Biden under pressure to produce US trade strategy for Asia

Greetings from Washington where President Joe Biden is continuing efforts to shore up alliances, both to renew US strength around the world and to create coalitions of like-minded countries to tackle challenges from China.

Yet some experts here insist there is a critical gap in his Asia strategy — the lack of a framework for economic and trade issues. That’s the focus of our main piece today.

Charted Waters will look at a fresh source of angst for the world’s shippers.

A robust trade agenda matters for Asian allies

Gone are the days when Donald Trump frustrated US allies with his volatile and abrasive approach. When the G7 leaders meet in the UK next month, Germany’s chancellor Angela Merkel can safely assume that Joe Biden will not emulate Trump, who at the G7 in Canada in 2018 threw sweets across the table at her and said: “Angela, don’t say I never give you anything.”

In his first three months as president, Biden has convened the first leader-level summit of the Quad — a grouping of the US, Japan, India and Australia. His first foreign visitor at the White House was Japanese prime minister Yoshihide Suga and his second guest will be South Korean president Moon Jae-in.

In the Indo-Pacific region, he has taken action to support Taiwan as China conducts aggressive military activity around the country, and he has convinced the UK, Canada and EU to team up to impose sanctions on China over its persecution of the Uyghurs in Xinjiang.

Many of his actions have reassured allies, particularly in the security realm. But partners from Japan to Australia are nervous about one thing: the lack of a strong trade and economic component to his Asia strategy.

Wendy Cutler, a former senior US trade negotiator now at the Asia Society, told me this is a serious concern.

 “We could do everything right with our allies and partners in Asia, but if we don’t have a robust economic and trade agenda we’re not going to succeed,” Cutler said. “They put a premium on that aspect of the relationship, and they are very keen to see the US back in terms of putting concrete market-opening initiatives on the table.”

Ryan Hass, author of Stronger: Adapting America’s China Strategy in an Age of Competitive Interdependence, argues that it is critical to counter China, which is urging other countries to draw closer to benefit from its rise.

“The US and its partners need to present a sellable alternative,” said Hass. “The presence of an aircraft carrier or destroyer is not going to demonstrate the type of value that many American allies and partners most seek.”

President Barack Obama made that exact argument when he was urging Congress to ratify the Trans-Pacific Partnership, a huge trade deal signed by 12 Pacific Rim nations, in 2016. He said TPP was a core element of his “pivot” to Asia, a policy that was spearheaded by Kurt Campbell, who is now Biden’s top White House Asia adviser. But Obama failed to convince lawmakers and Trump withdrew from the deal in his first month in office.

The other 11 countries restructured and rebranded the pact as the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership “(CPTPP). But, as Trade Secrets wrote in February, the US is unlikely to join the CPTPP in the next few years. The reason being that domestic political considerations that have made trade deals a four-letter word. Some experts worry that the US will be left behind as other countries, including China, show interest in signing up.

In an interview at the Financial Times Global Boardroom conference last week, Katherine Tai, the US trade representative, pushed back against the idea that Biden did not have a strong economic component to his Asia strategy. But she said he would take a new approach on trade, which she described as a “worker-centric” policy.

“It does require a shift from our old habits and our muscle memory,” Tai told me. “It will require our partners to keep up the pace with us in being innovative and creative, to reformulate policies so that we can work together to bring up standards, and to enhance opportunities for us and for our partner countries and their workers.”

Tai stressed that it was important for the Biden team to examine why the deals such as TPP that were promoted in the past to liberalise trade had ended up in a “very politically fragile” status.

“We need to revisit why agreements like the TPP became so fragile here, reformulate our policies . . . continue to engage our partners, but along the lines of reformed policies so that these very important commitments that we take with our partners don’t fall apart and are more durable and sustainable going forward,” Tai added.

Some experts are urging Biden to negotiate a digital trade deal that would look at issues such as data localisation. Such an approach might be less politically contentious in the US than a full-blown free trade deal. Tai has raised digital issues in some of her conversations with her counterparts.

One senior US official conceded that allies were raising concerns about the economic component of the Indo-Pacific strategy. “We often talk about this in a more negative light, but the reality is that there’s hunger and appetite for US engagement . . . across a wide range of dimensions, including in the economic space,” said the official, who cautioned that it was still “very early days” in terms of crafting a policy.

But the political landscape is complicated. Ahead of the 2022 midterm elections, Biden is conscious that the Democrats have a tiny majority in Congress that he cannot afford to lose if he wants to push his “build back better” agenda. And he is aware that Trump, who used trade effectively to his advantage, may run for president in 2024.

“There’s a real desire not to paint a big bullseye on the back of the White House for the Trump folks for 2022 and 2024,” said one person in touch with the Biden team. “But preventing Trump from having that issue to bludgeon . . . the White House also undermines exactly what we need. At some point, something is going to have to give.”

Charted waters

First, it was the east Asia to US west coast route, then east Asia to Europe. Now it’s shippers using the transatlantic passage, between northern Europe and the US east coast, who are seeing container freight costs surge.

We asked Emile Naus, of consultants BearingPoint, what’s behind the surge in container shipping rates:

Shipping lines have withdrawn services to save costs and the flow of empty containers has reduced significantly. Once volumes picked up in late 2020, the shortage of containers and vessels has put pressure on prices and caused shipping lines to prioritise key services. Transatlantic and Asia-Europe shipping has further been impacted by port congestion in Europe following the blocking of the Suez Canal.

Naus also told us that cargo owners, port operators and shipping lines were becoming increasingly sceptical about when these supply chain bottlenecks would ease, with many now expecting the market to be volatile for the remainder of 2021, with costs and service problems high. Claire Jones

Trade links

Worrying news from Taiwan this morning. Kathrin Hille reports that a spate of local Covid-19 cases led to a sharp fall in the island’s tech-heavy stock index earlier today. The concern is that fresh pandemic-related restrictions will delay production at TSMC, the world’s biggest chipmaker. As regular readers are aware, chip shortages are causing all sorts of problems in global supply chains right now. We’d stress, however, that the world’s manufacturers have been able to quickly adapt to the pandemic and keep their premises operating, albeit with some hit to productivity.

Meanwhile, our excellent Korea team, Ed White and Song Jung-a, look at Samsung’s ambitions to keep ahead of the pack on making high-end chips. They’re coming under pressure from the US and China.

Unpopular opinion alert. Our Europe editor Ben Hall says the EU is being unfairly pilloried for its vaccine policy.

Lord David Frost, the UK government minister responsible for trade relations with the EU, has acknowledged what anyone keeping an eye on Brexit has long known: the Northern Ireland protocol will not be “sustainable for long” in its current form. This is, of course, the same Frost who played a key part in negotiating the deal.

Nikkei reports ($, subscription required) on the decision by Hota — Taiwanese automotive parts supplier to Ford, General Motors and Tesla — to open its first US plant as it bets that demand for electric vehicles will continue to accelerate. 

Tensions between Beijing and Stockholm over Huawei are hotting up. The Global Times, part of China’s state media apparatus, reports the Chinese ambassador in Stockholm saying that Sweden faces a “last chance” on Ericsson’s fate in China. The Scandinavian country angered Beijing by refusing to allow Huawei to participate in its 5G rollout. Claire Jones

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