Thursday, November 12, 2009

America risks being left behind in Asia

By Evan Feigenbaum
Published: November 11 2009 20:17 | Last updated: November 11 2009 20:17
As US president Barack Obama makes his way through Asia he will find a dynamic region in ferment. In this new Asia, the US risks eventual marginalisation unless it more actively seeks to shape a new regional economic and political order. The president will find that his actions – or inactions – will have important implications for US interests in the long term. Above all, he needs to reinvigorate US leadership on global and regional trade liberalisation and thus return the US to the centre of the economic agenda that is reshaping the Asian landscape.
At first glance, Mr Obama’s challenges appear largely unchanged from those of his predecessors: Korea is divided; China is emerging as a global power; North Korea is continuing its nuclear weapons programme.
But dramatic changes are taking place, as Asia becomes the centre of gravity of the world economy and an engine of global growth. Linked by a growing web of economic and financial connections, a diverse Asia is searching for a common identity – and for ways to turn economic success into greater global clout. The countries of east Asia are fashioning institutions, standards and trade agreements, often without the US.
This new Asian regionalism will challenge US interests in new ways. For instance, China, Japan and South Korea plan to move towards a free-trade agreement. If Japanese and Korean companies enjoy tariff-free access to China while US companies face the current average most-favoured nation rate of 9 per cent, Americans will lose substantial sales in an import market worth well over $1,000bn (€668bn, £604bn). They will lose elsewhere, too, as these three countries move toward tariff reduction with south-east Asia.
For more than a decade, Americans have mostly watched from the sidelines as Asians organise themselves into an alphabet soup of new trade pacts and regional institutions. The near-term costs are apparent as free trade agreements proliferate across the region. But over the longer term, US strategic interests, credibility and influence are likely to suffer unless it acts to shape these trends.
Americans will have to accept some Asian regionalism. They can hardly expect to have a North American Free Trade Agreement while telling Asians they cannot pursue pan-Asian arrangements.
Like Europe during the cold war, many Asians look to Washington to guarantee security. Just as the US encouraged Europe to co-operate and unify, so too can a co-operative, prosperous Asia be compatible with US interests. But economic and financial trends, including Asia-only bond funds, currency swaps, investment pacts and institutions, may increasingly disadvantage US companies and work against US objectives.
Most pan-Asian institutions will move forward regardless of American preferences. Thus Mr Obama’s challenge – and opportunity – is to move beyond the inertia that has marked the US approach, adapting America’s role by bringing US interests and the new Asian realities together.
The good news is that the administration takes Asia seriously. Hillary Clinton made her first overseas trip as secretary of state to Asia. The administration signed a symbolically important treaty and will inaugurate a summit with the Association of South-east Asian Nations. A new strategic partnership with Indonesia is emerging. And Washington has enhanced co-ordination with allies, including trilateral co-ordination with Tokyo and Seoul, which has historically been difficult to achieve.
But the business of Asia is business. Without more vigorous trade engagement, such diplomatic efforts cannot secure America’s position in a changing Asia. The US could soon face a region less willing to accommodate its commercial and financial interests.
There is no substitute for vigorous American economic engagement. However, the Korea-US Free Trade Agreement has yet to move. The administration has suspended US engagement on a Trans-Pacific Partnership that might be a new path to World Trade Organisation-compatible free trade expansion. And the Doha round, through which multilateral liberalisation might erase regional trade preferences, remains stuck. Obama would do well to move forward on all three, and soon.
Otherwise, Asians will move forward without the US, often on a regional basis. Within a generation, American companies could be at a competitive disadvantage in a part of the world that will constitute about half the global economy. Already we see South Korea moving ahead on free trade agreements with the European Union and India.
China is most likely will to fill the vacuum created by an American failure to lead on regional and global trade. Mr Obama needs to adapt US policy to the contours of change in Asia if the US is to remain relevant there.
The writer is a senior fellow at the Council on Foreign Relations and author, with Robert Manning, of a new CFR report, The United States in the New Asia

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