The Evolution of the U.S. Trade Agenda in the Asia-Pacific Since 2017

The evolution of U.S. trade policy in the Asia-Pacific region

The evolution of U.S. trade policy in the Asia-Pacific is, in fact, the narrative of its evolving trade policy with the world. As it has taken on a more domestic-driven focus and purpose, U.S. trade policy has lost having a particular geographical focus or objective in terms of trade integration. Trade policy in the United States has been transformed rather substantially and, in some ways, fundamentally. These transformations continue today.

Reasons for trade policy changes in the Asia-Pacific region

The forces transforming U.S. trade policy have been gathering for years, stemming mostly from domestic causes. One is the vulnerability that some Americans feel from the economy being so open to the world and a related anxiety around their economic future. While America’s openness is also seen as one of its great strengths, this sense of vulnerability has increased. Political candidates who favor policies to continue to make America more open are often no longer successful.

The negative impacts of international trade, particularly from the export crush of products from China, have been highlighted in this context. This also has parallels to debates around open markets and free trade when Japan's exports to the U.S. in the 1970s and 1980s were having impacts on jobs and manufacturing. President Trump and President Biden have linked America’s current economic challenges to past trade policy decisions. This focus on vulnerability is the main force pushing these changes.

Another force that is shifting U.S. trade policy has emerged from a series of political debates in the U.S. that remain unresolved due to political polarization. Disagreements over issues such as corporate power, drug prices, and digital privacy are connected to trade policy rules. Disagreements over domestic policy in these areas are undermining the trade policy consensus in the U.S. in the context of deciding the appropriate rules of international trade.

U.S. trade policy is pulled in many directions due to these ongoing domestic disagreements. As a result, support for trade and approving trade agreements has weakened and has shifted away from its former bipartisan consensus to multipolar fragmentation as different camps in both political parties seek different issue-focused outcomes.

For example, intellectual property protection policies used to be based on copying U.S. domestic law and approaches and instilling them into trade agreements, but now there are debates over whether parts of U.S. law themselves are appropriate. Investment protections are another newly controversial area. These used to be a core part of trade agreement obligations, but now they are viewed by many as harmful to U.S. trade interests due to their protections for U.S. companies that move overseas, and including them in trade agreements is politically tantamount to support for offshoring.

U.S. trade policy is still connected and responding to the international environment. However, the policy choices available to respond to the international environment are highly influenced by U.S. domestic changes and domestic forces, creating new challenges and limits on responding to trade problems.

For example, China’s use of economic coercion is a major foreign policy concern for many countries. There are many ideas about how to help countries like Lithuania, and one that was floated is the idea of temporarily lowering or cutting U.S. import tariffs to help countries targeted by China. While a logical foreign policy tool, this proposal was quickly and publicly rejected by U.S. labor unions and appears to have been derailed.
U.S. labor unions have long opposed trade initiatives that liberalize tariffs, whether FTAs or WTO-type trade liberalizing agreements, as well as the use of foreign policy justifications for creating and approving them.

Change of dynamics in the Asia-Pacific region due to U.S. approaches

The most important development in recent years in U.S. engagement with the Asia-Pacific region was its 2017 withdrawal from the Trans-Pacific Partnership (TPP). This came as a major shock to the Asia-Pacific region, and it will continue to impact U.S. relationships there for many years to come. There were several reasons it withdrew. These included process challenges, from negotiations that went on far too long and allowing opposition to grow further to the fact that the deal was signed as the 2016 presidential election season was already fully underway. On substance, the TPP ran into major domestic disagreements across a variety of issues, such as pharmaceutical provisions, investment provisions, labor provisions, and environmental issues. These issues were debated in this new multipolar, issue politics environment around other domestic issues, making consensus on them difficult to achieve.

The U.S. also had a different perspective on the TPP from Asia, where it was seen as an important tool in further building and integrating supply chains. In the U.S., the new export potential from the agreement was instead mostly stressed. However, TPP opponents in the U.S. used the opportunity to criticize the agreement's relatively weak automotive rule of origin, which was important to Japan for maintaining its supply networks, as undermining the benefits of the agreement for new American jobs and growth. The Obama administration also eventually tried to position the TPP as a critical foreign policy tool for isolating China, which also backfired when critics pointed out that the weak automotive rule of origin only opened the door for China to benefit from it.

The Trump administration's trade policy was completely disconnected from having any regional focus, and it did not develop any region-specific trade policies. While it embraced the concept of the Indo-Pacific, this was only in security and military terms. The U.S. remained in regional fora like Asia-Pacific Economic Cooperation (APEC), but strongly resisted some of its previous goals such as moving toward freer trade in the Asia-Pacific. Further economic integration with countries like China in particular was strongly avoided. Bilaterally, the Trump administration considered FTAs with the Philippines, India, and Japan, and then of course also renegotiated the FTA with Korea and reached a separate trade deal with China on a few topics. Two agreements were also reached with Japan. But these were country-by-country efforts, not because of a regional approach or strategy. The agreements with Japan, Korea, China, and Canada and Mexico all had their own individual logic and focus.

Biden administration

The Biden administration’s trade policy has not changed significantly, especially in terms of avoiding big trade agreements like the TPP and trade liberalizing regional trade agreements. The Biden administration has been more friendly in their engagements in the region, focusing on APEC, ASEAN, Europe, and Africa. However, they have remained disconnected from advancing free trade in any region or with any country. The administration's focus instead was very strong on meeting the priorities of certain domestic groups, and not on issues like having a trade strategy for the Asia-Pacific.

Eventually, the administration reestablished a certain level of regionalism in its policies with the announcement of the Indo-Pacific Economic Framework (IPEF) concept. IPEF is a foreign policy concept, but has still yet to be proven as a model that can deliver outcomes. The U.S. also is trying to both add and subtract from its old trade models based on these changes in the domestic environment. While an initiative in the Indo-Pacific, in fact its substance is similar to other initiatives underway in the Americas, and individually with Taiwan, Kenya, and the UK. It is driven by specific priorities, and not by a desire to conclude large, comprehensive agreements like previous U.S. FTAs.

Summary

• U.S. trade policy is now separated from promoting trade regionalism, with no regional FTAs due to new priorities and approaches toward supply chains, global value chains, and other issues.
• U.S. trade policy is mostly separated from economic integration objectives as a tool of foreign policy. Leveraging trade to deepen economic integration is not prioritized in its policy.
• U.S. trade policy is now focused on solving specific problems, whether to improve the U.S. trade deficit (Trump) or advancing labor rights causes (Biden).
• U.S. trade policy focuses on using trade tools to address domestic economic security issues and vulnerabilities.
• Finally, U.S. trade policy is now less connected to traditional General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) norms, reflecting its problem-solving orientation as opposed to a trade liberalizing orientation.
• New trade issues are coming up related to new U.S. subsidy programs of various kinds. For example, during the 2009 financial crisis, unions and others aimed to make the U.S. subsidy program for consumer purchases of new automobiles available only to cars made in the United States; but due to concern around WTO compliance, they were made available to imports as well. In contrast, the recent electric vehicle subsidy program has several limitations with where key parts and the cars themselves can be sourced and made. These policies are creating new issues in U.S. relations with friends and allies like Japan.

National Security Advisor Jake Sullivan’s speech at Brookings Institution on April 27th is a great way to understand the core Biden administration view on trade. It is a perfect reflection of the last two years of the direction of U.S. trade policy and other economic priorities.

Q&A

Q:
U.S. trade policy has evolved since the end of the Obama administration to the Trump administration and then to the Biden administration. Under this transition, what trade policy changes have been perceived or led at the USTR and what was the background for those changes?

Michael BEEMAN:
Take the example of APEC. When APEC is focused on cooperative work, it easy for the U.S. to be involved in the work. But when APEC increased expectations around creating “templates” to be carried into other trade negotiations, such as the environmental goods that were carried into WTO, or in discussion of the FTAAP, it shifted the focus of the organization into a negotiating function. This is where the new U.S. trade positions diverge with others in the region and created challenges.

The Obama administration used APEC as a regional organization to push APEC ideas into other organizations like the WTO. The Trump administration allowed cooperation but wanted a strict separation from advancing new negotiations in that way.

The Biden administration has taken a softer tone on this difference between negotiation and promotion, but the goals for what they want to push out into other organizations are different. For example, the Obama administration wanted to address environmental issues through traditional trade tools like liberalizing tariffs on environmental goods. In contrast, the Trump administration was not interested in that agenda, while the Biden administration would like to solve environmental problems but not through reducing tariffs. This is an example of how this has changed.

Q:
The Biden administration views Japan, Korea, and Southeast Asian countries as friends, while the Trump administration raised issues against them and tried to solve them. Negotiations were difficult, and even unfriendly. Do you think the U.S. policy objectives or the way the U.S. would like to work with these countries are the same or different?

Michael BEEMAN:
The Trump and Biden administrations both had active discussions with a number of important countries in the region on issues of common concern, despite appearances to the contrary. However, the Biden administration has taken a softer and broader approach in trying to normalize those discussions, not just with their closest partners, but with others as well. This has been a shift.

Q:
How do you evaluate IPEF’s potential for expanding its membership base? If it incorporated a market access component, it could significantly increase the potential for attracting new members. What scenarios do you envision in which the U.S. government becomes comfortable with incorporating market access?

Michael BEEMAN:
I do not expect the Biden administration to offer new market access, such as in IPEF, with countries having significantly lower wages or different labor conditions. It could happen with countries with higher wages, but even that may not happen. More countries joined IPEF than most expected, and it could be expanded further, but I believe probably only so it proves its concept to be achievable. Rather than provide market access, the best the U.S. could do to engage with IPEF countries was to emphasize that the U.S. wanted to do business with them, even if to just have a trusted trading relationship to help protect from economic shocks, including sanctions, etc.

Jake Sullivan’s speech addressed the issue of tariffs and traditional Free Trade Agreements, noting that traditional trade agreements are a possibility, but also highlighting a large list of ways in which they are not what the administration is seeking, so there is a higher chance of them not being used.

Q:
How is IPEF compared to TPP?

Michael BEEMAN:
As just one example, given current U.S. positions on TPP-type investment rules, I don’t think the U.S. can return to TPP. Many in Congress want to eliminate these traditional investment rules entirely. The USMCA passed, but I think it was an anomalous situation. IPEF will be independent, cooperative, and less binding than TPP.

Q:
Nikkei Asia suggested G7 countries address export controls and other measures related to China. Why China over Russia?
China’s strategic challenges are more complex than those with Russia. For G7 countries, there is an obvious reason to deal with Russia to prevent its war-making capability. Since the China situation is more ambiguous and complicated, it is better and more effective to address the challenges related to China as a group of similar-thinking, large countries.

Q:
The antimonopoly law in Japan is not functioning well, allowing for oligopoly by large corporations, hindering the transformation of Japan’s industrial structure. What is your opinion?

Michael BEEMAN:
The issue of oligopoly has become an issue in the U.S. as well, with the Federal Trade Commission and Department of Justice trying to tackle it. However, the cases they have brought have not gone far in the courts, as courts look at whether there is competition in a market. Perhaps the Japan Fair Trade Commission and the U.S. agencies should sit down together and have a discussion about these issues.

Q:
What is the possibility of the U.S. agreeing to WTO dispute settlement reform in the near future? Does the U.S. want to revert to the WTO as a useful tool; if yes, how?

Michael BEEMAN:
Accountability to the rules is the major issue. In terms of restoring a functioning dispute settlement system, however, a whole new crop of issues has also emerged. One of these is how countries in the WTO will agree on a fix that also takes into account their views on what to do with pending appeals against recent U.S. practices, such as its use of Section 232, Section 301, and its treatment of imports from Hong Kong as the same as from China?

Will they agree to erase all the panel rulings awaiting appeal to then start over, or will you create a system where countries can veto those decisions, like the old GATT system, as the U.S. seems to want?

Despite the fact that the WTO system has not completely broken apart, many parties have still lost a lot of confidence in it and how the different parties adhere to the rules, and the passage of time only makes the task more difficult. Our U.S. ambassador in Geneva is extremely capable, but it is going to be a difficult road to find a way to deal with all the issues.

Q:
What would be the general assessment of trade initiatives under previous administration such as trade agreements with China and Japan, revisions on course, and NAFTA? What would APEC mean to the U.S. this host-year in the midterm, without the Free Trade Area of the Asia-Pacific (FTAAP) and Regional Economic Integration goals?

Michael BEEMAN:
The China issue is a different type of negotiation than the others, and it appears to remain frozen. Regional Economic Integration and FTAAP are core goals of APEC, but the Biden administration is focusing in APEC on sustainability and inclusion issues. These topics fit well in APEC because they have been a part of APEC’s agenda but have not been brought to the surface. America's goals have just shifted.

For example, the U.S. hosted APEC in 2011and put the issue of women’s economic empowerment high on the agenda. APEC was able to shift priorities to have an impact, but it is going to be a different impact than the trade-driven APEC that we used to know. Especially with China and Russia present, finding common, tangible cooperation beyond those themes may be difficult.

Q:
Who’s responsible for formulating the U.S. trade policy in the Biden administration? In the past, it was the Secretary of Commerce or USTR, but are currently key policymakers invisible?

Michael BEEMAN:
The Office of the U.S. Trade Representative, Katherine Tai, is still in charge of U.S. trade policy, but the nature of the policy has changed. The U.S. Trade Representative’s Office most often works with the National Security Council and the National Economic Council when driving some of the bigger trade priorities, and this is still the case.

Q:
The U.S. has lost trust due to internal divisions in trade policy. How can it regain leadership?

Michael BEEMAN:
Some in the U.S. government has not fully appreciated how significant the loss of trust has been over TPP. There is a lot of energy in the Biden administration to engage foreign counterparts and cooperate with them, but the situation will not revert to its previous status soon. America will eventually come back to something more normal, but it will take a while.

Q:
Democrats’ letter calls for a ban on Investor-State Dispute Settlement (ISDS), which is criticized in Europe. What do you think about the criticism in the U.S., would it resonate with the one in the EU, and would it change the U.S. ISDS policy outside the USMCA?

Michael BEEMAN:
Due to lack of familiarity with the criticisms in Europe, it is a little difficult for me to compare one or the other. Lighthizer’s argument was that ISDS provides a vehicle for political risk insurance for U.S. companies to move overseas, and that it made no sense for U.S. government policy to be promoting it. The ISDS came from trade agreements from long ago, where investment protections for the citizens of the country were negotiated. Over time, investment has come to be seen as an exercise of the multinational corporation, and resistance against this has been strong.

The debate over the U.S.’s role in international trade is shared by Republicans and Democrats, but traditional trade Republicans and Democrats also believe it is important. Bringing together a comprehensive agreement with all these components is difficult due to a lack of consensus.

Q:
With respect to Keizai anzen hoshō, economic security, you mentioned the supply chain issue, etc., but more issues related to economic security are coming into the trade policy arena. How could U.S. trade policy integrate the interests of economic security?

Michael BEEMAN:
The question of whether nations can act in their interests to protect their economic security is becoming increasingly important in Washington. A WTO panel has now provided a view on the issue of the kinds of reasons that countries can legitimately take actions based on national security reason, making it harder for countries to use it. This is a major issue needing attention.

Q:
The combination of trade policy and foreign policy in the 1970s and 1980s was a stabilizing factor for U.S.–Japan trade disputes. This separation would have a huge impact on the future of trade policy or trade negotiations among countries. Is this separation a structural one or temporary? What is your evaluation of this separation?

Michael BEEMAN:
Despite the importance of the U.S.-Japan strategic relationship at that time, the trade relationship was also quite bad. The situation today is similar in that respect. The U.S. is no longer using trade to bolster strategic relationships. Even if a hostile country had a change of leadership and suddenly embraced the U.S., the U.S. would take actions to encourage that relationship, but they would not rush to conclude a free trade agreement with them as it might in the past. That is no longer an option. Using market access to pursue foreign policy goals just to deepen a relationship is no longer likely.