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The IPEF and Indonesia’s strategic autonomy amid big-power rivalry
The IPEF has the potential to bring resilience to Indonesia’s economy, which is especially important given the uncertain future of competitive protectionism and volatile security.
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Ministers attending the Indo-Pacific Economic Ministerial pose for a family photo in Los Angeles, California, the United States, on Sept. 8, 2022.
(AFP/Frederic J. Brown)
T
he Washington Consensus, once a cornerstone of economic principles, has lost favor among policymakers. The global economy that was previously centered around trade and investment liberalization is now moving toward an era of competitive protectionism, driven by the United States–China strategic rivalry.
Market efficiency, once the poster child of every economic policymaker, is now taking a backseat to progressive trade policies that advocate more support for domestic industries and workers. Recently passed US laws, such as the Bipartisan Infrastructure Act, CHIPS and Sciences Act, and the Inflation Reduction Act (IRA), demonstrate the shift away from neoliberalism.
With these laws, the US will allocate more than US$2.5 trillion in new spending and tax incentives to increase domestic manufacturing capacity and boost US industrial competitiveness, primarily against China.
The US has not hesitated to flaunt its “America First” approach, despite being accused of creating market distortions and violating international trade rules. Instead, the US defends these actions as necessary to protect its security interests, or in this case, countering China’s non-market economic practices. Indeed, the US will not compromise on national security considerations, even when it requires trade-offs with its economic interests.
The US also implicitly persuades other countries to promote its own domestic economic interests. Backed by the idea of “friend-shoring”, the US is initiating the Indo-Pacific Economic Framework for Prosperity (IPEF), a new model of economic framework that aims at building supply chain resilience and strategic economic relations with friendly nations that share national security interests and common values.
The US made promises through the IPEF that the “new Washington consensus” will focus more on issues of raising standards, building resiliency, driving sustainability and fostering more inclusive prosperity in the members’ economies, using trade to create a race to the top.
Although the cause seems noble, there remains uncertainty about how the US can actually achieve it. This is mainly because the IPEF does not offer market access, so countries have little incentive to make high-standard commitments upfront.
