Biden plays host at APEC summit facing geopolitical headwinds

SAN FRANCISCO — The Golden Gate Bridge, a slender passageway created at the entrance of San Francisco Bay, offers an opening in the line of low hills to meet the Pacific Ocean. It is this setting where 21 leaders from the Asia Pacific Economic Cooperation (APEC) forum are convening to discuss today’s tensions and the road ahead in fog-bound San Francisco.

A Nov. 14 meeting with Chinese President Xi Jinping, confirmed by the White House only on Friday, will almost certainly be the media highlight of the gathering, but President Biden as host of the weeklong event will also be challenged to reboot confidence among the leaders of other Pacific Rim countries, who fear the U.S. government is focused on other matters and its commitment to traditional market-opening policies has faltered.

Domestic and foreign distractions are likely to intrude on the gathering. The host city has grappled with issues such as homelessness, a struggling downtown commercial environment, widespread drug usage and high crime rates. Mr. Biden and his team will be meeting with Asian leaders as the White House monitors hot wars in Israel and Ukraine, threatening once again to draw Washington’s attention away from the Pacific.

Despite a promising beginning and some early successes, APEC itself has come under scrutiny for its sluggish progress in delivering concrete results in the realms of regional trade and investment liberalization, despite including some of the world’s most dynamic emerging economies.

“While a successful meeting with Xi could further key short-run economic and political priorities, the most impactful economic announcements coming from APEC likely won’t involve their sit-down,” Niels Graham, a China specialist and an associate director for the Atlantic Council’s GeoEconomics Center, wrote in a recent analysis. “That’s because the United States is expected to make multiple major announcements around its Indo-Pacific Economic Framework (IPEF) as well as a number of bilateral investment deals with APEC member economies.”

A numbers game

With China emerging as an economic and security challenge across the region, the need for the U.S. to stay engaged is evident: Established in 1989, the APEC region is home to 3 billion people and represents nearly 48% of trade in goods and services and 62% of the world’s GDP.

Foreign direct investment from APEC economies in the United States has hit $1.71 trillion. Almost 56% of US exports go to these Asia Pacific economies, accounting for nearly 7 million American jobs, according to the latest “Asia Matters for APEC” report from the Honolulu-based East-West Center.

“The Indo-Pacific Economic Framework (IPEF) and this APEC program provide the basis to advance American priorities and to a lesser and greater extent the priorities of the 22 other APEC economies,” said Satu Limaye, vice president of the East-West Center Washington office.

The outreach channels provided by APEC have only grown in importance, analysts say, as the U.S. and China have disengaged on a number of fronts, now competing openly for allies and influence in East Asia, the South Pacific and Latin America.

The challenges confronting the Biden administration today are vastly different from those confronting previous U.S. administrations that hosted APEC summits in 1993 and 2011. Twenty years ago, foreign leaders largely embraced globalization and free trade, but decoupling, “de-risking” and nationalism drive the new dynamics in a more fragmented global governance.

A U.S. government once seen as a champion of open markets and freer trade now has a very different image, following a pullback by the Trump administration that, in many cases, has been kept in place by Mr. Biden’s team.

“Most Asians, especially in developing Southeast Asia, see the U.S.-led Indo-Pacific Economic Framework as doing little to provide more access, since they see the IPEF as mostly designed to please U.S. free-trade critics, who support President Biden,” said Murray Hiebert, research director at the Washington-based Bower Group Asia.

A growing bipartisan consensus in Washington holds that China does not adhere to a rules-based order, violates global trading rules, and has created an unfair playing field for foreign firms in China. But how to confront that challenge remains a question mark as Mr. Biden and Mr. Xi prepare to meet.

The Biden administration protectionist trade moves — and its failure to fully roll back tariffs and other trade restrictions favored by Mr. Trump — have meant an absence of progress on traditional free-trade deals since Mr. Biden took office.

As a result, there’s little movement on the IPEF because the program is not a traditional trade agreement and does not provide improved market access through tariff elimination, which is the fundamental reason for nations to enter into such deals with the United States. Some say the APEC summit will allow the Biden administration to lay out more fully its new approach that differs from traditional trade agreements.

“This host year allows the United States to advance an economic policy that benefits workers, businesses of all sizes, and families across our country and the APEC region, “claims Monica Hardy Whaley, President of the National Center for APEC.

An opening to exploit

With increasing numbers of Southeast Asian countries, especially Vietnam and the Philippines, worried about Beijing’s widening clout, reflected in Mr. Xi’s signature Belt and Road Initiative, and military modernization in the South China Sea, the U.S. may have an opening to exploit.

“The United States should focus on making its initiatives more durable in order to continue fostering strong relationships with regional partners and allies, and this is true for [IPEF],” argued Ted Osius, former U.S.  Ambassador to Vietnam and President and CEO of the U.S.-ASEAN Business Council.  

He also strongly advocated for the establishment of a formally established IPEF secretariat to create a permanent administrative structure to the American outreach program.

Even with other foreign policy challenges dominating the headlines, Washington has tried to solidify its links to key players in the Indo-Pacific.

In September the U.S. and Vietnam, former enemies, upgraded to a “comprehensive strategic relationship” to broaden and deepen bilateral links, including securing a reliable supply chain for Vietnamese semiconductors and a more favorable environment for American investment.

By 2011, almost two decades after the inaugural APEC gathering, the growing influence of China in regional geopolitics and the economy had become a cause for considerable apprehension.

The U.S. watched with growing unease as China reshaped the regional balance of power and challenged many of the fundamental principles upon which APEC was founded. As a result, the United States has attempted to form partnerships and alliances in order to counter Chinese predominance in the region.

APEC is an organization that shares similarities with both the G-20 and the Organization for Economic Development (OECD). The leadership is subject to an annual rotation among its member states, with the host country financing and taking the biggest role in setting the agenda for the meeting.

While the Middle East, Ukraine and dysfunction in Washington may prove distractions next week, some U.S. officials argue that is all the more reason for the U.S. to deepen its links in the dynamic Pacific Rim region. And the problems thousands of miles away are being very much felt by the nations of APEC.

In an interview with Voice of America, Matt Murray, the State Department’s senior point man on APEC affairs, noted, “Whether you’re talking about food security, prices, or energy issues, those are all substantive impacts that have derived from Russia’s invasion of Ukraine. So that’s a concern in the context of APEC.”

Channels for connection

APEC also offers some unexpected channels for connection: In addition to helping midwife some of the major multilateral trade compacts of recent decades, APEC, along with the World Trade Organization, is one of just two international organizations where the U.S., Taiwan, Hong Kong and China are all full members.

Still, analysts expect the tone of the debate next week to be significantly more negative and defensive than in years past. Free trade ideals are being challenged, the COVID-19 pandemic disrupted global supply chains, U.S. leadership on trade issues has been battered, and China and the U.S. are still trying to balance the level of cooperation and confrontation in their bilateral relationship.

Mr. Trump famously pulled the U.S. out of the Trans-Pacific Partnership, a massive regional  trade pact.
But even with Washington on the sidelines, the TPP morphed into the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership,” largely because of Japan’s leadership.

The loss of momentum is having a clear impact on the marketplace as well.

As the US-China relationship deteriorates and supply chains are rearranged, a growing number of corporations are relocating production facilities from China to Southeast Asia, exporting from there directly  to Western markets. Many APEC countries are loath to choose between the U.S. and China, a balancing act that has become increasingly hard to maintain.

The customary San Francisco fog may result in far more than lower temperatures for the leaders and their delegations as APEC kicks off. It may come to symbolize for the region how hard it is to see what’s on the horizon.

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