IPEF: Much Ado about Nothing

By Ong Kar Jin and Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Oct 9 2024 (IPS) - After 2.5 years, US President Joe Biden’s Indo-Pacific Framework for Prosperity (IPEF) is increasingly irrelevant due to its own limitations and broader US foreign policy shifts.

IPEF pillars

Unlike free trade agreements (FTAs), IPEF does not offer better market access by reducing tariff or non-tariff barriers. Instead, it has been styled as a standards agreement involving four ‘pillars’:

• Fair and resilient trade: This imposes ‘high standard’ rules, particularly for the digital economy, labour and the environment. Enforcing such standards is now widely seen as protectionist.

• Supply chain resilience: This seeks to establish reliable supply chains bypassing China. Many countries hope to benefit from such ‘friend-shoring’. However, most recent inflationary supply disruptions have been due to the new Cold War, pandemic, and sanctions.

• Infrastructure, clean energy, and decarbonisation will supposedly enhance mitigation efforts, ignoring the adaptation priorities of developing countries.

• Tax and anti-corruption: IPEF promises to improve tax information exchange and curb money laundering and bribery. But most developing countries have retrieved little from such efforts. Their recent experience with the OECD-led Inclusive Framework for taxation has deepened such suspicions.

Each IPEF pillar involved separate negotiations, allowing partners to opt in or out. While this accommodates diverse interests, the resulting fragmentation undermines likely effectiveness. Worse, IPEF is a White House initiative lacking Congressional support, raising doubts about its longevity.

Great expectations, humble reality

Yet, Asia-Pacific interest in better US market access remains after Trump’s withdrawal from the Trans-Pacific Partnership (TPP) and Regional Cooperative Economic Partnership (RCEP) agreements.

IPEF’s advent over half a decade after Trump withdrew from the TPP suggests it was never a Biden priority. The US caricatures and dismisses the RCEP as a ‘low-standards’ China-led agreement, but East Asia does not seem to agree.

Instead, the Biden administration touted IPEF as a strong US-led response to the RCEP, but its modest offer has further undermined Washington’s reputation, fuelling caution and scepticism.

Taiwan is part of the US-led Asia-Pacific Economic Cooperation (APEC), and Washington is believed to be surreptitiously promoting its independence. But the island province has been excluded from IPEF, perhaps due to deliberate ‘strategic ambiguity’.

America First

The upcoming US presidential election compounds the uncertainty. If re-elected, former President Donald Trump has promised to ‘knock out’ IPEF, describing it as worse than the TPP!

Presidential candidate Kamala Harris has long been sceptical of international trade agreements, including the TPP. She is expected to replace Deputy Secretary of State Kurt Campbell, architect of Obama’s ‘pivot to Asia’ via the TPP and Biden’s IPEF.

The past decade has seen US domestic politics increasingly shaping foreign economic and trade policies, regardless of party affiliation, with protectionist sentiments surging in both parties.

Scepticism about FTAs and retreats from earlier US foreign policy ‘activism’ have become bipartisan rather than only associated with Trump.

Bretton Woods exception?

Historically, the doctrine of Manifest Destiny drove territorial acquisitions in the American hemisphere, the US ‘backyard’ since the Monroe Doctrine. At the same time, protectionist trade policies accelerated US industrialisation after the North won the Civil War.

Domestic politics favoured the US Neutrality Acts of the 1930s. The 1929 Crash led to the 1930 Smoot-Hawley Tariff Act, raising import duties on thousands of goods.

The US’s international role significantly grew after World War Two, creating postwar multilateral institutions like the United Nations, the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade (GATT).

Creating regional blocs soon superseded Roosevelt’s multilateral legacy as the Cold War changed perceptions of security threats and economic priorities. After the Cold War, the US briefly remained globally engaged as a unipolar power.

However, growing domestic discontent over economic globalisation and interventionist conflicts eroded support for earlier policies. Trump’s ‘America First’ mantra has driven this shift, even challenging plurilateral trade agreements.

While ‘re-engaging’ multilaterally to reassert dominance, protectionism has not retreated under the Biden administration, even increasing some Trump-era tariffs on Chinese imports.

More actions against Chinese tech firms like Huawei reflect the bipartisan belief that previous free trade policies had inadvertently benefited China without securing promised gains. With more rhetoric of ‘safeguarding’ critical industries and technologies, bipartisan scepticism toward FTAs has grown.

Geopolitics, not geoeconomics

Neoliberals claimed economic liberalisation would lead to political liberalisation and strengthen the rule of law. Thomas Friedman even claimed countries with McDonalds’ franchises would not go to war with one another.

China has not adopted the political reforms many in the West wanted. Instead, it looms larger on the world stage, pursuing policies at odds with US interests.

Likewise, integrating post-Soviet Russia into the world economy via World Trade Organization and G8 membership was expected to align it with the West. But such efforts ended before Russia’s forcible entry into Crimea and, later, Ukraine.

Southeast Asian governments quickly realised IPEF was not a US political priority. Negotiating was intended not to offend the US. IPEF was supposed to reassert US leadership to counter China’s growing influence. But content-wise it appears to be about setting standards serving US corporate interests.

US reluctance to offer tangible benefits, such as improved market access, made IPEF less attractive, especially compared to China. IPEF’s limited ambition and commitments reflect the deeper malaise of US foreign policy.

As US domestic politics increasingly drive foreign policy, initiatives like IPEF seem less viable. Hence, IPEF seems like the last gasp of a fast-fading approach to engagement rather than a blueprint for future cooperation.

Related IPS Articles

·                IPEF: New Cold War Weapon Backfires

·                Reject CPTPP, Stay out of New Cold War

·                Weaponizing Free Trade Agreements

·                TNCs Reviving TPP Frankenstein

·                CPTPP Trade Liberalization Charade Continues

·                A Bad Free Trade Agreement Is Worse than Nothing

·                Lessons from the Demise of the TPP

Available online here: IPEF: Much Ado About Nothing

Ong Kar Jin is an independent researcher and writer focusing on the socio-political dimensions of technology.

The Global South in the New Cold War

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Sep 11, 2024 (IPS) - Marginalised and dominated economically by the Global North, developing countries must urgently cooperate to better strive for their shared interests in achieving world peace and sustainable development.

Cold War rivalry

During the first Cold War between the US, NATO, and other allies, on the one hand, and the Soviet Union and its allies, the former prided itself on sustaining economic growth, especially during the post-war Golden Age.

Since the 2008 global financial crisis (GFC), successive governments – led by Obama, Trump and Biden – have all strived to sustain full employment in the US. However, real wages and working conditions for most have suffered.

Exceptionally among monetary authorities, the US Fed’s mandate includes ensuring full employment. However, without the US-Soviet rivalry of the first Cold War, Washington no longer seeks a buoyant, growing world economy.

This has affected US relations with its NATO and other allies, most of which have been hit by worldwide economic stagnation since the GFC. Instead of ensuring worldwide recovery, ‘unconventional monetary policies’ addressing the ensuing Great Recession have enabled further financialisation.

Interest rate hikes slow growth

Since early 2022, the US has raised interest rates unnecessarily. Stanley Fischer, later IMF Deputy Managing Director and US Federal Reserve Bank Vice Chair, and colleague Rudiger Dornbusch found low double-digit inflation acceptable, even desirable for growth.

Before the fetishisation of the 2% inflation target, other mainstream economists reached similar conclusions in the late 20th century. Since then, the US Fed and most other Western central banks have been fixated on inflation targeting, which has no theoretical or empirical justification.

Fiscal austerity policies have complemented such monetary priorities, compounding contractionary macroeconomic policy pressures. Many governments are being ‘persuaded’ that fiscal policy is too important to be left to finance ministers.

Instead, independent fiscal boards are setting acceptable public debt and deficit levels. Hence, macroeconomic policies are inducing stagnation everywhere.

While Europe has primarily embraced such policies, Japan has not subscribed to them. Nevertheless, this new Western policy dogma invokes economic theory and policy experience when, in fact, neither supports it.

The US Fed’s raising interest rates since early 2022 has triggered capital flight from developing economies, leaving the poorest countries worse off. Earlier financial inflows into low-income countries have since left in great haste.

New Cold War contractionary

The new Cold War has worsened the macroeconomic situation, further depressing the world economy. Meanwhile, geopolitical considerations increasingly trump developmental and other priorities.

The growing imposition of illegal sanctions has reduced investment and technology flows to the Global South. Meanwhile, the weaponisation of economic policy is fast spreading and becoming normalised.

After the Iraq invasion fiasco, the US, NATO and others often do not seek UN Security Council to endorse sanctions. Hence, their sanctions contravene the UN Charter and international law. Nonetheless, such illegal sanctions have been imposed with impunity.

With most of Europe now in NATO, the OECD, G7 and other US-led Western institutions have increasingly undermined UN-led multilateralism, which they had set up and still dominate but no longer control.

Inconvenient international law provisions are ignored or only invoked when useful. The first Cold War ended with a unipolar moment, but this did not stop new challenges to US power, typically in response to its assertions of authority.

Such unilateral sanctions have compounded other supply-side disruptions, such as the pandemic, and exacerbated recent contractionary and inflationary pressures.

In response, Western powers raised interest rates in concert, worsening the ongoing economic stagnation by reducing demand without effectively addressing supply-side inflation.

The internationally agreed sustainable development and climate targets have thus become more unattainable. Poverty, inequality and precariousness have worsened, especially for the most needy and vulnerable.

Limited options for South

Due to its diversity, the Global South faces various constraints. The problems faced by the poorest low-income countries are quite different from those in East Asia, where foreign exchange constraints are less of a problem.

IMF First Deputy Managing Director Gita Gopinath has argued that developing countries should not be aligned in the new Cold War.

This suggests that even those walking the corridors of power in Washington recognise the new Cold War is exacerbating the protracted stagnation since the 2008 global financial crisis.

Josep Borrell – the second most important European Commission official, in charge of international affairs – sees Europe as a garden facing invasion by the surrounding jungle. To protect itself, he wants Europe to attack the jungle first.

Meanwhile, many – including some foreign ministers of leading non-aligned nations – argue that non-alignment is irrelevant after the end of the first Cold War.

Non-alignment of the old type – a la Bandung in 1955 and Belgrade in 1961 – may be less relevant, but a new non-alignment is needed for our times. Today’s non-alignment should include firm commitments to sustainable development and peace.

BRICS’s origins are quite different, excluding less economically significant developing countries. Although not representative of the Global South, it has quickly become important.

Meanwhile, the Non-Aligned Movement (NAM) remains marginalised. The Global South urgently needs to get its act together despite the limited options available to it.

Available online here: Global South in the New Cold War

A New Narrative for Climate Resilience

By Jomo Kwame Sundaram, Research Advisor, Khazanah Research Institute

at the National Climate Governance Summit

in a fireside chat, moderated by Khoo Hsu Chuang, Managing Director, KHC Ventures Sdn Bhd

The panel discussion began with Khoo Hsu Chuang inviting Dr. Jomo to share his insights on the global response to the climate crisis.

Dr. Jomo expressed deep concern over the lack of commitment from developed nations, highlighting setbacks such as the rejection of the Kyoto Protocol, the negative effects of the United States’ Inflation Reduction Act on other countries, and the insufficient progress on the commitments made during various UNFCCC COPs.

He noted the heightened vulnerability of tropical countries like Malaysia, which are more exposed to climate risks due to their geographic and economic conditions. These nations face significant challenges in implementing adaptation measures, leaving them increasingly susceptible to the detrimental impacts of climate change.

He called on wealthy nations to rethink their priorities and assume greater responsibility for financing both mitigation and adaptation efforts in developing countries. He emphasized that effective climate action hinges on robust international cooperation, including the sharing of advanced technologies and resources to support sustainable solutions.

In response to Hsu Chuang’s observation about the declining flow of finances into environmental projects and the low political will to enact change due to political attractions of delaying climate action, Dr. Jomo highlighted China’s leadership in advancing renewable technologies, such as solar power, batteries, and electric vehicles (EVs), contrasting it with Malaysia’s modest efforts to tackle the bull by its horns.

Despite Malaysia being the world’s second-largest exporter of photovoltaic solar panels, its domestic energy grid remains heavily reliant on non-renewable energy sources, notably coal. Dr. Jomo pointed out that the transition by Independent Power Producers (IPPs) from diesel to coal suggests regression rather than progress with the turn to private commercial priorities.

He urged Malaysia to capitalize on its potential to enhance the wellbeing of its citizens, stressing practical solutions like affordable EVs including motorcycles rather than luxury EVs, only accessible to the wealthy. Additionally, he emphasized the need for comprehensive policy frameworks to guide investments, stimulate innovation, and drive meaningful change, pointing out that many ostensible climate solutions actually delay rather than accelerate climate progress.

Dr. Jomo called on developed nations to fulfill their responsibilities to more adequately finance climate solutions, including adaptation, while urging Malaysia to adopt a more strategic approach to harness its renewable energy potential.

By focusing on accessible technologies and implementing more strategic policies, Malaysia can build a more resilient energy system and contribute more effectively to both climate mitigation and adaptation.

“I am very alarmed by the situation in the world today. We have a situation where there is very little seriousness in terms of efforts towards reversing, or at least stopping, the continued warming of the Earth. This is extremely serious, precisely because most rich countries, primarily responsible for the warming of the planet, do not seem to have the resolve”

“We need a far more hardnosed attitude while fully harnessing the potential for improving the wellbeing of Malaysians via better lifestyles and choices.”

• Jomo Kwame Sundaram, Research Advisor, Khazanah Research Institute

“The financialization of the environment, some say, has slowed down…..And then, of course, political will is something which is lacking in most parts of the world.”

• Khoo Hsu Chuang, Managing Director, KHC Ventures Sdn Bhd

Recording and post is also available online here: https://www.cgmalaysia.com/ncgs24