Foreign Policy

Biden's commerce plans will improve China's energy in Asia

US President Joe Biden outlined his big new foreign policy idea in a February 4 speech: Rebuilding the US middle class. "There is no longer a clear line between foreign and domestic policy," he said. "Any action we take … we must take it with working American families in mind." On the surface, this sounds just like the kind of slogan ring you'd expect from a Democrat, along with the sister promise of "worker-centered" trade policy. Skeptics in the party's left wing fear that such pledges might mean nothing in light of Biden's legacy as a free trade enthusiast. However, this agenda deserves to be taken seriously. It reflects traditional progressive concerns about the impact of trade on labor and environmental standards. At a deeper level, however, this stems from a far-reaching rethink, led by National Security Advisor Jake Sullivan, of the costs two decades of hyperglobalization have placed on US society.

Although this rethinking is worthwhile, it also presents Biden with a new foreign policy dilemma. At the same time, the US President would like to support workers at home and strengthen the US's economic leadership role abroad – particularly in Asia. At least these two goals are in tension and are mutually exclusive in many ways.

The central issue is China. Policy makers like Sullivan and Biden's chief advisor for Asia, Kurt Campbell, want to deal with Beijing by reviving Asian alliances and partnerships that were damaged under former President Donald Trump. The United States once used both its security and its economic control to do so, through projects such as the original trade agreement with the Trans-Pacific Partnership (TPP). In almost every way, the US economic influence in Asia is declining, as is that in China is increasing rapidly. Beijing also well replaces Washington's role as an advocate for regional trade liberalization and integration. In short, if Biden's domestic-centric agenda does actually get through, he will likely find it harder to advance the kind of economic and trade policies that could attract partner countries in Asia and rebuild the broader economic influence of the United States.

Biden's plans reject and accept Trump's legacy. "I'm not looking for criminal trafficking," said Biden last year, suggesting that his predecessor's commercial, forced focus on tariffs should be abolished. Biden's advisors also criticize Trump's uncoordinated approach, with officials like US trade representative Robert Lighthizer working to do business with China while hawks like Secretary of State Mike Pompeo hit Beijing with new restrictions. The idea now is that Sullivan and others will work more closely with Katherine Tai, Biden's US trade candidate, to repair the domestic social fabric of the United States. Washington "can't get great strategy right if it gets economic policy wrong," wrote Sullivan and his Obama-era counterpart Jennifer Harris in Foreign Policy last year.

Even so, Biden's advisors now accept at least some of Trump's criticisms of globalization. Orthodox economists have long said that trade drives growth and leaves enough profits to compensate for the losers in increased competition. In practice, however, this compensation almost never occurred. US consumers enjoyed cheap imported goods, but those benefits were small compared to the high cost competition imposed on certain industries and communities. Although this was announced by Biden at the time, deals like the TPP are now viewed as overly beneficial to companies and their shareholders. They open markets to banks and pharmaceutical companies and do little to prevent them from stashing money in tax havens or from reorganizing their headquarters. TPP covered environmental and occupational safety, but did not deal with issues such as currency manipulation or technology standards. Meanwhile, trade policy has done little to address the opaque financial structures that promote money laundering and corruption and allow autocrats and kleptocrats to thrive.

In general, this rethinking has a lot to recommend. The move away from Trump's destructive policies is a good start, not least after recent evidence that his tariffs on China have cost Americans nearly a quarter of a million jobs. Elsewhere, a lively debate remains as to whether trade policy, rather than technology, caused the problems that hit the US middle class over the past few decades. However, the fact of stagnant incomes coupled with the perception of unfair trade policies was clearly a major contributing factor to the anger and political instability that now haunt the US political system. "Our relative ability to just bear all the costs of an open international economy is less than before," Sullivan said recently. Elsewhere he describes "putting our own house in order" as the administration's primary national security challenge.

The problem is, this type of conversation sounds threatening in Asia. Before Trump, the United States was both a major source of demand for Asian exporters and the main proponent of free trade policies that many regional leaders believed would improve their chances of economic development. Now these two US roles are taking off. Meanwhile, China's weight has only grown due to its rapid post-pandemic recovery. The successful conclusion of the Beijing Regional Comprehensive Economic Partnership Trade Agreement, in which 15 countries in the Asia-Pacific region, but not the United States, participate, confirmed China's role as regional trade master. Nations in Southeast Asia find themselves increasingly dependent on China for their growth. Even staunch US allies like Japan and South Korea, concerned about China's growing geopolitical power, acknowledge their financial interdependence with Beijing. Almost no one wants to be in Australia's position and is being punished by Beijing for economic security vulnerabilities.

Some of Washington's partners in Asia may be more willing to support US attempts to administer China on security if it comes with an economic dividend. This has always been the thinking behind economic deals like the original TPP, which was heavily backed by US foreign policy analysts, who viewed trade deals as an essential way to underpin lasting security ties. But Biden's talk of rebuilding the US middle class is a pretty clear signal that doing business with the US is likely to be more difficult, not easier, now. Few Asian exporting nations are excited about the requirements to include more labor rights in trade agreements or more restrictive requirements in areas such as state-owned companies. "All of this is a difficult task, especially in Southeast Asia," said Deborah Elms, policy expert at the Asian Trade Center in Singapore. "The leaders here want new markets for exports, no outside interference, and China is often an easier partner for that now."

Sullivan and Campbell know all too well that Washington now needs to develop a new economic agenda that will attract Asian partners. However, your options are limited. Re-entry into the TPP, which has now been reconfigured as a comprehensive and progressive agreement for the Trans-Pacific Partnership (CPTPP), is the most obvious option. However, this would mean overcoming a variety of administrative and political hurdles, not least domestic opponents who accuse them of selling out the middle class they promised to protect. Biden has announced that it will not sign any new trade deals until the COVID-19 pandemic is under control. But even then, politics will be dangerous. Most likely, at some point, Biden's team will come to the conclusion that they should rejoin due to the lack of better options. It remains unclear whether they can make domestic politics work and actually do so.

The same applies to attempts to incorporate an economic component into the square security dialogue that is bringing the United States together with Australia, India and Japan to form a young security alliance. If the United States is not currently a sufficiently attractive economic partner, could it not be done by working with its allies, some of whom, such as Japan, have significant economic influence across Asia? So far, at least, the quad has been slowly pushing its focus on security cooperation. Combating areas such as infrastructure investments or development aid, let alone trade, appears unrealistic in the short term.

Biden says he still wants to write the global "rules of the road" for trade while his advisors highlight potentially ambitious plans for Washington to forge new multilateral relationships, for example by devising new rules and standards in areas like artificial intelligence or green energy vehicle standards . "It seems to me that there is still a lot of work to be done to design an agreement that does not build on the traditional structure (free trade agreement) that has governed US trade policy for 30 years," Sullivan said in a recent interview. This suggests that the United States wants to go beyond old-style agreements like the CPTPP and may want to think even more by entering into negotiations on new next-generation trade deals that focus on areas like digital commerce.

This sounds good in theory, but is likely to be a slow and complicated process in practice. In the meantime, the economic landscape of Asia is changing rapidly, the USA largely outside of it. The CPTPP could soon be extended to countries such as South Korea and the UK. The regional comprehensive economic partnership is expected to come into force in late 2021 and cement China's new place at the heart of the Asian economic system. Overall, Biden's focus on a "worker-centered" trade policy is a good domestic game. However, assuming this is seriously pursued, there are foreign policy costs. Over the past few decades, the United States has made friends in Asia by opening up its economies and helping others open their own. The same business is no longer on the table. Without it, Biden's task of building alliances and managing China's rise will be all the more difficult.

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