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US-led security push in Asia leaves trade as an optional extra

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If you think the Asia-Pacific is the crucible in which the future of integrated world trade is being concocted, you’re well behind the times. Everyone is into the Indo-Pacific these days. This sounds like a tiresomely pedantic distinction, perhaps a needless change that the manufacturers of Risk would make to the gameboard to justify putting out a new edition. In fact it’s a pretty big deal, and underlines why the US and increasingly its allies are sublimating trade liberalisation to security in the region.

The (imperfectly defined) areas may be fairly similar, though Indo-Pacific generally covers more of the globe to the west, taking in the whole Indian Ocean. The real distinction is that Indo-Pacific is an international relations term, not an economics one. The zero-sum mercantilist Donald Trump started using the term a lot during his presidency as part of his confrontation with China. It continues to fit a world where, particularly given Russia’s assault on Ukraine, the US and frequently its allies — the EU, UK, Australia, Japan — prioritise constructing counterweight alliances to Beijing and Moscow above liberalising trade.

Once, the US constructed a Trans-Pacific Partnership, including relatively liberal free-trading nations of the eastern Pacific such as Chile, Mexico and Canada. Now the prized members of its new Indo-Pacific Economic Framework are India and Indonesia, both of which were invited to this week’s G7 leaders’ meeting in Germany. The EU last year launched its own Indo-Pacific strategy, and has picked up trade talks with India after a hiatus of almost a decade.

India’s military might and increasing estrangement from China make the US keen to work with New Delhi on every possible front. The strategic Quad partnership of (more or less) democracies in the region — the US, Australia, India and Japan — has expanded its role to include Covid vaccines, climate change and critical technologies.

Unfortunately, the phobia about trade deals that has gripped Washington means it cannot offer market access as an incentive for economic integration. The TPP was designed to mould a trading area in the US’s image. The Biden administration’s IPEF has correctly been widely dismissed for containing few binding measures at all.

The EU has the opposite problem: it can sign trade deals but it doesn’t have a navy. Even in trade, Brussels’s modus operandi in Asia has generally involved picking off countries one by one with a standard bilateral model agreement rather than attempting to weld them into a bloc. There wasn’t a lot more respect among trade folk for the EU’s Indo-Pacific strategy, which involved a lot of hand-waving about digital partnerships, than for the US version.

The desire to keep India onside has caused US allies to shy away from aggressive liberalisation and forthright trade diplomacy. India under Narendra Modi may declare itself a mercantile nation, and is back in the preferential trade agreement game, but it’s still leery of competition from other Asian economies, notably China. Modi abandoned plans to join the Asia-Pacific’s Regional Comprehensive Economic Partnership, let alone the updated TPP.

New Delhi is also as obstreperous as ever on the multilateral circuit, dominating a recent World Trade Organization ministerial meeting by threatening to tear up a moratorium of 24 years’ standing on taxing digital trade, insisting on watering down a deal on fishing subsidies and blocking a deal on agriculture.

Yet although the advanced economies were intensely frustrated, much of their public criticism of India was muted. Don Farrell, the Australian trade minister, told the FT in an interview during the WTO ministerial meeting: “We don’t want to make things more difficult for India. We want to have a good relationship with them. We share democratic values. We have a very important strategic partnership.” Australia and the UK are signing weak PTAs with India, full of loopholes and exceptions, because of the political imperative.

Now, it might be (it probably is, in my view) that meaningful trade deals are neither necessary nor sufficient to cement strategic alliances. India wants, and is getting, military co-operation from Washington much more than it cares about access to the US market. But to the extent that trade does have a geopolitical impact, the US’s aversion to any substantive agreement has allowed China to expand its influence in the region, joining RCEP and trying to accede to TPP.

None of the advanced economies really has a coherent policy combining trade with geopolitics in the Indo-Pacific. If their rivalry with China continues to intensify, it’s an omission that may come to weigh increasingly heavily on the minds of the governments concerned.

alan.beattie@ft.com



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