US-led security push in Asia leaves trade optional

If you think Asia-Pacific is the crucible in which the future of integrated global trade is being cooked, you are well behind the times. Everyone is in the Indo-Pacific these days. It sounds like a tediously pedantic distinction, perhaps an unnecessary change that the makers of Risk would do to the game board to justify the release of a new edition. In fact, it’s a big deal, and it underscores why the United States and increasingly its allies are sublimating trade liberalization over security in the region.

The (imperfectly defined) areas can be quite similar, although the Indo-Pacific generally covers more of the globe to the west, encompassing the entire Indian Ocean. The real distinction is that the Indo-Pacific is an international relations term, not an economic term. Zero-sum mercantilist Donald Trump began using the term extensively during his presidency as part of his confrontation with China. It continues to adapt to a world where, especially given Russia’s assault on Ukraine, the United States and often its allies – the EU, the UK, Australia, the Japan – prioritize building countervailing alliances in Beijing and Moscow over trade liberalization.

The United States once built a trans-Pacific partnership, including relatively liberal free-trade nations in the Eastern Pacific such as Chile, Mexico, and Canada. Now the prized members of its new Indo-Pacific economic framework are India and Indonesia, both of which have been invited to the G7 leaders’ meeting this week in Germany. Last year, the EU launched its own Indo-Pacific Strategy and resumed trade talks with India after a nearly decade-long hiatus.

India’s military power and its growing estrangement from China prompt the United States to work with New Delhi on all possible fronts. The Quad strategic partnership of (more or less) democracies in the region – the United States, Australia, India and Japan – has expanded its role to include Covid vaccines, climate change and critical technologies.

Unfortunately, the trade deal phobia that has gripped Washington means it cannot offer market access as an incentive for economic integration. The TPP was designed to shape a commercial area in the image of the United States. The Biden administration’s IPEF was rightly widely rejected for containing few binding measures.

The EU has the opposite problem: it can sign trade agreements but it does not have a navy. Even in trade, Brussels’ modus operandi in Asia has generally been to pick countries one-by-one with a standard model bilateral agreement rather than trying to weld them together. There wasn’t much more respect among traders for the EU’s Indo-Pacific strategy, which involved a lot of hand gestures over digital partnerships, than for the US version.

The desire to keep India on its side has pushed US allies away from aggressive liberalization and outspoken trade diplomacy. India under Narendra Modi may declare itself a mercantile nation and is back in the game of preferential trade deals, but it is still wary of competition from other Asian economies, notably China. Modi has dropped plans to join the Asia-Pacific Regional Comprehensive Economic Partnership, let alone the updated TPP.

New Delhi is also louder than ever on the multilateral circuit, dominating a recent World Trade Organization ministerial meeting by threatening to tear up a 24-year moratorium on digital trade taxation, insisting on watering down a subsidy deal. fishing and blocking an agreement on agriculture.

Yet, although advanced economies have been extremely frustrated, much of their public criticism of India has been muted. Don Farrell, Australia’s trade minister, told the FT in an interview at the WTO ministerial meeting: “We don’t want to make it harder for India. We want to have a good relationship with them. We share democratic values. We have a very important strategic partnership. Australia and the UK sign weak PTAs with India, full of loopholes and exceptions, due to the political imperative.

Now, it could be (it probably is, in my view) that meaningful trade deals are neither necessary nor sufficient to cement strategic alliances. India wants, and gets, military cooperation from Washington far more than it cares about access to the US market. But since trade has a geopolitical impact, the US aversion to any substantive deal has allowed China to expand its influence in the region, joining the RCEP and trying to join the TPP.

None of the advanced economies really has a coherent policy linking trade and geopolitics in the Indo-Pacific. If their rivalry with China continues to escalate, it is an omission that is likely to weigh ever more heavily on the minds of the governments concerned.

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