Why calls for more US economic engagement in Asia will likely go unheeded
16 May 2023|

Over the past year, the Australian government has pulled few punches in urging the US to show economic leadership in the Indo-Pacific.

Most recently Australia’s foreign minister Penny Wong, while stressing the US’s essential role in keeping a multipolar balance in the region, identified the need for greater economic engagement. She told the National Press Club in Canberra that this would build ‘the shared value that is a critical incentive for peace’.

That follows similar calls in her speech in Washington in December, and an emphasis on economic openness when she spoke in London in January. There was also Kevin Rudd’s blunt remark shortly before he took up the post of ambassador to the US that Australia’s primary security partner was throwing its allies ‘under a bus’ on economic issues.

These appeals from prominent Australian voices are signs of the frustration with US economic policy that has developed among American allies and partners.

Unfortunately, these frustrations have little chance of being addressed. Caution on freer trade, whether through industrial policy or outright protectionism, has practically become orthodoxy for policymakers in Washington. Given how globalisation is viewed in parts of the American electorate, it is seen as very difficult for any US administration to make an economic pivot, even for sound strategic reasons, for the foreseeable future.

This ideology re-emerged during the Trump era, with tariffs levied even on friendly trading partners. However, the Biden administration has also enacted measures that some argue continue this protectionist approach. While the politics of trade policy matter, it’s not only about addressing voter backlash to globalisation. Many Americans justly argue that once it became clear Beijing, far from liberalising China’s economy, was pursuing a sharply strategic approach to industrial policy, Washington could hardly continue with a blithe approach that might render the US too reliant on China for critical resources.

For instance, the US introduced export controls to curb Chinese access to critical technologies and made efforts to boost the domestic semiconductor and clean energy industries through the CHIPS and Science Act and the Inflation Reduction Act.

As the foreign minister articulated well in her Press Club address, the Indo-Pacific can best avoid conflict by achieving a strategic equilibrium where power is spread widely, not concentrated in any one country’s hands. And as she said, the US’s role in the region is central to this multipolar balancing act.

This dynamic is the driving force behind recent efforts by both countries to strengthen diplomatic relationships in the region.

Wong has been applauded for the energy she has brought to bear in her role, making dozens of trips across the region and globe since taking office. US leaders, too, have increased their rhetorical efforts—experts have welcomed President Biden’s planned visit to Papua New Guinea ahead of the Sydney Quad meeting on 24 May.

The Biden administration also released a dedicated Indo-Pacific Strategy last year and conducted a diplomatic blitz that has sent senior leaders throughout the region and led to the announcement of new US embassies.

Despite welcoming this engagement on the diplomatic and military levels, Indo-Pacific allies and partners are looking for more from the US in economic affairs as they seek a healthy balance of power in their region.

In the minds of those countries, including Australia, economic engagement is an indispensable pillar of a balance that would deter aggression and coercion in the Indo-Pacific in the long term.

Australia clearly understands the need to take a more strategic approach to economic and industrial policy. After all, it is taking its own measures to shore up local production of critical goods and materials.

But recent history indicates there is a growing divide between Canberra and Washington on where ‘the line’ is. While Australia has actively sought to participate in every major trade bloc in the region, the US approach has been less consistent, to the dismay of some Indo-Pacific partners. For instance, the US decision to pull out of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership continues to frustrate partners in the region.

As Wong noted in her December speech, a big part of how the US helped keep the peace in the Pacific in the post-war era was by serving as the main guarantor not only of security, but also of economic public goods.

That is why, as she says, enhanced economic engagement must be a ‘core alliance priority’. It would signal a commitment to expand shared priorities beyond security interests. As Rudd noted, ‘you cannot have a strategy which has one arm tied behind its back, namely, trade and the economy’.

Yet policymakers in Washington seem unlikely to embrace a new approach any time soon. Recent polls indicate Americans tend to favour greater isolationism on foreign trade rather than engagement.

Although the US has much to gain strategically from greater economic engagement in the Indo-Pacific, its politicians want a clear and obvious return in their voters’ daily lives when it comes to trade liberalisation. Therefore, any effort to deepen economic ties with the region—for example, through increased market access—is likely to run into the same political obstacles that ultimately sank US engagement in the CPTPP.

Steps such as the CHIPS and Science Act and the Inflation Reduction Act, as much as they serve a clear strategic purpose, have clearly indicated that the US will not pursue trade policies without close concern for how they affect its domestic interests.

For all of this, the Biden administration does seem aware of the importance of meeting the economic needs of the region to maintain goodwill. Last year’s Indo-Pacific Economic Framework reveals that much. But while it has generated a good deal of interest, much of that was in its protectionist features and that it doesn’t offer preferential access to US markets.

Appeals from Australian leaders like Wong and Rudd may be unlikely to prompt change, but they are not alone in calling for it. US policymakers need to find a way to reconcile strategic industrial policy, especially in areas like critical resources and technologies, with an approach to trade that reflects their values—and what their allies need from them—in the Indo-Pacific and around the world.