This week marks one of the biggest diplomatic weeks of U.S. President Joe Biden’s Presidency as he hosts almost two dozen world leaders at two complementary Summits in San Francisco, CA—the Asia Pacific Economic Cooperation (APEC) and the Indo-pacific Economic Framework (IPEF). Biden will also sit down with Chinese President Xi Jinping for the first time in a year. This is Xi’s first trip to the United States since 2017. Despite the high level of activity, the Administration has actively downplayed expectations for any major deliverables surrounding either the APEC Summit or the Biden-Xi bilateral. This leaves the IPEF Summit, featuring 14 Indo-Pacific countries, including India but not including China—as the Administration’s key deliverable for a U.S. economic blueprint for the region. But just days before that Summit, in response to domestic political pressure, the Biden Administration decided to table the most commercially significant part of that deal—the trade pillar—leaving the outcome of this week somewhat unclear.

What is IPEF?

The Indo-Pacific Economic Framework for Prosperity (IPEF) is a Biden Administration initiative that was formally launched on May 23, 2022. IPEF’s 14 members include India but not China. Widely regarded as the U.S. response to China’s rising influence in the Asia-Pacific region, particularly its Belt and Road Initiative (BRI) and proliferation of trade agreements like the Region Comprehensive Economic Partnership (RCEP), IPEF was intended to address the perceived lack of U.S. economic engagement in the Asia-Pacific.

IPEF is intentionally not a formal trade agreement, nor does it set out to solve the problems historically addressed through formal trade agreements. Rather, it is a framework comprised of four distinct pillars addressing trade, supply chains, fair economy (anticorruption and tax), and clean economy (clean energy). The fourteen countries participating in the initiative include the United States, Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Thirteen countries are participating in all four pillars, with India choosing not to participate in the trade pillar.

For the last year and a half, IPEF countries have been meeting regularly to negotiate outcomes in each of the four topics. On September 7, 2023, the Biden Administration publicly released text from the Supply Chain pillar. The other three sets of negotiations were scheduled to be concluded this week with the “substantial conclusion” of IPEF teed up to be President Biden’s big San Francisco deliverable. Press reports from San Francisco state that both the clean economy and fair economy texts have now closed.

Despite progress over the last year in negotiating text, a number of stakeholders—including both the business community and bipartisan Members of Congress—have expressed skepticism about the IPEF’s Pillar One trade component over concerns that it does not include market access, Congressional approval (a formal vote by Congress for the deal to enter in force), or formal dispute settlement. If the Supply Chain text is any indication, it’s not clear that any of the pillars will be binding or enforceable without some form of dispute resolution or the threat of retaliation in the event of non-compliance. Congressional Committees of jurisdiction, including the U.S. House Ways and Means and the Senate Finance Committees, have also expressed concern over whether the Biden Administration has the Constitutional authority to negotiate an expansive economic framework without legislative authority or Congressional approval.

The trade pillar, in particular—which had the potential to be the most commercially significant pillar of Biden’s deal—has faced the most significant political headwinds. While participating IPEF countries have been willing negotiating partners, primarily because they (particularly countries like Australia and Japan) want to keep the U.S. engaged in the Asia-Pacific and recognize this is the best they’re going to get from the Biden Administration, they (and particularly the developing countries) have not been willing to make significant concessions on politically sensitive issues like worker rights, environmental standards, forced labor, and a USMCA-type labor rapid response mechanism that would offer a tool to deal with facility-specific labor abuses, and a strong dispute settlement mechanism to ensure commitments are enforceable. These are not major issues in most advanced economies but are big challenges in many developing countries. While such provisions are never easy to negotiate, in an actual FTA, trading partners are often more willing to make these concessions in exchange for market access or a broader set of commitments. In addition, the lack of a market access component means that the U.S. farm and business communities who drive political and Congressional support for U.S. FTAs see very little upside in the agreement and have been politely indifferent, particularly after the Administration backed off IPEF’s digital trade chapter.

This week, the Administration decided to drop the trade pillar from the planned announcement and push negotiations to 2024, in response to concerns raised by Senators Sherrod Brown (D-OH) and Senate Finance Chairman Ron Wyden (D-OR) regarding the lack of meaningful commitments on labor. This now leaves President Biden with just three pillars to announce as part of this week’s summit, undermining the Administration’s economic strategy for countering China’s rising economic influence in the region.

Issues to watch for this week

• Will IPEF substantively conclude? We expect the fair economy and clean economy pillars to substantively conclude this week. While the trade pillar was scheduled to conclude, the Biden Administration just announced that those negotiations will continue on into 2024. It’s not clear to us what the additional time will do to further motivate an outcome on more politically sensitive issues like digital, labor or environment. U.S. leverage to seeking more ambitious outcomes may dwindle following the Summit and going into a Presidential election year.

• How will the Biden-Xi meeting impact the IPEF? While China is part of APEC, it is not part of IPEF, as IPEF is largely intended to be an economic alternative to China for partners in the Indo-Pacific region. A less robust IPEF—or one that doesn’t substantively conclude—is certainly in China’s interests. The Biden-Xi meeting may help stabilize tensions between the United States and China for the short-term, but it is unlikely to impact whether the Biden Administration continues to pursue IPEF.

• Where do U.S.-China tensions go from here? U.S.-China tensions are unlikely to change as a result of the Biden-Xi sit-down. The relationship is fundamentally fractured for the foreseeable future. The question will be whether there are areas of mutual cooperation, such as addressing fentanyl, anti-money laundering, climate cooperation, and re-establishing military-to-military communication, where the U.S. and China can work closer together, and whether the two leaders can restore lines of communication and dialogue so competition does not veer into actual conflict in the South China Sea, Taiwan Strait, or if another Chinese surveillance balloon goes astray or some other weird incident. Biden is not in a political position to lift the Section 301 tariffs on Chinese imports or ease recent export control or outbound investment restrictions, particularly given recent Chinese actions, which leaves limited room for the U.S. to negotiate. Similarly, China is unlikely to lift its restrictions on foreign companies or ease enforcement of laws such as the National Security Law, Anti-Foreign Sanctions Law, and the Espionage Act, which Xi sees as essential to national security and maintaining the leading role of the Communist Party.