Ceding the Trade Terrain to China

Last month, President Biden met Chinese President Xi Jinping on the sidelines of the Asia Pacific Economic Cooperation (APEC) summit in San Francisco. It would have been the perfect moment for Biden to announce to Xi that the United States had completed trade negotiations with the 13 other countries working on the Indo-Pacific Economic Framework for Prosperity (IPEF)—a watered-down version of the Trans-Pacific Partnership (TPP), from which the Trump administration withdrew the United States. Alas, even this baby step of an agreement proved too ambitious for the Biden administration.

As then-President Obama explained in 2016, one of the TPP’s core purposes was to promote U.S. standards and policy preferences over those of China. The rules on state-owned enterprises that the U.S. supported, for example, are about curtailing Chinese influence. Just as important, the TPP would have won American businesses better access to East Asian and Southeast Asian markets. That would have helped red states and blue states alike—Nebraska farmers as well as California tech workers. Such an agreement would also have given Americans access to cheaper goods, an especially helpful development now that they are burdened by higher prices.

In the years since the U.S. abandonment of the TPP, China has led the effort to build the Regional Comprehensive Economic Partnership (RCEP), a trade agreement that includes Australia, New Zealand, Indonesia, Japan, South Korea, the Philippines, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, and Brunei. This agreement more tightly binds those countries to China, particularly in manufacturing, which The Economist calls “the area where RCEP has made most progress.” Just last month, China issued new draft regulations aimed at promoting cross-border data flows between itself and its regional trading partners. Meantime, China itself is an attractive commercial partner for the 11 members of the Comprehensive Progressive Trans-Pacific Partnership, given that it is the largest export market for nine of them.

While China has been commercially assertive in the Asia-Pacific region, the United States has been missing in action in trade negotiations. The trade tide may have turned during the previous Republican presidential administration, but responsibility for the continuation of the trend now rests with Democrats—both President Biden and those on Capitol Hill. Some Democrats are so stridently anti-business that they object to trade negotiators even trying to get American businesses better access to foreign markets. Massachusetts senator Elizabeth Warren, for example, maligns government-business consultation, which is routine in trade policymaking, as secretive, backdoor, and corporate-dominated. This is consistent with the left-wing populist view of business as something to be constrained rather than as complementary collections of labor and capital worthy of government assistance. 

Technology businesses often face the Democrats’ harshest trade ire. Left-wing populists look unfavorably on these companies even when their success helps the U.S. out-compete China in global markets. Acting on that perspective, Democrats on Capitol Hill compelled U.S. trade officials effectively to freeze all discussion of data flows and digital trade in IPEF negotiations.

Another populist idea, advanced by Ohio senator Sherrod Brown among others, is that trade has been bad for U.S. manufacturing workers. Brown is skeptical of any trade agreement unless it comes with higher, enforceable labor standards, though ample evidence suggests that automation, not trade, has been the main source of manufacturing employment decline. Of course, if the U.S. wanted to include higher labor standards in IPEF, our negotiation counterparts throughout the Pacific would ask in return for better access to the American market in the form of lower tariffs. But the Biden administration has ruled that out. We seem to expect countries in Southeast Asia to make concessions to us without getting anything in return. It is a poor way to try to convince them to enter our economic orbit rather than China’s.

Protectionist policies that irritate our allies and partners come at the expense of building an effective coalition to counter China. The protectionist policies in the Inflation Reduction Act threaten to fracture U.S.–EU cooperation on China. A new trade spat is also brewing over steel and aluminum tariffs. Here, too, Biden’s protectionist instincts are undermining transatlantic cooperation. If semiconductor-related sanctions on China are truly to bite, the United States needs help from its allies across both oceans, such as the Netherlands, Taiwan, and South Korea. Those countries are starting to grow more reluctant, particularly with no new access to the U.S. market on offer.

Economic integration helps support security integration, as well. The United States, Japan, and South Korea are not just economic partners; they are military allies. The U.S. will need stronger economic connections with India and Indonesia, projected to be the world’s third- and fourth-largest economies by the middle of the century. They are less likely to be enticed to take America’s side against China if they do not receive better access to the U.S. market in return.

Under the Biden administration’s leadership, Democrats’ approach to trade is to kneecap our most important businesses in global markets, make demands on our economic allies while offering nothing in return, and cede more geopolitical power to China. Unfortunately, the Republicans seem just as eager to carry on with America’s trade retreat. Donald Trump has promised to engage in even more self-destructive economic isolationism if elected in 2024.

During World War I, Edward House, a key adviser to President Woodrow Wilson, argued that the United States should replace Britain as “the gyroscope of world order.” A generation later, when the United States designed and built the international order after World War II, it promoted the interests of American consumers, businesses, and workers, while simultaneously helping to contain the Soviet Union. Today, as then, sustaining America’s status as the gyroscope of world order will help to advance its people’s interests and contain its greatest geopolitical challenger.

Photo by BRENDAN SMIALOWSKI/AFP via Getty Images