The Tokyo plan

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Chinese and Russian nuclear-capable planes flying over the Sea of Japan barely dimmed the bonhomie in Tokyo earlier this week. Despite a war raging in Europe, North Korea testing missiles next door and bombers menacing the Pacific skies, US President Joe Biden, Japanese Prime Minister Fumio Kishida, Indian Prime Minister Narendra Modi, newly elected Australian Prime Minister Anthony Albanese, and eight other leaders sealed an unprecedented deal that could change the way global trade and security are understood and pursued. 

The usual sabre-rattling that accompanies superpower moves was certainly on display. At a press conference on the first day of his visit, US President Biden said he would militarily defend Taiwan if China tried to take it by force. The White House later played it down saying military help will be similar to what Ukraine got, but China did not take the words of the commander of the most powerful army in the world lightly. Hence the bomber muscle flex. Crucially, Taiwan was excluded from the starting line-up of the Indo-Pacific Economic Framework (IPEF), a sign that the US recognised some red lines were better not crossed.    

The two superpowers vying for top dog status in the Indo-Pacific have been indulging in marking territory. While China sent the US into a tizzy with its Solomon Islands pact, the US claimed that the Indo-Pacific is as much its backyard as it’s China’s. “We are an Indo-Pacific power,” Biden asserted in his opening remarks at the Quad Summit. 

China reacted swiftly. Before the week was out, it proposed a wide-ranging, five-year security and technology cooperation agreement with 10 Pacific island nations. It is being seen as a direct challenge to Australia’s new PM, Albanese. China has found support for its Global Security Initiative—a counter to the US—from Uruguay, Nicaragua, Cuba, Pakistan, Indonesia and Syria.  

While territorial control increases the ability to project power, the IPEF reveals a new way of making friends and wielding influence. It aims to contain China’s comprehensive national power by curbing its economic and technological prowess. The framework comes at a time when globalisation is in retreat, free trade agreements are looked at with suspicion, and national interest is increasingly seen through domestic lenses by most countries. Which is why the relative ease with which it went through is remarkable. 

A different deal

“It is a watershed moment,” said Amitendu Palit, senior research fellow and research lead (trade and economics) at the Institute of South Asian Studies (ISAS), National University of Singapore. “The language of international trade negotiation changed at the IPEF talks,” Palit, who also sits on the World Economic Forum’s Global Future Council on Trade and Investment, told The Intersection. 

They focussed on different kinds of fundamentals—acknowledging strengths and accommodating weaknesses instead of quarrelling over numbers and negative lists and so on. And despite the hyphenation of the strategic Quad with IPEF, the dozen Asian nations signed up in a US-led club.

“There appears to be a change in the calculation of Asian countries,” Michael Kugelman, deputy director and senior associate for South Asia at Washington think-tank Wilson Center, told The Intersection. “Indo-Pacific nations want to pull off a balancing act. They do not want to give up their commercial relationship with China yet are now willing to be identified as strategically tilting towards the US,” Kugelman said.  

A sore point in the run up to the summit was what the Financial Times described as the US’ “all guns and no butter strategy”. What it meant was that the US was focused on its strategic interests and unwilling to talk about Asian countries’ access to its market. To his credit, Biden slowed the pace before he touched down in Tokyo and instead of launching negotiations, decided to start consultations to begin negotiations at a later stage. 

Ultimately, it did not matter. Asian leaders understood that market access was not the hill they should die on. The US will remain out there as the biggest market on earth and will buy products if it needs them anyway. Bypassing it also helps avoid the strings that come attached with preferential access. 

“They’ve understood that inflation is a global pain,” Palit said. That it was an underlying theme of the IPEF means the agreement will have better political buy-in in every country. Palit said the leaders recognised that supply chain resilience, climate change action, and standards setting are more presentable to their domestic audiences as issues of national interest than market access. 

On cue, the US nuanced its policy towards India, appreciating its compulsions vis-à-vis Russia and patting PM Modi on his back for his “democratic” handling of the pandemic unlike “autocratic” China. This was despite Biden earlier calling India’s position “shaky”, US diplomats warning of consequences, and the WHO disputing India’s data of the dead. 

The gesture burnishing Modi’s image did not go in vain. India reciprocated. 

All in

“India has made a commitment to the West, to the Quad,” Akhil Bery, director of South Asia Initiatives at the Washington-based Asia Society Policy Institute (ASPI), told The Intersection. Bery said India was often portrayed as a country that created roadblocks in international negotiations. There were a lot of divergent positions in the run-up to the talks. Sceptics would ask how committed India really was. 

“India recognises that working together with like-minded countries is the best way to tackle the China challenge, especially as India continues to face pressure on the disputed border from Chinese troops,” Bery said. 

The tactical understanding between the two countries has led the US to create alternatives for India. The accommodation is so apparent that it has rankled other countries. Former Pakistan Prime Minister Imran Khan complained that the US was treating his country (a close non-Nato ally of the US) and India differently. Khan alleged that the US planned and executed his ouster from office for visiting Moscow. 

Bery said India knows that it cannot handle China on its own although it has taken it on before. He described India banning social media app TikTok as unprecedented. Although those kinds of sanctions only work when the economic damage is severe—which, in the case of TikTok, it was not—no other country had done it before. Apart from banning scores of Chinese apps, India also clamped down on imports after a Himalayan border skirmish in the summer of 2020. Imports from the neighbour fell over 55% in 2021-22 over the previous year, according to data compiled by TechSci Research.

Shifting supply chains and erosion in trade are a threat to China’s growth. Companies such as Apple are looking at alternative locations, including India, for manufacturing. 

TechSci Research, which analysed data exclusively for The Intersection, said without government stimulus, China’s cell phone shipments could drop to below 300 million in 2022. Chinese Premier Li Keqiang has warned that companies need support and unemployment is soaring. Those seemingly temporary issues could become structural and deep-rooted if more countries move away from China. Its trade-driven growth could be imperilled. 

China had tightened its grip over Asean, with trade between them doubling from $235.5 billion to $507.9 billion between 2010 and 2019. Asean’s trade deficit with China jumped ten times from $10.4 billion to $102.9 billion during the same period. That influence would wane with the US luring away its Asean partners into the IPEF. 

The crippling western sanctions on Russia, especially its central bank, rattled China. It has since been looking for ways to safeguard its economy but can hardly do it without the cooperation of others. It has unsuccessfully tried to promote the yuan as a dollar rival. It is seen as a loan shark and land-grabber in countries such as Sri Lanka. Apprehensive of their rising debt burden, countries aligned with China’s Belt and Road Initiative (BRI) had begun a pushback some years ago. China itself is cutting back on BRI investments. 

Suddenly, the Quad’s $50 billion commitment to improve infrastructure looks like a BRI killer. The Quad joint statement talked about promoting debt sustainability and transparency under the G20 Common Framework. “The debt transparency clause tucked away under infrastructure is also pointed at Hambantota,” according to Bery. He was referring to a bankrupt Sri Lanka having had to hand over its port to the Chinese. 

Next frontier

The most important and futuristic pillar of IPEF negotiations is standards setting for, among other things, Internet, data, digital, social media, climate finance and EVs. The West is wary of China’s aim to be a “cyber great power”. As an ASPI paper, Stacking the deck: China’s influence in international standards setting pointed out last year, Chinese President Xi Jinping has repeatedly called for his nation to “lead the reform of the global governance system”. What Xi means is the global system should adapt to reflect changing dynamics, chiefly a rising China, it said. 

Although that worries the US, it also appreciates the fact that it needs the Asian economies that have signed up for IPEF and which together command over 40% of global GDP firmly on its side. ISAS’s Palit said standards were what former President Barack Obama also had in mind when he pushed for the Trans-Pacific Partnership, his argument being if the US doesn’t do it, China will. But that did not get enough buy-in from countries such as India. 

“The question that arises is who do you accept as the standard setter?” Palit asked. “If the US sets standards, there will not be much debate about it. Others may not swallow whatever it comes up with. But the US is prepared for consultations.” 

As China sees it, no institution or international law can challenge the sovereignty of the state. “This push has profound implications for the future of data governance, the freedom of the internet, and human rights in general,” the ASPI paper noted. 

Biden has been working to counter it as soon as he was elected and began global consultations under an initiative called The Alliance for the Future of the Internet which had China and Russia squarely in its crosshairs. “The ultimate Alliance would involve countries signing on to an agreed Charter, which would include political commitments to align domestic legal regimes with Alliance principles and norms but the Alliance would not be designed as a legally binding treaty,” a discussion note read.

In September 2021, the initiative picked up speed and clear timelines were established. It was being handled from the highest levels in the White House, according to a person who participated in the talks but wanted his name withheld from this story. 

The result was ‘A Declaration For The Future Of The Internet’ signed by 61 countries. Concrete rules, regulations and standards are expected to be in place by the end of 2022. 

By bringing the Quad and IPEF together, the US has erected a formidable bulwark against China in its own backyard. 

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