TPP key to America’s future economic success in Asia

by Michael Richardson

The United States has engaged Asia for most of the time since the end of World War II with unquestioned economic strength as well as unrivaled military power. That has been changing in recent years, as China and other emerging Asian economies rise and their military clout increases.

But the shift in relative fortunes is most evident in trade and investment. Here — in a key area of leverage with Asia — the U.S. has slipped badly. As China expanded to overtake Japan and become the world’s second largest economy after the U.S., its trade with the 10 member states of ASEAN, the Association of Southeast Asian Nations, jumped six-fold to $193 billion between 2000 and 2010, surpassing that of the U.S.

China’s share of Southeast Asia’s commerce increased to 11.3 percent from 4 per cent in that time. Meanwhile, the U.S. share fell to 10.6 percent from 15 percent. The gap has widened since the China-ASEAN Free Trade Agreement came into force early last year.

In Northeast Asia, even though the U.S. is South Korea’s ally, it has fallen behind China and Japan in commerce since 2003, when it was the biggest trading partner. With the entry into force from July of the European Union-South Korea Free Trade Agreement, the U.S. is now behind the EU as well.

In fact, since 2001, America’s share of South Korea’s import market for goods has fallen to 9 percent from 16 percent. South Korea is the world’s 12th-largest economy. It grew by over 6 percent in 2010. And, like much of the rest of Asia, South Korea’s projected future growth greatly exceeds the global average, as the U.S. and Europe struggle to avoid recession.

That is why the recent (Oct. 12) approval by the U.S. Congress of a long-delayed trade agreement with South Korea and two Latin American nations is significant. It may mean that in the struggle for influence with China in Asia and the Pacific, the U.S. no longer has one hand tied so tightly behind its back.

However, there is still a long way to go before the Obama administration can claim to have crafted and implemented an effective trade and investment policy in the Asia-Pacific area.

The next critical test will be whether the U.S. can reach a credible outline deal with other Asia-Pacific economies on a proposed trans-Pacific trade pact by the time President Barack Obama hosts the annual summit of APEC, the Asia Pacific Economic Cooperation forum, in Honolulu on November 12-13.

Progress has been slower than hoped, mainly because the U.S. is insisting that it gets a fairer share of the benefits, particularly in exports and jobs, than it has in previous foreign trade and investment liberalization negotiations. Protectionist and isolationist sentiment is strong and growing in the U.S. among voters and politicians of both major parties. A poll earlier this year showed that more than half of Americans believe trade has hurt the U.S. as jobs have been lost to lower-cost trade partners, and fewer than 20 percent believe it has helped the U.S.

The nine-economy Trans-Pacific Partnership (TPP) Agreement is designed to rectify this perception. So is the agreement with South Korea that was renegotiated by the Obama administration to ensure a more favorable balance of benefits for the U.S.

U.S. proponents of these trade deals argue that every $1 billion in new exports of American goods supports more than 6,000 additional well-paid jobs at home, and that every $1 billion of services exports creates more than 4,500 jobs. The TPP is comprehensive in its coverage of commerce and business activity. It is the only Asia-Pacific-wide free-trade agreement currently under negotiation. If a deal can be reached, it could establish rules and systems for a region that accounts for 54 percent of global GDP, 44 percent of world trade and 61 per cent of U.S. merchandise exports.

The intent is to ensure that there would be a level playing field in the Asia-Pacific zone, where fair competition between firms, both private sector and state-controlled, is covered by enforceable regulations. If a deal on such a template can be clinched, the eight partners of the U.S. (Australia, New Zealand, Vietnam, Malaysia, Singapore, Brunei, Chile and Peru) would become its fifth largest trading partner.

But the real prize would come with enlargement to include other major regional economies, among them Japan, China, India and Indonesia. This could evolve into a broadly based single market spanning the Asia-Pacific, spurring growth, cementing U.S. ties to Asia, and curbing protectionist impulses in the region.

On Oct. 11, U.S. Secretary of State Hillary Clinton called for the U.S. to become more, not less, engaged with Asia and “elevate economic statecraft as a pillar of American foreign policy.” She gets it. The main preoccupation of Asia is business. Asians want to get on and make money, to improve their lives.

Whether a fractious Congress and a majority of U.S. voters afflicted with free-trade phobia can be persuaded to support Asia-Pacific economic integration is another question altogether.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.