IPEF's Effectiveness in Countering China's Regional Influence

Written by Felix Wang (BSc Politics and Economics)

The IPEF was launched as a US-led initiative to reshape economic engagement in the region and offer an alternative to the extensive economic influence China has built over its neighbours. In other words, IPEF is fit for setting up "21st century" economic rules on digital trade, supply chain resilience, clean energy, and fair economic practices such as anti-corruption and tax transparency, rather than the well-worn path of a free-trade agreement with tariff reductions. Overall, how it effectively serves the purpose of acting against China's regional influence remains a big question mark. This essay will analyse the potential strengths and limitations in the case of IPEF and the challenges faced thereby.

The Indo-Pacific Economic Framework for Prosperity (IPEF) was launched by the United States on May 23, 2022, during President Joe Biden's visit to Tokyo. This initiative represents a significant shift in U.S. economic strategy in the Indo-Pacific region, aiming to counter China's growing economic influence while addressing 21st-century economic challenges. Currently, IPEF includes 14 partner nations: the United States; Australia; Brunei; Fiji; India; Indonesia; Japan; Malaysia; New Zealand; the Philippines; Singapore; South Korea; Thailand; and Vietnam. Collectively, these nations represent approximately 40% of global GDP and 28% of global goods and services trade

Structure

IPEF is structured around four distinct pillars, each addressing key aspects of modern economic engagement:

Connected Economy (Trade): This pillar focuses on advancing the digital economy while establishing robust labour and environmental standards. Key elements include facilitating cross-border data flows, ensuring online privacy protections, and developing governance frameworks for artificial intelligence. By addressing these areas, IPEF aims to promote inclusive and fair trade practices that benefit all participating countries. (whitehouse.gov)

Resilient Economy (Supply Chains): Aiming to strengthen the resilience and security of supply chains, this pillar emphasises the implementation of early warning systems to anticipate disruptions and the mapping of critical mineral supply chains to identify vulnerabilities. These efforts are designed to create a more resilient economy and guard against price spikes that increase costs for consumers.

Clean Economy (Infrastructure, Clean Energy, and Decarbonization): This pillar promotes the transition to clean energy and the development of sustainable infrastructure. Key initiatives include investing in renewable energy projects and establishing carbon pricing mechanisms to incentivise the reduction of emissions. These commitments aim to accelerate efforts to tackle the climate crisis and promote good-paying jobs.

Fair Economy (Tax and Anti-Corruption): Focusing on enhancing tax transparency and combating corruption, this pillar involves implementing a global minimum tax to prevent tax base erosion and ensuring transparency in beneficial ownership to deter illicit financial activities. These measures are intended to promote fair competition and strengthen efforts to crack down on corruption.

A unique feature of IPEF is its flexible architecture. Partner countries can choose to participate in any number of pillars, allowing for tailored engagement based on national priorities and capacities. However, participation in the trade pillar requires full commitment to its provisions.

Current Status and Progress

Up until February 2025, IPEF has significantly walked three out of its four pillars:

1. Supply Chains: Partners agreed in May 2023 on a "Crisis Response Network" that

   would handle supply chain disruptions.

2. Clean Economy: Very good, with significantly enhanced clean energy standards and

   financing of sustainable infrastructure.

3. Equitable Economy: There was an agreement on implementing a minimum global tax

   and improving transparency regarding beneficial ownership.

4. The trade pillar, however, has been problematic. Despite intensive negotiations, it did not reach a "substantial conclusion" during the ministerial meeting in San Francisco last November 2023. Sticking points include labour standards, environmental provisions, and digital trade regulations.

Strategic Advantage

Where the IPEF has strategic value is in reframing the economic rules of engagement in the Indo-Pacific in ways responsive to contemporary challenges while providing a vehicle for U.S. leadership. But instead of relying on traditional free-trade mechanisms that have become politically contentious in the United States, the modular approach permits member states under IPEF to opt into specific policy areas: digital trade, supply chain resilience, clean energy, and fair economic practices. The flexibility also helps overcome domestic U.S. political obstacles and provides a framework that, with time, will be able to build shared norms and standards for regional partners gradually. (tribune.com.pk)

A related strategic benefit: IPEF cements the United States as a norm-setter in the region. To the extent the framework touts high-standard commitments, such as robust digital trade rules, environmental protections, and anti-corruption measures, the framework counters the more opaque model that China applies. Over time, this suite of non-tariff commitments could help forge a regional economic order friendly to market-based governance and accountability—a reality that would indirectly force China to either change or be increasingly isolated among key partners. This normative leadership reinforces U.S. soft power and could even reassure regional allies that American engagement is impelled by common values, not just short-term tactical considerations. (crsreports.congress.gov).

IPEF also contributes significantly to strategic resilience by dealing with vulnerabilities in supply chains, a priority that came out of the COVID-19 pandemic and highly relevant considering the region's heavy dependence on a somewhat interconnected trade network. The IPEF maps critical mineral supply chains and establishes an early warning system that will help the region rely less on any single supplier, notably China. This diversification of supply sources stabilises not only economies but also reduces Beijing's leverage over smaller economies, bridging the gap in influence exerted.

It also places much emphasis on clean energy and infrastructure development, hence positioning it as a catalyst for sustainable growth in the region. This helps in the creation of economic opportunities through investments in renewable energy and carbon pricing mechanisms, befitting global efforts toward addressing climate change—a matter now high on the list of international policy concerns. Meanwhile, in doing so, IPEF promotes economic development and advances the broader strategic goal of promoting a stable, rules-based international order that can be an effective counterbalance to expansive Chinese influence. (thinkglobalhealth.org)

Challenges on Countering China

Meanwhile, the Indo-Pacific has presented a more complex balancing act against China's regional influence far beyond designing novel frameworks such as the Indo-Pacific Economic Framework for Prosperity. While IPEF rests on four pillars, the fundamental problem is that China's influence runs deep. Many regional economies have long-standing, robust trade relationships and investment ties with China, bolstered by initiatives such as the BRI that offer tangible benefits in the form of infrastructure development and financial incentives. This means any new US-led economic framework will have to not only compete with these well-established ties but also offer clear, substantial advantages to entice countries to pivot away from their economic dependence on China.

The real tricky part of the challenge actually emanates from IPEF itself. Unlike a classic trade agreement with binding market access commitments and tariff reductions, IPEF is deliberately light on these ingredients—partly in an effort to evade contentious domestic political debates inside the United States. This flexibility, while politically expedient, does make the framework more akin to a suite of policy initiatives rather than one cohesive and robust alternative with immediate economic deliverables. In practical terms, this lack of hard incentives undermines the framework's appeal, leaving partner countries with little reason to forgo the proven benefits of their current economic engagements with China.

More problematically, IPEF's intrinsically fragmented nature—within its modular structure, allowing countries to be in different pillars—selectively—makes forging a united front all that more difficult. Each participating nation weighs in with its national interests and imperatives of the economy, usually aligned with strong relations with China. For many, the immediate benefits of Chinese investments—meaning infrastructure funding and technology transfer—far outstrip the potentially longer-term benefits from an American-led framework and its non-binding principles. Adding to this is that this dynamic is exacerbated due to the persistence and flexibility within the Chinese economic strategy: a continuously evolving, multi-decadel investment-and-trade approach, deeply wired in the regional economy.

Finally, domestic political constraints in the United States have further reduced countermeasures that could be sought. The American political environment has grown increasingly sceptical toward free trade agreements, partly due to past experiences and concerns with job losses and wage stagnation. All in all, American politicians are constrained from committing to a more aggressive binding trade measure as a counterbalancing weight against China's heavy economic clout. Without the backing of a coherent and long-lasting policy that communicates substantial access advantages to the market, the US faces the potential risk of offering a half-measure, which may give temporary comfort but does nothing in the end to alter the regional economic balance away from Beijing.

Conclusion

The IPEF represents a strategic U.S. effort to reshape Indo-Pacific economic engagement in the areas of digital trade, supply chain resilience, clean energy, and fair economic practices. Its flexible, non-tariff approach lets countries align with shared norms without the political hurdles that come with traditional free-trade agreements. This places the U.S. as a norm-setter, challenging China's influence through transparency and sustainability.

But IPEF also confronts three tough realities: entrenched regional economic dependence on China, the absence of binding market access incentives, and U.S. domestic political limitation. While it may not alter the immediate strategic balance in the region, the emphasis on longer-term resilience and high-standard governance-a slow undercurrent-may over time be one that hollows out China's dominance, provided it is politically and economically sustained.

For further reading and in-depth analyses, see sources such as the Congressional Research Service reports (crsreports.congress.gov), discussions in The Diplomat (thediplomat.com), and assessments in the Financial Times and SCMP (scmp.com).