Furniture merely a pawn in geopolitical chess match

Biden seeks a counter-balance to China’s influence in Asia

In Washington, D.C., what isn’t said is often as important as anything spoken or published. In the case of the Indo-Pacific Economic Framework announced last week during President Biden’s tour of Asia, at least two absences are worth noting. 

First, the term used by the Biden Administration for this U.S.-led coalition of sorts is “framework” rather than “trade agreement.” Second, absent from the roster of 12 initial partners to the U.S. for the IPEF is Taiwan.

The naming scheme can be explained by the failed Trans-Pacific Partnership, which Trump pulled the U.S. out of in 2017, disappointing our trade partners and allies in the region. Having begun the trade talks and assembled the trading bloc during the Obama administration, the U.S. idly watched as the rest of the bloc proceeded without U.S. involvement. For his part, Trump declared an end to multinational trade agreements, and that retrenchment has only cemented during pandemic.  

In addition, by avoiding “trade agreement” in the name, the White House can for the most part bypass Congress for approvals at a time when there is little bipartisan interest in trade deals of any kind. The Biden economic team is instead calling IPEF a “21^st century economic arrangement,” a linguistic dexterity reminiscent of the substitution of “military conflict” for “war.” 

In the geopolitical chess match that pits the U.S. and China against each other, the IPEF is a more of a blocking move than an advance on the king, countering as it does the Regional Comprehensive Economic Partnership brokered by China that took effect earlier this year. The RCEP created the largest trade bloc in history, and the U.S. was not invited.  

Strategic ambiguity

That Taiwan is missing from the initial roster of nations is troubling to many in Congress and elsewhere. While it might be a coincidence that in the same news cycle Biden announced the IPEF and the United States’s resolve to defend Taiwan militarily if attacked, it can reasonably be intuited that Taiwan’s absence from the IPEF adds a measure of “strategic ambiguity” to the Biden’s China policy. 

Fresh tensions with China are not what global trade needs at the moment, just as supply chains are evening out, at least to some degree, and when consumer appetite for home furnishings is being tamped down by war and inflation. According to the data company Sentieo, a content analysis of recent corporate earnings calls and investor conferences showed that mentions of near-shoring, on-shoring and re-shoring were the highest they have been in more than 15 years. The big picture looks a lot more like de-globalization and even protectionism than it does globalization, but it isn’t at all surprising that pandemic and its resulting supply chain interruptions would have manufacturers moving at least some production closer to home.

On the other hand, globalization drove most of the gains in productivity over the last quarter-century, so retrenchment likely brings with it losses in efficiency and increases in production costs. 

José Manuel Barroso of Goldman Sachs called this current state potentially a “decoupling world.” 

So, the IPEF is not insignificant. On board are Australia, Brunei, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam, a bloc that represents 40 percent of global GDP. 

We don’t know yet exactly what the IPEF will do, but we do know it seeks to address four economic dimensions or “pillars”: the digital economy, supply chain resilience, clean energy and taxes and corruption.  

Again, notice what is missing from this list: tariffs, labor standards, intellectual property and open markets. In short, the IPEF seeks practical solutions to technological and logistical challenges rather than providing a means to higher order goals, such as protecting trademark and patents or pushing for reform in labor laws.

Though home furnishings isn’t mentioned in the IPEF announcements, the “economic arrangement” will invariably affect imported furniture and components, particularly in the areas of finance, logistics, and, hopefully, corruption at the ports and borders. 

Global reactions

Reactions from IPEF member nations has been nuanced. According to China’s state news service, Xinhua, China is unhappy with Biden’s subterfuge in “forming small cliques in the name of freedom and openness” when the goal is clearly to counter China’s “growing assertiveness” in the region, an assertiveness that Xinhua described as “peaceful.”  

“Facts will prove that the so-called Indo-Pacific Strategy is in essence a strategy that creates divisions, incites confrontation and undermines peace,” Chinese State Councilor and Foreign Minister Wang Li told the news service. “No matter how the strategy is airbrushed or disguised, it is bound to be a failed strategy.” 

In India, Prime Minister Narendra Modi praised the framework and the “deeper cooperation” on complex economic challenges it promises. 

Thailand, which has been careful in its negotiations and agreements with the West, is promoting the IPEF as a reasonable response to regional trade challenges, noting that several ASEAN nations also are participating in the IPEF. Thailand is promoting the fact that IPEF is not a trade agreement, something both the Thai private sector and the Thai public generally oppose when those agreements are initiated by the West, according to the Thai News Service. Thailand also is a member of the Chinese-led Regional Comprehensive Economic Partnership. 

The reaction in and by Japan is perhaps the most surprising. 

Prime Minister Fumio Kishida has made it clear that Japan needs the United States back in the Trans-Pacific Partnership, but officially Japan is celebrating the IPEF as demonstration of the United States’s re-engagement with the region on issues of trade. 

According to Xinhua, protests in central Tokyo marked public opposition to the IPEF and, more broadly, to the heightened tensions with China that not surprisingly unsettle the Japanese. However, no mention of protests or opposition appear in Japanese coverage of the framework, or anywhere else, for that matter.  

What does appear in the Japanese coverage, in particular as reported by its government news agency, Kyodo, are some of the framework’s specifics that do not appear anywhere else. 

According to Kyodo, one of the framework’s four “pillars” seeks “rules of the road in the digital economy,” including standards for cross-border data flows and data restrictive measures. This pillar also seeks to address concerns over online privacy and the unethical use of artificial intelligence. 

Another of the pillars will ask member countries for “supply chain commitments that better anticipate and prevent disruptions in supply chains,” a target inspired by disruption in the global supply chain for semiconductors.

The most surprising IPEF member is Indonesia, a nation of 275 million that proudly is a member also of the Non-Aligned Movement. The Indonesian government does not like international alliances and agreements, and it jealously protects its independence. Indonesia declared independence in 1945 and, like India, the Philippines, and Vietnam, it has enough experience with colonial rule and coup-related violence to prefer to go it alone. It doesn’t help that geopolitically, Indonesia counts among its friends Russia, Iran and, increasingly, China, as well.

Thus, Indonesia’s inclusion will help international trade if the IPEF can transcend the mostly good wishes it represents. More engagement with Indonesia would counter China’s “peaceful” assertiveness, and it can’t hurt that Indonesia’s president, Joko Widodo, previously was a furniture factory owner. 

Opening the Indonesia International Furniture Expo last year, Joko predicted a great future for the furniture industry in his country, one rich in raw materials and manufacturing capacity, according to Indonesian news source VOI. But, Indonesian manufacturers have to think globally, or with a much wider view than local handicrafts and local markets, Joko told the gathering of domestic furniture producers. 

In Joko, Indonesia is led by a dye-in-the-wool furniture man who wants his industry and his nation to participate in the global economy. This is good news. 

Bottom line

The new IPEF announced in Japan last week won’t eliminate the furniture industry’s struggles with respect to global logistics and supply chain resilience, nor will it open up new markets or lower barriers in existing ones. But, if it can engage governments, cabinets, and policy makers on the complexities of a global, digitally managed, transnational supply chain, its threat to equilibrium with China notwithstanding, the IPEF could be worth a great deal more than the paper on which it is written. 

And, like seemingly every other commodity in the known world, paper prices are skyrocketing!