AMERICA’S FUTURE and the ECONOMIC PIVOT to ASIA

By Kent H. Hughes

[Ed note: Kent has spent most of his career, including stints in Government, studying and making proposals related to Trade, Economics and Globalization. His March 2014 paper for the Wilson Center is titled “Leveling the Playing Field for U.S. Trade with Asia.” ]

President Obama in China

President Obama and President Hu

In late 2011, President Obama spelled out a re-balancing of U.S. foreign policy interests that has generally been referred to as the Pivot to Asia. National media has focused on the national security aspects of the strategy.

The media are paying much less attention to the economic elements of pivot, particularly the Trans-Pacific Partnership (TPP) trade negotiations, which is a major initiative of the Obama Administration.

I am just back from speaking on economic cooperation in East Asia, at a conference sponsored by Korea’s Youido Institute. Looking at America and the world from a different perspective helped me again better understand the U.S. economic stake in Asia.

The United States has three major interests in the TPP and in broader economic engagement with Asia.

First, Asia is a major, rapidly growing market in which the United States, American Companies, and American workers have a vital stake.

Second, because it may deal with State Owned Enterprises, the TPP can be the first step in a systemic response to the East Asian Miracle that will help the United States stimulate its economy and move towards balancing its international accounts.

Third, successful economic engagement complements the security interests of the United States, its allies in Asia, and its trading partners.

The Economic Logic of the Pivot to Asia

".. successful economic engagement complements the security interests of the United States"

Hughes: “…successful economic engagement complements the security interests of the United States…”

The President’s Pivot to Asia has a clear economic logic. Not only is Asia a demographic giant, but over the last fifty years Asia, and particularly East Asia, has shown a remarkable pace of economic growth.

The flow of parts, products, investment capital and intellectual property has created many shared economic interests with the United States.

Although the United States has been an active participant in the Asia Pacific Economic Cooperation forum, our nation ran the risk of being left behind in Asia’s rush to integrate and to forge partnerships with major markets around the world.

Current negotiations in Asia range from bi-lateral talks with China and Japan to the sixteen nation talks designed to form a Regional Cooperative Economic Partnership.

Nor is the United States alone in focusing on Asia. The recently formed Pacific Alliance of Chile, Columbia, Mexico and Peru has its eyes on Asian Trade. Those countries see themselves as Latin Pumas intent on following the success of the Asian Tigers.

Click to enlarge map

Click to enlarge map

The Trans-Pacific Partnership and the East Asian Miracle

Together the twelve negotiating TPP countries account for roughly forty-percent of world trade. The aim of the negotiators is to set a high bar of trade rules going beyond the current WTO standards. Many of the issues are familiar from past Free Trade Agreement (FTA) negotiations. At the same time, there are key new issues: setting standards for electronic commerce and leveling the playing field between private companies and State Owned Enterprises (SOEs).

If successful in better balancing the playing field with SOEs, it will be the first American attempt at a systemic response to what many call the East Asian Miracle. Starting with Japan, a number of East Asian economies pursued a growth path that included an active role for the government in setting industrial and overall economic priorities. China is the latest East Asian economy to successfully pursue its own variant of the Asian Miracle.

China is not a party to the TPP negotiations. But Vietnam is. Like China, Vietnam still has a number of State Owned Enterprises, but it is moving to active engagement with the global economy.

Currency Manipulation and Income Inequality

In part because of currency manipulation by a number of nations, the United States and other countries have suffered large and persistent trade and current account deficits. Decades of failure to deal with currency manipulation has created a potential barrier for the Obama Administration’s effort to secure Trade Promotion Authority (TPA), a process that allows for expedited consideration of trade agreements.

Liberal critics of the TPP, including Nobel Prize winners Joseph Stiglitz and Paul Krugman, argue that the TPP is focused on corporate interests and could even exacerbate income inequality. The Administration will have to pursue its trade initiatives within an economic strategy that broadens opportunity in order to win sufficient support for passage.

The Future of the United States in Asia

There is no ambiguity about America’s economic interest in Asia and in the TPP. In a changeable world, however, success is never guaranteed. In East Asia, there are renewed tensions with Japan over its military role in World War II. China’s territorial claims to islands and large swaths of the sea have created concern in Japan and much of Southeast Asia. A suddenly unsettled Europe and the ongoing uncertainties in the Middle East could slow the pace of the pivot to Asia.

Still, the stakes in Asia are large, the need for action compelling. The economic pivot to Asia can create closer political as well as economic ties in Asia. At the same time, the TPP negotiations could help strengthen the overall American economy by opening markets and providing a response to the East Asian Miracle.

If America intends to remain a world leader, it must increase its economic ties with Asia while finding ways to put its own economic house in better order.

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