However, one aspect that he has been heavily criticized on, is the lack of an economic thrust in his engagement with the region. Of course, this is not unique to Biden. He inherited an inward-looking and protectionist mandate from his predecessor. Trump unilaterally pulled the U.S. out of the Trans-Pacific Partnership (TPP) citing concerns that it would disadvantage American workers and industries. This led to the evolution of the TPP into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), one of the world’s largest free trade areas by GDP, and it excluded the United States. The Regional Comprehensive Economic Partnership (RCEP) and the Belt and Road Initiative (BRI) are two of the most colossal economic projects in the world currently, both dominated by China, pushing the U.S. towards obsolescence in the region.

This puts the U.S. in a vulnerable position. With the Indo-Pacific projected to be responsible for 56% of global growth between 2019 and 2050, the U.S. cannot afford to sit idly by. A Peterson Institute for International Economics study found that many Indo-Pacific nations, all except for Japan and the United States, had deepened their dependence on imported Chinese manufactured goods over the past decade. Furthermore, a study by the Australian Strategic Policy Institute has discovered that China’s use of economic statecraft in coercive tactics—such as trade restrictions, investment restrictions or state sanctions—is sitting “at levels well above those seen a decade ago”. Although this has seen mixed successes in affecting the policies of target governments, it is undeniable that this presents a huge threat to the international liberal order that the U.S. championed, as well as a rules-based order to oppose a might-makes-right international system. Smaller, regional states are also searching for an alternative to avoid being over-reliant, and consequently susceptible to Chinese influence. 

This has forced Biden to search for a creative solution to re-engage with the region, without losing his domestic appeal. The challenge lies in enhancing regional diplomatic ties, achieving geopolitical balancing against China, while still pursuing domestic economic and trade interests. This led to Biden’s pivotal strategy in Asia—the Indo-Pacific Economic Framework (IPEF), comprising the U.S. and 13 other members, representing 40% of the global GDP.

Launched in 2022, it comprised four pillars—supply chain resilience, fair and resilient trade (especially in the new digital economy), climate change, and anti-corruption regulations. It offers an economic framework for cooperation. Yet, it is not a traditional trade bloc based on free-trade agreements. It offers no greater access to markets, or reduction in trade restrictions. Therefore, many view it as insufficient, and overall an endeavour in futility in absolute economic terms.

However, one can also view it as a semi-strategic geopolitical tool, instead of being a strong economic tool in and of itself, to claw back some economic influence for the U.S. in the region. Then how could it benefit the regional stakeholders? It would present them with an opportunity to decouple themselves from the monopoly that is China. I could delve deeply into these points but just as soon as these questions were raised, they were rendered immediately redundant as earlier in November, Biden halted the IPEF citing domestic scepticism of the its “unenforceable” labour standards, and a failure to make any progress on the trade pillar of the deal. 

This is the greatest setback to American geopolitical aims. Regardless of the deal’s alleged diminutiveness, the failure of even such a deal bodes terribly for the U.S. At the very least, the IPEF aimed to reassure the Indo-Pacific that the U.S. is still interested in a meaningful economic relationship with them. However, it has ostensibly fallen short of even that. This is especially disappointing for Indo-Pacific countries that were hoping to decouple, even to a small extent, their economies from China.

Implications

Often when such policy failures occur, it is tempting to immediately zoom out to examine the broader impacts of such a failure, which I will discuss later. However, in this case, I believe it is equally prudent to examine the explicit economic impacts this will have on the region as well.

Many regional states have viewed the IPEF as a way to secure U.S. commitments in the region, rather than purely as a function of the content of the agreement. However, the IPEF’s focus on diversifying supply chains would have been a huge benefit to states looking to decouple from China. Analysis of data from bilateral trade flows from 2010 to 2021 shows that IPEF countries now rely more heavily on a smaller set of import sources and export destinations that they did a decade ago, and that these patterns have become far less diversified across partners. Indeed, China is the top import source for all IPEF countries excluding Brunei, as well as the top export destinations for half. The goal of diversifying supply chains thus resonates with the region due to aforementioned “weaponization” of trade that China has employed to certain countries in the region.

Australia, a nation desperately seeking to decouple from China and being a strong ally of the U.S., are themselves finding it impossible to do so. Separate Australian administrations conducted investigations into the feasibility of independently ‘diversifying’ their import-export relationship and concluded that it would be unmanageable. The failure of the IPEF hence, is a strong blow to such aims.

However, the threat of economic coercion is not the only driving factor. Global events such as the COVID-19 pandemic and the Russian Invasion of Ukraine have highlighted the vulnerabilities of supply chains. Due to lockdowns, labour or resource shortages, and consequently price hikes, countries and companies excessively reliant on a narrow supply chain could face huge disruptions to their economy and society. This could be dependent or independent of a conscious use of economic statecraft. For example, in 2010, Japan faced a crisis when China restricted exports of rare earth elements due to a diplomatic dispute, prompting Japan to scramble to seek alternative supply chains. This was made extremely difficult with China accounting for 70% of the world’s output of rare earths. Although this was later reversed due to WTO verdicts, it highlights the power that China possesses in influencing the industries of regional nations. Thus, the failure of the IPEF, coupled with the huge and growing dependencies on China, could have dire consequences for the region’s economy, should China’s production flounder, or should they choose to take advantage of their economic clout.

On a broader scale, this highlights a strategic failure for the U.S. Indo-Pacific policy. Intended to fill a policy gap in engaging the region economically, the failure of the IPEF reflects a lack of U.S. resolve in economic engagement in the region. Although officials have promised a renewal of talks in 2024, with looming elections, and Trump’s threat of repeal hanging overhead were he to be given the mandate, it is unlikely the deal will go through in its current form. However, with the IPEF already not including any trade liberalization or market access features, it is difficult to see a deal with further protectionist measures that would be deemed acceptable to regional partners. This American vacillation bodes poorly for their desires to maintain a stake in the region. 

Exacerbated by domestic political issues, this further highlights an overall shift away from the free trade philosophy championed by the U.S.. Domestic political concerns and a shift in public opinion against free trade have led the Biden administration to focus on protecting American jobs and industries, which was evident in the challenges faced during IPEF negotiations. America’s distaste for a liberal economic order is made more apparent when we consider that this was the best time for the U.S. to attempt a re-engagement with the region, considering China’s floundering economy and the U.S.’ strong rebound after the pandemic. Yet they failed. This shift raises questions about the U.S.’s future role in regional and global trade. This is contrasted with China further liberalizing their economy, seeking further engagement with the region. China has already submitted a formal request to accede to the CPTPP, demonstrating a resolve to abide by the rules of a liberal economic environment. 

Even outside the economic forum, this American failure allows China free reign over not only the economy, but also the broader geopolitical situation in the region, as its biggest investor. With China’s economic grasp over the region, it makes it very difficult for the U.S., and other regional actors, to compete over geopolitical issues such as the South China Sea. Already ASEAN is split in their response to the South China Sea crisis due to certain countries’ economic dependence on China; this will only get worse with the U.S.’ failure to engage with the region.  

What does the future hold for the Indo-Pacific

This broad trend of American disengagement, along with an inevitable growing dependence on China creates an anxious reality for the Indo-Pacific. While the U.S. continues to be a vital security partner, in matters of trade, regional governments must forge their own path.

The regional states must themselves take charge and pioneer innovative solutions to enable their decoupling from the Great Powers, while avoiding the strategic competition and instability that accompanies it. Singapore’s Digital Economic Partnership Agreement with Chile and New Zealand, along with the ASEAN Digital Economy Framework Agreements are some of the frameworks that set the stage for further regional cooperation. Although this still permits China outsize influence in the economic and geopolitical development of the region, it prevents a complete dependence. Importantly, it should still allow the U.S. an avenue to re-engage with the region should they realize the political myopia that accompanies their economic policy. 

In conclusion, President Biden’s approach to economic diplomacy in the Indo-Pacific region, particularly through the IPEF, represents a critical yet faltering effort in counterbalancing China’s expanding influence. The IPEF’s limitations and subsequent halting not only signify a setback in American geopolitical strategy but also highlight a growing disconnect between U.S. economic policy and the dynamic needs of the Indo-Pacific region. This disengagement presents a strategic gift to China, allowing it to solidify its economic and political clout in the region.

Ayush Das is a student at the London School of Economics and an editor with the London Globalist’s Asia Desk.