The Indo-Pacific Economic Framework for Prosperity (IPEF): Another Nail in the Coffin of the Washington Consensus

May 26, 2022

This week, the Biden administration announced a new Indo-Pacific Economic Framework for Prosperity (IPEF), to deepen economic ties between the US and a dozen other countries, including Australia, India, and Japan. In addition to the concrete, material benefits IPEF is expected to provide, this agreement is important for another reason: It marks another step away from decades of failed, elite consensus toward a new, and much stronger, governing paradigm.

For the past 40 years, international agreements have been governed by what is known as the Washington Consensus, in which international policymakers privileged trade openness and volume above all. Built on neoliberal ideas of privatization and deregulation, and emphasizing the World Trade Organization’s market-oriented rules, it was based on the theory that these levers would create the conditions for markets themselves to meet our collective needs. As Roosevelt Chief Economist Joseph Stiglitz has argued for decades, the Washington Consensus has failed, even on its own terms, to generate the economic growth it had promised. 

IPEF signals that elite consensus has finally shifted, and an alternative approach is starting to take root. As Nell Abernathy and Roosevelt’s Todd Tucker described in a new vision for international agreements in late 2019, “From tax enforcement to decarbonization to human rights protection, many of our most pressing policy challenges require international collaboration. Just as the US has pursued market coordination and collaboration through trade agreements, negotiators can promote equity-enhancing goals in the international agreements of the future.” Or as Jennifer Harris wrote in Democracy Journal, there is a need to pursue the progressive agenda to reduce inequality just as vigorously at the international level as the domestic. 

IPEF is moving forward with precisely this proposed approach, using the power of international agreements to create shared, high-road labor standards; commitments on clean energy and decarbonization targets; systems to build more resilient global supply chains; and a shared approach to corporate tax and anti-corruption regimes.  

Crucially, IPEF decenters what trade lawyers call “market access,” or reduction of tariffs (charges imposed by government on imports), as the be-all, end-all of trade policy. While this approach has received criticism, much of this is misplaced. US tariffs are already miniscule—so small, indeed, that the US has little left to give up, a problem for leverage in negotiations, as Biden’s US Trade Representative Katherine Tai has pointed out. Historically, US trade agreements have given substantial benefits to goods originating outside of trade agreement partners’ economies. In the Trans-Pacific Partnership (TPP), for example, a substantial percentage of the inputs into products as varied as autos to solar panels could come from China—which was not even a TPP partner. In this way, such deals subsidize the concentration of economic production in countries hostile to the US, a phenomenon that Roosevelt’s Tucker explores in a recent Monkey Cage column and issue brief on supply chains. IPEF will go in a different direction by subsidizing so-called “friend-shoring.” Finally, as Sen. Elizabeth Warren (D-MA) regularly reminds us, US trade agreements have become largely about issues other than tariffs. In that sense, IPEF is simply further along in the direction of travel of all modern trade arrangements like the TPP, though with more countries and without the TPP’s neoliberal take-all-or-leave it character.

The approach the Biden administration has taken with IPEF in many ways reflects and expands on the Cornwall Consensus, developed in response to the global pandemic by the G7 Economic Resilience Panel, on which Roosevelt President and CEO Felicia Wong served. The Cornwall Consensus proposed to end trade liberalization as an end in and of itself; use public investment and a rewritten rule book to shape and create markets, rather than relying on less effective and less equitable policy levers; and deploy the power of multilateral institutions to serve as a check on multinational corporations in a range of areas. IPEF adopts many of these precepts, and brings nearly a dozen new countries, beyond the G7, into this international community. 

After decades of an elite consensus that has failed, empirically and morally, IPEF is another sign that we’re headed toward a new one. As Wong noted recently in Foreign Affairs, the Biden administration and like-minded governments are “rethinking that [old] approach in favor of policies that seek to bring new standards to international trade and to use public investment to address issues such as income inequality.” 

The US can neither shrink from the rest of the world, nor rely on the tools of the late 20th century to solve the collective problems we face. Governments can and must do what markets alone cannot: ease economic transition; coordinate standards and investments to create real prosperity, and check corporate power. These are—as the Roosevelt Institute has long said, and President Biden has now affirmed—the new rules for the 21st century.