James Crabtree is executive director of IISS-Asia in Singapore. He is author of "The Billionaire Raj."
As it seeks to compete with China, can the United States reclaim its once-dominant position as Asia's trade architect? Having pulled out of one major regional deal and shown scant inclination to lead the creation of others, the answer until recently appeared to be a clear "no."
Reports that the U.S. is preparing to propose a new Asian digital trade agreement suggest this conclusion may be premature. The fact that President Joe Biden is even mulling such a proposal is likely to be welcomed in a region struggling to find new sources of post-pandemic growth. But whether it might then mark the first step in a wider economic re-engagement fit to check Beijing's influence remains far from clear.
America's waning position in Asian trade is not in doubt. China is the leading commercial partner for every nation in the region, with Sri Lanka and the Philippines the last to make the switch back in 2012. Just as significant was Washington's decision to walk away from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2017, abdicating its position as Asia's dominant trade policy player.
Details of any potential U.S. digital plan remain vague. But just by considering the idea, Washington is signaling that it still has ambitions to deepen regional commercial integration, albeit after a half-decade hiatus.
This is partly a function of geopolitical necessity. U.S. policymakers recognize they need new economic statecraft to rival China's rapid progress. At present when Biden's team talks about economics, they are more likely to do so in ways that make life harder for potential partners, not easier -- from attacks on Chinese technology companies to talk of uprooting regional supply chains.
This need for a more positive economic agenda is well understood by Kurt Campbell, U.S. National Security Council Indo-Pacific coordinator. Prior to his current role, Campbell co-authored an essay comparing contemporary U.S. challenges in Asia with the task faced by European statesmen seeking a new 19th-century balance of power. "In contrast to... Europe's negotiations, which emphasized borders and political recognition, those in the Indo-Pacific will inevitably revolve around supply chains, standards, investment regimes and trade agreements," he wrote.
Making good on those insights will not be easy. Washington has so far said nothing in public about its mooted plan. A new multicountry deal in the vein of the Digital Economy Partnership Agreement, a tri-nation deal between Singapore, New Zealand and Chile, could provide one model. A more recent bilateral digital pact between Singapore and Australia also gives clues as to what any U.S. proposal might contain.
Yet to develop and sell a new agreement, the U.S. must first grapple with a trio of challenges, the first being what and who to include. If the U.S. genuinely wants to promote digital trade in Asia, its most obvious move should be to rejoin CPPTT, which includes rules on everything from removing duties on digital products to ensuring the free flow of data. Yet this looks politically impossible in the near term, given deep domestic opposition.
In the meantime, deals like that between Australia and Singapore do provide a template for measures that go beyond the CPTPP in many areas, like enhancing digital privacy and cybersecurity.
Yet, the more comprehensive any proposed deal, the harder it will be to get countries to sign up. The U.S. could choose to be ambitious by proposing new rules governing areas like artificial intelligence or data localization. But such measures are often politically controversial, especially in emerging economies. The U.S. is trying to reassert its economic leadership in Asia in part for geopolitical reasons, which means it needs to have something to offer developing markets like Indonesia and Thailand, as well as Singapore and New Zealand.
Secondly, the U.S. faces formidable domestic obstacles to even proposing such a deal in public, let alone concluding it. Last week The Wall Street Journal published an editorial attacking new U.S. Trade Representative Katherine Tai for "holding up matters" over the digital proposal. But if Tai has moved cautiously, she is merely reflecting deep divisions on trade within Biden's own administration as it seeks to work out what its slogan of a "worker-focused" trade policy might mean in practice.
Then comes the third and final problem: China itself. Chinese President Xi Jinping appeared obliquely to attack the U.S. proposal last month, suggesting in a speech that new digital rules could lead to "exclusion, confrontation and division."
Biden, in turn, might find it easier to overcome his own domestic anti-trade problems if he framed any future deal as part of wider attempts to check China's influence. But doing so would then make the deal much less attractive to potential Asian partners, many of whom fear irking Beijing.
Overcoming these three challenges will require just the kind of skillful new statecraft Campbell discussed in his essay. Asia's economies do need new digital rules of the road, which the U.S. is well-placed to help draft. Campbell and others are also correct that the U.S. needs a credible economic agenda if it is to try to balance China's rising commercial power.
Over the last decade, China has largely supplanted the U.S. as the region's trade architect. The U.S. is unlikely to gain its position back with half-measures.