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Apple’s iPad production will partially move from China to Vietnam. Supply chain disruptions caused by the Chinese government’s COVID lockdowns have made it difficult for Apple to maintain a consistent production schedule. After establishing connections to forced labor and kowtowing to the Chinese Communist Party’s demands on data storage and security, Apple may have had enough.
Companies agree to China’s demands because of low production costs and the size of the Chinese market. The pandemic, China’s population decline, and increased tensions in the Indo-Pacific are changing the economic landscape. Apple’s decision to move production could be the start of a mass corporate realignment in East Asia, but President Joe Biden needs to nudge Western corporations to follow their lead.
The key to a realignment in East Asia lies in the Association of Southeast Asian Nations. ASEAN has 10 member states with rapidly developing economies. For example, the Asian Development Bank predicts Vietnam, Cambodia, Indonesia, Malaysia, and the Philippines will experience GDP growth of 5% or more in both 2022 and 2023.
ASEAN signed a Trade and Investment Framework Arrangement with the U.S. in 2006. The arrangement formed a council between all member states and the U.S. to facilitate discussions on trade and investment in the region. This agreement is largely symbolic and does not commit the U.S. and ASEAN to future economic cooperation.
Biden has taken a small step in the right direction but has not gone far enough. The Indo-Pacific Economic Framework was announced during Biden’s tour of East Asia. Member states of the new framework include Australia, India, Japan, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, Vietnam, and the U.S. The agreement mentions specific sectors it wishes to target “while fortifying our economies against a range of threats, from fragile supply chains to corruption to tax havens.”
Domestic political concerns are holding Biden back from achieving these goals because Americans are tired of seeing jobs offshored to China. Free trade in East Asia is not appealing to voters anymore. Former Secretary of State Hillary Clinton praised the Trans-Pacific Partnership before she ran for president but quickly turned against it on the campaign trail to improve her electoral appeal. Biden is trying to maneuver around this obstacle and is failing.
If the president needs any advice on how to maneuver the domestic political landscape on trade, he should refer to his own campaign stance. As a candidate, Biden pledged to reform America’s tax code to penalize companies offshoring production. “Biden will establish a 28% corporate tax rate, plus a 10% Offshoring Penalty surtax, on profits of any production by a U.S. company overseas for sales back to the U.S. Companies will pay a 30.8% tax rate on any such profits,” according to his campaign.
Biden’s plan also contained incentives for new investments in America. “Biden is announcing A New ‘Made in America’ Tax Credit. This will be a 10% advanceable tax credit for companies making investments that will create jobs for American workers and accelerate economic recovery to build back better,” states his proposal. Costs associated with reshoring industries would be eligible for the tax credit.
Jobs lost during the COVID shutdowns are coming back, but that’s not enough to defeat China. Biden’s administration has an opportunity to improve our standing in the fight for economic domination in East Asia, but his mismanagement of the domestic economy is only setting us back.
Biden paid lip service to blue-collar workers in the Rust Belt during his campaign and has rewarded them not with tax reforms for American industries but with record-high inflation he refuses to take responsibility for. While moves are being made in East Asia, Biden is unable to bring our partners together to create a pact beyond platitude-filled frameworks. The president has shown that he cannot walk and chew gum at the same time.
James Sweet is a summer 2022 Washington Examiner fellow.
