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

If you think that Asia-Pacific is the melting pot in which the future of integrated global trade is conceived, you are way behind the times. Everyone loves the Indo-Pacific these days. This sounds like an exhausting pedantic distinction, perhaps an unnecessary change that the manufacturers of Risk would make on the game board to justify releasing a new edition. In fact, it’s a pretty big deal, underscoring why the US and increasingly its allies are sublimating trade liberalization into regional security.

The (imperfectly defined) areas may be fairly similar, although Indo-Pacific generally covers more of the world to the west, encompassing the entire Indian Ocean. The real distinction is that Indo-Pacific is a term for international relations, not an economic one. Zero-summer antilist Donald Trump began using the term a lot during his presidency as part of his confrontation with China. It still fits in a world where, especially given the Russian attack on Ukraine, the US and often its allies – the EU, UK, Australia, Japan – prioritize building counterbalance alliances with Beijing and Moscow over liberalizing the trade.

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

India’s military might and China’s growing alienation make the US eager to cooperate with New Delhi on all possible fronts. 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 of trade deals that has gripped Washington means it cannot provide market access as an incentive for economic integration. The TPP is designed to form a trading area in the image of the US. The Biden administration’s IPEF has rightly been widely rejected because it contained few binding measures.

The EU has the opposite problem: it can sign trade agreements, but it has no navy. Even in trade, Brussels’ modus operandi in Asia generally consists of picking countries one by one with a standard bilateral model agreement rather than trying to forge them into a bloc. There wasn’t much more respect among merchants for the EU’s Indo-Pacific strategy, which saw a lot of hand-waving over digital partnerships, than for the US version.

The desire to sideline India has led US allies to shy away from aggressive liberalization and candid trade diplomacy. India under Narendra Modi may call itself a trading nation and is back in the game of preferential trade deals, but it is still suspicious of competition from other Asian economies, especially China. Modi dropped plans to join the Asia-Pacific Regional Comprehensive Economic Partnership, let alone the updated TPP.

New Delhi is also as persistent as ever on the multilateral circuit, dominating a recent World Trade Organization ministerial meeting by threatening to break a 24-year moratorium on taxing digital trade, pushing for watering down a deal on fisheries subsidies and blocking an agreement on agriculture.

But while the advanced economies were deeply frustrated, much of their public criticism of India was muted. Don Farrell, Australia’s trade minister, told the FT in an interview at 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 sign weak PTAs with India, full of loopholes and exceptions, due to political necessity.

Now it may be (probably in my opinion) that meaningful trade agreements are not necessary or sufficient to forge strategic alliances. India wants, and gets, military cooperation from Washington much more than it cares about access to the US market. But to the extent that trade has a geopolitical impact, the US’s aversion to any substantive agreement has allowed China to expand its influence in the region, join RCEP and try to join TPP.

None of the advanced economies really have coherent policies that combine trade with geopolitics in the Indo-Pacific. If their rivalry with China continues to grow, it’s an omission that could weigh on the governments involved.

alan.beattie@ft.com

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