A potential trade deal with 12 Indo-Pacific countries threatens to further hurt the American middle class.
Earlier this week, President Joe Biden unveiled the Indo-Pacific Economic Framework (IPEF), a potential new trade deal with 12 Indo-Pacific countries.
While the details of the deal remain murky, some have raised serious concerns based on the little information that has become public. The IPEF does not seem to focus on lifting tariff barriers like the Trans-Pacific Partnership (TPP), which other countries have suggested the U.S. rejoin instead of going forward with the IPEF. Instead, Biden’s new trade deal appears to be a handout to Big Tech, big online retailers like Amazon, and express shippers.
The U.S. and the 12 partner nations—Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam—released a joint statement Monday announcing the framework.
“We share a commitment to a free, open, fair, inclusive, interconnected, resilient, secure, and prosperous Indo-Pacific region that has the potential to achieve sustainable and inclusive economic growth,” the statement read. “We acknowledge our economic policy interests in the region are intertwined, and deepening economic engagement among partners is crucial for continued growth, peace, and prosperity.”
The pandemic, the nations added, has “emphasized the importance of strengthening economic competitiveness and cooperation and securing critical supply chains,” and underscores the importance of “stimulating job growth and improving economic opportunities, including for our workers, women, medium- and small-enterprises, and our societies’ most vulnerable groups.”
Some conservatives, such as American Compass executive director Oren Cass, are uneasy about the deal.
“We should support the idea of assembling a regional economic bloc that includes U.S. allies and excludes China,” Cass told The American Conservative via email. “But it could also turn into a boondoggle that mostly just benefits multinational corporations.”
“The question,” he added, “is what everyone is intending to agree to, and what leverage the U.S. has to shape an agreement that benefits us. I worry that we are still caught in the neoliberal framework that takes access to the U.S. market as the unquestioned starting point.”
The vague language used in the nations’ joint statement suggests Cass’s fears are well-founded. For example, the signatory nations argued that, in the long run, “economic competitiveness will be largely defined by our ability to harness technology, promote innovation, participate in the digital economy, justly transition energy systems and achieve energy security, and tackle the climate crisis in a manner that produces equitable, inclusive growth and improves socio-economic welfare.”
What those platitudes will mean in practice is yet to be seen, but the deal appears to be centered around four pillars: trade, supply chains, clean energy, and anti-corruption. The White House’s fact sheet for the IPEF gives those components of the plan slightly different names, detailing the sorts of provisions that could be included under each pillar.
To foster a “connected economy,” the IPEF members “will pursue high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localization.” The deal will also focus on “the region’s rapidly growing e-commerce sector, while addressing issues is [sic] such as online privacy,” and “seek strong labor and environment standards and corporate accountability provisions.”
While that language may seem benign, Charles Benoit, trade counsel at the Coalition for a Prosperous America, spots some red flags.
“Big Tech, when TPP started, wasn’t a big part of the trade scene,” Benoit said. “They very much are now, and they’ve got big trade-policy goals.” While “Big Tech sees that there’s not much appetite for tariffs to be cut, they think, ‘Why should that stop us from achieving our policy goals?’”
The biggest policy goal for Big Tech companies in the trade space, according to Benoit, “is stopping data-localization requirements, which mean you have to have a server within the country’s borders.”
The IPEF’s stated commitment to pursue multilateral standards on data flows and localization, Benoit fears, could strip away requirements to keep data security and maintenance operations on U.S. soil, and incentivize those operations to move to Asia. Removing data-localization requirements would not only be a bad deal for the American workers currently tasked with manning these facilities. It would pose a national-security risk, given China’s ambitions for regional hegemony and rapidly increasing cyber capabilities.
Benoit also expressed concerns about the fact sheet’s explanation of the second pillar, the creation of a “resilient economy,” focused on stabilizing supply chains. The IPEF’s purported focus on supply chains, paired with its enthusiasm for a growing e-commerce sector, has the makings of another push to increase the de minimis threshold, a rule that currently allows shipments with a declared value of less than $800 to enter the U.S. without undergoing tariff evaluations.
When Congress established the de minimis threshold in the 20th century, it created three separate categories of goods that could enter tariff-free under a certain value: souvenirs, bonafide gifts, and certain mail orders. De minimis standards were created, Benoit told TAC, “because we didn’t want to use regular customs officers’ judgment or discretion on what to waive through. So, Congress said, ‘We’re going to tell you what’s worth your time and what’s not.’”
“The first two categories were $10 for most of that time period,” Benoit said. “The mail-order category was originally just $1. Everything over a dollar would have to get a tariff assessment.”
But NAFTA blew the lid off of de minimis thresholds in 1995. The de minimis threshold for the mail-order category, which has become known as the e-commerce category today, increased from about $5 to $200. It was a “huge win for express shippers like FedEx and UPS,” Benoit explained.
“When I see e-commerce, I see them pushing all the other IPEF nations to have higher de minimis thresholds.” Benoit told TAC. “The express shippers love this because they’re displacing a whole business segment, what used to be traditional import wholesalers,” and “can continue displacing” other small and medium businesses.
“The Jake Sullivan types don’t care at all about competition and don’t have real antitrust concerns at all,” Benoit claimed. “A lot of what we see in this policy area is securing pathways for entrenched big business and monopolies in the name of securing access, while actually making it harder for other businesses to compete in a given field.”
The IPEF has a significant environmental component. The signatories tout future “first-of-their-kind commitments on clean energy, decarbonization, and infrastructure that promote good-paying jobs” to “accelerate efforts to tackle the climate crisis.”
If the past is prologue with respect to clean energy provisions, then the IPEF’s clean-energy chapter entail be a massive tariff cut in favor of big businesses that off-shore or outsource manufacturing.
“For a long time there was a proposed WTO environmental-goods agreement,” Benoit explained. “It’s basically an effort to cut tariffs on thousands of machine components under the rubric of making clean energy cheaper. But it’s not like these provisions are limited to wind turbines and solar panels. They cover pretty standard machine components.
“So, a lot of other goods could get their tariffs cut under an environmental-goods agreement in the IPEF,” he said, if the IPEF is styled after previous attempts to make clean energy more cost-effective via trade agreements. “We could end up cutting tariffs on thousands of goods that are only tangentially related to clean energy.”
Nevertheless, the White House says the IPEF will create a “fair economy,” by tackling bribery, money laundering, and other forms of corruption. That’s all well and good, but when Americans cry out for fair trade, their foremost concern is not money laundering; it is the propensity of multinational corporations and other countries take advantage of deals like the IPEF to undercut America’s middle and working classes. The problem isn’t limited to individual actors failing to play by the rules of the game. The larger problem is that the rules of the game themselves are rotten. While things could change, the IPEF is looking like another rotten deal for the American worker.
This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.