President
Biden’s trip to South Korea and Japan, which begins on Friday, is
coming at a fortuitous time when the stars are aligned to deliver a
successful outcome on multiple fronts. The United States and Europe have
led a global coalition to push back against Russia’s aggression in
Ukraine. China is clearly on the defensive at home and abroad due to its
support for Putin’s war, the economic and political fallout from its
zero-Covid strategy, and growing frictions with an expanding list of
countries. South Korea has a new government that has signaled strong
support for the United States and the alliance. Japanese Prime Minister
Fumio Kishida has amazingly high approval ratings and has continued a
foreign policy focused on defending the liberal international order and
pushing back
against Beijing. Lastly, the just concluded U.S.-ASEAN summit in
Washington was productive in deepening ties on several fronts.
That
said, the Biden administration should not count their chickens before
they hatch. I have been on a listening tour over the last five weeks in
East Asia, spending an extended time in Taipei, Seoul and Tokyo. I
originally set out on an extended trip to China, but it’ll surprise no
one that the difficult and unpredictable situation in Shanghai and
Beijing made that a risky proposition at best. And so, I pivoted to a
new itinerary and have re-scheduled a second effort to visit China in
late August.
Being
on the ground and meeting with officials, business executives, and
scholars have left me with two big impressions. The first is that these
are three impressive societies that have weathered the pandemic
amazingly well and deserve admiration. The second is that although the
United States and its friends in Northeast Asia are broadly aligned on
numerous fronts, there are also significant differences of substance and
style, which if not bridged could derail progress in both the short-
and long-term. These potential tensions cover the range of security,
political and economic fronts, but given my expertise, here I will only
touch upon the final category.
Interlocutors
have repeatedly raised three issues, all linked by an underlying
anxiety about American credibility over the depth of its commitment to
its friends in the context of strategic competition with China.
1.
There is wider sentiment in Washington in favor of some form of
decoupling – full or partial – than in the places I’ve visited.
There is an acute awareness across the board that interacting with China
creates a range of serious risks and vulnerabilities, and these
problems must be ameliorated, in many instances with greater protections
that reduce connectivity. Yet, I heard at least three kinds of
pushback. Some questioned how the United States and the rest of the
world would tackle climate change without finding a way to work with
China. But more prominent was the recognition that they are so deeply
engaged with China that outright decoupling isn’t feasible and would
harm their economies. Despite its New Southbound Policy aimed at
diversifying its economic ties, over
42% of Taiwan’s exports went to China in 2021; the comparable figures
for South Korea and Japan are 31% and 26%, respectively (and only 8.6%
for the United States). In their view, there is no combination of export
or investment destinations that could entirely replace the Chinese
market. Thus, outright withdrawal is not in the cards. And third,
connectivity has the benefit of making China dependent on the West’s
technology, markets and financial system. Hence, as important as it is
to reduce our own vulnerabilities, it is equally critical to
simultaneously utilize and expand China’s vulnerabilities.
2. East Asians and Americans all stress the need for supply-chain resilience, but they have different definitions of the term. All
agree that over-reliance on China for critical minerals, essential
goods needed during emergencies (such as personal protective equipment),
and its market needed to be attenuated; yet there is no consensus about
how to precisely restructure the supply chain on high-tech goods,
particularly the manufacturing link in the chain. Take semiconductors,
for instance. In Taiwan, strengthening semiconductor supply chain
resilience means diversifying the location of fabrication facilities
(fabs) across multiple cities over the island, creating more electrical
engineers, investing in more electricity, and securing supplies of water
and other production components.
In short, expanding capacity to manufacture in Taiwan. The
American definition of supply-chain resilience for the semiconductor
industry is, simply put, “Move some of the capacity in Asia to the
United States.” Although TSMC has invested in Arizona and Kyushu, Japan,
there is little likelihood that there will be a large wave of such
investments resulting in a broader shifting of supply chains to America.
That is not only because Taiwan and the United States may have
competing commercial interests. Taiwan believes keeping substantial
production on the island also benefits its national security, while the
United States, by contrast, believes the national security logic means
some of the island’s capacity needs to be moved far away from China.
3. I have not met a single individual in the region who is enthusiastic about the Indo-Pacific Economic Framework (IPEF).
The lack of any market access benefits has left many disappointed.
Although there is an awareness of IPEF’s four pillars – trade
facilitation, supply-chain resilience, infrastructure and
decarbonization, and taxes and anti-corruption – interlocutors had a
hard time explaining the components beyond vague generalities; they are
unsure if it will ever come to fruition, and if so, whether it will be
durable. No companies I interviewed in any of the three
economies could identify a specific tangible benefit they could derive
from the arrangement. This skepticism was often tinged with resentment
because IPEF is viewed as in some ways a competitor to the Comprehensive
and Progressive Trans-Pacific Partnership (CP-TPP), an agreement the
United States helped create but then abandoned, and which would have
collapsed had Japan not stepped into the breach to provide critical
leadership. Countries have grudgingly expressed a willingness to join
IPEF, but most people I met said they are only doing so because they
want to keep the United States involved in the region’s economic
architecture in the hope that it comes back to CP-TPP once it is more
politically feasible to do so. (In Taiwan, there was substantial
disappointment among various circles that the island apparently was not
going to be invited to join IPEF because such a step would be
unacceptable to other potential members wary of alienating Beijing.)
These
differences are not about minor details; they are major points of
contention that could potentially scupper the cooperation necessary
among America and its allies to successfully prosecute strategic
competition against China. Hence, it will be necessary for the Biden
administration to discuss these issues with their counterparts – over
the coming days and beyond – to identify ways to potentially narrow the
gap in their perspectives. They could consider exploring a variety of
potential avenues on each of these topics.
On
the question of decoupling, one possibility is to investigate more
concretely with like-minded countries how to be both highly connected
with China and (as opposed to “or”) simultaneously institute a
more comprehensive set of protections regarding high-tech exports,
inward and outward investment screening, finance, intellectual property
rights and R&D collaboration, and travel. Diversification and
lowering over-dependence is a more palatablesounding logic to those in
the neighborhood than one of eliminating ties altogether. Moreover,
countries in the Indo-Pacific would likely appreciate greater attention
being paid to the side of the interdependence equation involving China’s
dependence on the United States and others. East Asian friends have
good ideas about how to
protect chokepoint technologies and raise what one observer called their
“indispensability” to China’s economy.
Addressing
the issue of supply-chain resilience in manufacturing will require
difficult conversations about not only the weaknesses of long supply
chains but also some of their potential advantages. In addition,
Washington would receive praise if it set realistic goals for re-shoring
to America based on what would actually be feasible. And rather than
set specific numerical targets (such as X% of global production), it may
be more practical to focus on what specific commercial and national
security needs could best be met by having more manufacturing in the
United States. At the same time, the administration and Congress will
need to reassure their friends in the region that their investments in
the United States will be eligible to receive the kind of support from
federal and local
authorities necessary to make them successful and sustainable over the
long term. Finally, in some sectors, such as semiconductors, there are
reports of new investment plans by multiple countries, which if all
moved forward, could potentially result in overcapacity down the road.
Hence, the United States and market democracies in the region and beyond
may want to discuss the pros and cons of developing mechanisms to
coordinate those investments.
Finally,
although the most urgent concerns were expressed about IPEF,
expectations are so low that the Biden administration has the chance to
surprise on the upside. If the United States and others can find
creative ways to create genuine commercial benefits outside of the
traditional market-access lane, for example through investment and
infrastructure development plans, that would raise the incentives to
participate. Such progress could increase the number of economies that
join at the outset and later sign on. Moreover, the United States should
signal a willingness to seek progress and early agreement on whatever
component possible to build interest and momentum. It would also be
helpful for the United States to reassure Japan and others that IPEF
will not overshadow CP-TPP and that
even if the United States cannot return to CP-TPP in the near term, it
will still support others within and beyond the Indo-Pacific region who
meet CP-TPP’s high standards to join as soon as possible.
Ongoing
regional dynamics offer the opportunity for the President’s trip to
establish an impressive high-water mark in America’s relationship with
friends in the Indo-Pacific. Doing so, though, will require sensitivity
to regional perspectives on a range of issues. Such a posture may not be
flashy, but careful persistence and a willingness to listen is what is
most needed now. If done well, the administration will draw plaudits and
gain further respect from its partners. And it will simultaneously send
an unmistakable signal to China that the United States and other
like-minded countries are building a formidable coalition which will
complicate its own ambitions for years to come.
Scott
Kennedy is Senior Adviser and Trustee Chair in Chinese Business &
Economics at the Center for Strategic and International Studies.