This article first appeared in The Edge Malaysia Weekly on July 11, 2022 - July 17, 2022

US Joe Biden’s first official trip to Asia in May proved to be more than just reinforcing economic alliances with Asian countries. His administration unveiled the centrepiece of the visit — the Indo-Pacific Economic Framework (IPEF).

The new economic pact has 14 initial members (the US, Japan, India, South Korea, Australia, Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, New Zealand and Brunei), accounting for about 40% of the world’s gross domestic product.

Since its introduction, the pact has drawn a more lukewarm response than enthusiasm in Asia, particularly amid stronger regional economies that have been actively negotiating free trade agreements (FTAs) to establish trade rules and preferential access for goods and services while the US largely stayed on the sidelines.

While the Trans-Pacific Partnership (TPP) agreement had been highly anticipated as a means to bring the signatories closer to the US and reduce their dependence on trade with China, the 12 member countries were left to forge ahead with a new version of the agreement after former president Donald Trump pulled out of the pact the day he took office in 2017.

It may be hard to drum up strong enthusiasm and unwavering commitment among emerging Asian economies for the new pact that is seen as lacking important market access, which is a significant setback for the IPEF, says Datuk Dr Rajah Rasiah, Distinguished Professor of Economics at the Asia Europe Institute, University of Malaya.

“What we can say for sure at this point is the US has general long-term interest in the political hegemony around the world — especially in the face of Washington seeing Beijing’s influence in the region continuously growing and potentially displacing the US’ position in this part of the world. The US sees the growing dominance and aggression of China in the South China Sea as another reason it is increasingly nudging Asia-Pacific countries for stronger cooperation against China,” he tells The Edge.

Malaysia, like many other Southeast Asian countries, has closer economic ties with China via the Belt Road Initiative (BRI), which saw increased Chinese investments in the country in recent years.

Malaysia is very tactful about how confrontational it can get about China’s maritime dispute in the South China Sea and is cautious about creating ripples in diplomatic relations, which could result in scuppering its relationship with China economically.

Rajah says: “Malaysia is not saying much about its alliance with the US or China because there is a huge power asymmetry involved here. A lot of Malaysia’s trade goes to China and Chinese investment in local firms has increased steadily. They have quite a say in significant parts of Proton and Silterra Malaysia Bhd, and some solar panel companies. So, Malaysia sees China as an investor and trading partner that should not be scared away.

“Malaysia and many other Asia-Pacific countries that are claimants of the South China Sea are staying in the middle despite their displeasure about Chinese expansion in the sea’s islands. There was some condemnation but no maritime intervention.”

Although, by and large, China’s regional influence and growth is also a natural progression of the republic’s economic dynamism, the US’ push for greater cooperation via the IPEF in the region could prove to be effective only if it is well strategised.

But if the IPEF is simply going to be aimed at countering China in the region, rather than to support Indo-Pacific countries’ economic development, the US will remain an unconvincing partner in its quest to establish a meaningful presence in the region, Rajah says.

To wield its influence further into Asia, and to balance US hegemony in the region, Beijing had also pushed its ambitious Regional Comprehensive Economic Partnership (RCEP), which comprises 10 Southeast Asian countries, as well as South Korea, China, Japan, Australia and New Zealand. The RCEP excludes the US, which withdrew itself from the long-negotiated rival trade pact TPP.

The US’ withdrawal from the TPP under Trump — as he had only wanted to negotiate trade deals with individual countries that are also allies — backfired, when Beijing seized the opportunity to integrate Asian economies under the RCEP. So far, RCEP is the world’s biggest FTA, covering 15 countries with 2.2 billion people, or nearly a third, or 29.7%, of the world’s population.

Malaysia signed the RCEP on Nov 15, 2020.

Since the US’ withdrawal, the TPP has been renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Japan took a leading role in negotiating the CPTPP  with 10 other countries: New Zealand, Australia, Brunei, Canada, Chile, Malaysia, Mexico, Singapore, Peru and Vietnam. Malaysia aims to ratify the CPTPP by the third quarter of the year.

It is worth noting that China applied to join the CPTPP on Sept 16, 2021, the day after the Australia-UK-US defence alliance (AUKUS) was announced.

While developing a coherent strategy with China is critical, the IPEF is an effective tool if it is to be played to Malaysia’s strength, especially in the absence of any pan-Asian FTA with the US, says Dr Ong Kian Ming, Member of Parliament for Bangi and former deputy minister of International Trade and Industry.

“The US is not in any substantive economic trade pact (Apec, or the Asia-Pacific Economic Cooperation, is not a trade pact) in the region. Thus, the IPEF is important in the context of signalling to the region that the US is serious about re-engaging the region after four tumultuous years under the Trump presidency, where there was no consistent policy and substantive engagement with the region,” Ong tells The Edge.

He adds that, although the IPEF lacks the force of an FTA, it has to be seen in a wider context of other moves that the US and its allies are carrying out in Asia-Pacific in attempts to counter and contain China.

“While the US and its allies are free to pursue this strategy, Malaysia should also be free to align our own policies and objectives so that we can get the best out of any and all international agreements and frameworks, including the IPEF.

“Beyond expressing interest, we will have to be proactive to see how we can align our policies to take advantage of any substantive proposals that result from the IPEF. For example, to what extent would part of the US$600 billion infrastructure fund that was recently announced by the G7 countries be included in the IPEF?” says Ong.

The fund, according to reports, will be used to support projects in low- and middle-income countries that help tackle climate change and improve global health, gender equity and digital infrastructure. It also seeks to be an alternative to the China-mooted BRI project.

Ong adds that Malaysia should strategise participation in each of the four pillars of the IPEF, which have been identified in broad strokes as infrastructure, supply chain resilience, clean energy and digital trade arrangements.

“Malaysia should advocate for policies that are advantageous to companies operating in the green economy in the country, especially those that are exporting to the US, such as the solar panel producers based in Kulim and Cyberjaya. If we can protect Malaysia’s position as an essential player in the green economy supply chain, we can minimise the risk of being slapped with anti-dumping tariffs by the US government.

“More proactively, we can also engage with the MNCs and Malaysian companies in the E&E [electrical and electronics] sector based in Malaysia to see how we can leverage their operations in Malaysia to tap fully into the policy frameworks that will be announced under the IPEF,” Ong says.

The US could incentivise Asian region members by either returning to a revised TPP or joining the CPTPP, says Dr Yeah Kim Leng, professor of economics at Sunway University Business School.

“The TPP was supposed to have been a gold standard. It would be beneficial if Biden were to follow up and widen the current partnership framework to include trade facilitation, investment and market access. All these would be helpful in terms of increasing the regional integration to seek economic opportunities,” he tells The Edge.

He adds that although the Biden administration has emphasised strategic competition, it has so far proven to be only playing to the gallery rather than participating in any meaningful economic engagements.

“On the surface, they are pursuing strategic competition and cooperation wherever it’s necessary. But, so far, all the initiatives and action taken seems to have been developing alliances such as military and political relationships,” Yeah notes.

He adds that the political climate in the US has also become too toxic for it to engage in any talks of opening up market access to goods and services from Asian countries — no thanks to Trump’s “America First” economic policy that has made it difficult to make any progress in trade agreements with the developing world.

“Internal splits and diverse opinions exist as to how the US is going to contain China or whether it needs to develop a more constructive approach rather than blaming China as a threat to the global economies. The US must find ways to engage China in a proper manner so that it does not threaten the political and economic world order,” Yeah says.

As the US adopts increasingly confrontational approaches to contain China, Asian leaders are facing a dilemma in maintaining neutrality between these two behemoths.

“Asian economies adopt a neutral approach in choosing sides. Although they are participating, they are unlikely to pick sides because they are closely integrated with both China and the US,” says Yeah.

While Asia-Pacific countries have openly expressed their interest in the pact, it is real economic engagement that these countries seek, which proves the IPEF could be underpowered.

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