As Biden courts Xi, he should also reassure Asia-Pacific allies 

President Biden’s meeting with Chinese leader Xi Jinping during the Asia-Pacific Economic Conference in San Francisco in mid-November grabbed the headlines as it marked their first meeting since the spy balloon incident early this year. 

Biden told reporters that both countries need to “get back on a normal course of corresponding, being able to pick up the phone and talk to one another through a crisis, being sure our militaries still have contact with one another.” This goal was apparently attained with reports that Chinese state media described the talks as “positive, comprehensive and constructive.”  

Other reports, however, note that Biden missed an opportunity to improve the United States’s influence with 13 countries in the Asia-Pacific region. 

The original goal of the APEC summit was to announce the Indo-Pacific Economic Framework that Biden launched in May 2022. It aims to fill a void after President Trump withdrew from the Trans-Pacific Partnership in January 2017. While the new framework does not seek to lower tariffs or improve market access, it represents the Biden administration’s main attempt to provide countries in the region with an alternative to deepening their economic ties with China.   

Instead, a recent decision by the Biden administration to halt discussions on digital trade has blocked an important part of the pending framework.  

This decision represents a further retreat in the U.S. commitment to free trade. It was made after the U.S. Trade Representative’s office reversed its long-standing digital trade stance to give Congress room to enact stronger technology regulations. In a letter to Biden, Sen. Elizabeth Warren (D-Mass.) and others in Congress said they wanted to be sure the Indo-Pacific Economic Framework digital trade provisions are consistent with the administration’s new views on technology transfer.  

These developments are occurring against a backdrop of substantial shifts in global trade patterns owing to tariffs on imported goods by the U.S. and the reconfiguration of global supply chains in response to the COVID-19 pandemic and heightened geopolitical tensions. 

No region has been impacted as much as East Asian economies. They have pursued export-oriented development strategies with considerable success, and their economies have a trade-to-GDP ratio of 105 percent, which is second only to European Union member states. Much of East Asia’s intra-regional trade integration was driven initially by trade in intermediate goods while Japan, the EU and the U.S. were the main export markets for final goods. 

More recently, intra-regional trade has also been underpinned by strong consumer demand in rapidly growing East Asian economies. According to the Brookings Institution, the share of East Asia as global consumers reached 50 percent by 2020 mainly due to China entering the global middle class in full force. As trade patterns in East Asia have evolved, China is now the largest trading partner of most countries in the region.   

Professor Ann Marie Murphy, director of foreign studies at Seton Hall University, contends that Southeast Asia has emerged as the key focal point of U.S.-China strategic competition. As countries in the region find themselves in the midst of the competition between the two superpowers, their mantra has been that they don’t want to choose sides.  

Murphy goes on to say that, until recently, strategic competition and economic integration in the region “were relatively siloed, as illustrated by the old dictum that Southeast Asians looked to the United States for security and to China for prosperity.” She points out that for the first time, the annual “State of Southeast Asia Survey” in 2023 included “fears of Sino-U.S. decoupling” among the top threats facing the region. 

Evan Feigenbaum of the Carnegie Endowment for International Peace sees a collision between economic and security interests. From the U.S. perspective, countries in the region ideally would deploy export controls and administrative and regulatory instruments versus China on access to technology, as the U.S. does. However, because this is not happening, the U.S. government is trying to elicit “voluntary compliance” from its friends while being willing “to bring down the hammer” if support is not forthcoming. In Feigenbaum’s opinion, we are heading for a fractious period between the U.S. and the very partners it needs to navigate competition with China.  

Meanwhile, the East Asian economies are feeling the fallout of soft global demand, China’s property crisis and U.S. trade policies. During the second quarter of this year, goods exports were down more than 20 percent in Indonesia and Malaysia and more than 10 percent in China and Vietnam from a year ago. Accordingly, The World Bank recently cut its forecast for East Asia and the Pacific region including China to 4.5 percent from 4.8 percent previously. 

These projections show the region is set for the slowest pace of growth since the late 1960s, excluding extraordinary periods such as the coronavirus pandemic, the Asian financial crisis of 1997-98 and the global oil shock in the 1970s.  

The U.S. passage of the Inflation Reduction Act and CHIPS and Science Act in 2022 that were intended to cut American dependence on China is also affecting exports of ASEAN countries that previously benefited from U.S. tariffs on China.  

Indonesia, which holds the world’s largest reserves of nickel that are crucial for electric vehicle batteries, is trying to negotiate a provision that would make its mineral exports eligible for favorable treatment that Canada and Mexico receive. Similarly, lobby groups in Vietnam have argued that the U.S. should extend electric vehicle tax credits to Hanoi, especially after the two countries recently upgraded trade and direct investment ties.  

Amid this, what is clear is that attempts to negotiate multilateral trade deals have become extremely complex politically, and U.S. policy in Asia is increasingly focused on bilateral deals that are limited in scope. While few Asian governments started with high hopes for the Indo-Pacific Economic Framework, The Economist concludes that “the agreement, whenever it comes, will now fall short of the low bar it faced.” 

Nicholas Sargen, Ph.D. is an economic consultant with Fort Washington Investment Advisors and is affiliated with the University of Virginia’s Darden School of Business. He has authored three books including “Global Shocks: An Investment Guide for Turbulent Markets.”