Experts: IPEF Trade Pillar May Never Become Reality

Both Asian countries and American businesses had hoped that the Indo-Pacific Economic Framework could be a step on the road to lowering tariffs, trade experts said during a webinar on the future of IPEF, but now they're wondering if there will be any economically significant effect at all from talks about trade facilitation, green transition and supply chain resilience.

Barbara Weisel, managing director Rock Creek Global Advisors, said during the webinar hosted by the Center for Strategic and International Studies that IPEF countries had assumed, even without tariff liberalization, "there would be other economic benefits from participation."

But, she said, after the administration abandoned an early harvest announcement for the trade pillar at an Asia-Pacific Economic Cooperation summit, "they have no illusions."

Weisel said the administration decided to drop the trade pillar announcement "because of pushback from many in the Democratic Party who feared trade becoming an issue in the 2024 campaign." She noted that Donald Trump has said that if he is elected, "he would kill IPEF, which he called [Trans-Pacific Partnership] 2.0 -- and worse than the first one," arguing that IPEF would hollow out U.S. manufacturing and turbocharge offshoring to Asia.

Bill Reinsch, the CSIS Scholl Chair in International Business, said the administration's desire to avoid intra-party battles on trade "led them to IPEF. I think it was a genuine effort to come up with something that would avoid the really bitter fight they had over TPP. The irony is, you still have people like Trump saying this is TPP in disguise or TPP 2.0 -- which is ridiculous! This is a far cry from TPP."

Reinsch said, although the administration emphasized its worker-centric trade approach, "they were not able to sell that idea" to those who represent workers.

Weisel and Reinsch agreed that negotiations would continue on the trade pillar, but Weisel said she didn't think anything could get done this year, given the election, and Reinsch was even gloomy about the prospects if Biden wins reelection. "I don’t see an outcome of any significance," he said.

Weisel noted that unlike a traditional trade agreement, IPEF's supply chain proposals rely heavily on private companies choosing to share information, so stakeholders need to be looped in more as the administration aims to implement the pillars that were led by the Commerce Department. She said that those pillars are potentially useful to business, if IPEF countries offer benefits to trusted traders that businesses value, such as reducing the likelihood of customs inspections, or moving their inspections to the front of the line.

She said it's less clear what IPEF's critical mineral dialogue is meant to produce, guessing maybe development financing will be offered, contingent on the countries promising not to impose export restrictions or join a cartel of producers to drive up prices.

Marc Mealy, senior vice president for policy at the U.S.-ASEAN Business Council, said the U.S. should come to an agreement with Indonesia or the Philippines, not just Japan, for those critical minerals. (Korea, which is also in IPEF, already has a comprehensive free trade agreement with the U.S., so any critical minerals it processes already qualify under Inflation Reduction Act rules.)

He noted that Indonesia and the Philippines have these minerals, and such an agreement could be done "as part of IPEF or bilaterally," and that "could be even more valuable in diversifying the locations of where minerals get processed even if they don’t diversify which companies do the processing."

Mealy noted that many of his group's member countries already have free trade agreements, and other market liberalizing free trade agreements in negotiations, such as with Canada. "In a very competitive environment that has a lot of initiatives and frameworks going on, IPEF is going to have to produce concrete … results to maintain the interest of Southeast Asia partners," he said.