Sunday, March 22, 2015

The US must adapt to Asia’s new order

To adapt and compete, American strategy must reflect a clear understanding of the depths and origins of change in Asia. The US cannot compete in either geopolitics or business unless it understands the sources of its competition in the first place.

The US still looms very large in the global economy, but in relative terms it is smaller than in 2008, much less 1998. Those two dates are important because the second of these financial crises bookended a tumultuous decade, further fuelling debates in Asia about overreliance on Western economies and the utility of an intraregional hedge against future volatility. After 2008, many Asian countries have emphasised domestic, intraregional, and emerging market demand.

But it was the crisis of 1997–98 that left a particularly searing legacy on many Asian countries. The US was perceived to be disconnected and aloof. Washington refused to bail out Thailand in 1997, just three years after bailing out Mexico. Many in Asia began looking to intraregional solutions. Asia-only currency swaps, Asia-only trade and investment pacts, regional bond funds, and other ideas emerged and evolved during this period. Many of these excluded the US.

Today, elements of that impulse can be seen in the Regional Comprehensive Economic Partnership (RCEP), the principal competitor to Washington’s Trans-Pacific Partnership (TPP), which includes the members of ASEAN and six regional powers but not the US.

Still, today’s pan-Asianism poses a tougher challenge than its 1990s variant, in part because the context has changed.

For one, India and China are unwilling to live in perpetuity without changes to the Western-built architecture that prevailed a decade ago.

Nor is China the only driver of the new pan-Asianism. In the 1990s, it was Japanese bureaucrats who pushed for an Asian Monetary Union. And today, New Delhi’s involvement with the Beijing-backed Asian Infrastructure Investment Bank (AIIB) and BRICS institutions has taken place despite growing Indian ambivalence about China and even as India’s pursues enhanced quotas and shares in the Bretton Woods institutions.

China seeks to leverage this new pan-Asianism as its foreign and economic policies converge in unprecedented ways. Beijing has pledged and spent staggering sums of money, leveraging state-backed financial vehicles for diplomatic and economic ends. But Beijing has more going for it than just its capital. Surrounded by rivals, China is said to be a ‘victim’ of its strategic geography, yet it also benefits from very favourable economic geography.

For these reasons, some pan-Asian formations are inevitable. They will progress regardless of Washington’s views and preferences, thus the US should approach some of what is happening — pan-Asian dialogue mechanisms, for example — much as it supports European institutions.

Ultimately, American policymakers must answer three questions.

First, which pan-Asian groups or pacts can Washington live with and which will undermine vital US interests? Those that merit vigilance will pursue functional agendas detrimental to US security, prosperity, market opportunities, or values.

Bloc-like trade agreements or non-tariff barriers meet this concern. But a pan-Asian infrastructure bank that finances bridges, roads, and rail links is not inherently exclusionary since US firms also benefit from better infrastructure and Washington does not itself offer large-scale project finance. The price of opposing non-vital threats may well exceed the cost of living or working with them.

Meanwhile, Washington needs strategic and tactical coherence. Currently it has neither: the Obama administration first argued that exclusion from Asian institutions inherently threatened US interests. With the East Asia Summit, mostly a talk shop, it encouraged allies to join and ultimately did so itself. But now, with the AIIB — a vehicle that will finance billions in infrastructure — Washington has discouraged its allies and held itself aloof.

Second, which pan-Asian ideas merely supplement US-preferred approaches and which aim to supplant them? An Asian contingency reserve fund and the AIIB will most likely supplement existing structures.

Third, Washington cannot beat something with nothing and simply has to up its own game. The TPP is perhaps the most glaring example. If an RCEP-like arrangement threatens US interests, then why hasn’t the US government put its full weight behind the TPP? The administration needs to work with Congress on the Trade Promotion Authority and ultimately bring the deal home.

Instead of outright opposition, Washington should at least be seeking an observer arrangement in the AIIB. If the lack of anticorruption and environmental standards is of concern, then it makes more sense to try to shape the new organisation’s standards than to remain aloof.

Above all, Washington needs to intensify its own economic diplomacy in Asia. This means encouraging a liberal, open, market-based economic order in the region. To this end, the TPP is necessary but insufficient. A broadened agenda would include bilateral investment treaties with China and India, creative public-private partnerships to inject the US into infrastructure developments in Southeast Asia, and sectoral agreements. Congress also needs to put more weight behind reforms of international financial institutions.

The US will remain a Pacific power and is an essential strategic balancer. With China unsettling its neighbours, America’s security-related role has been reinforced in recent years.

But as Asians increasingly rely on one another for economic public goods, Washington risks ceding leadership and missing opportunities by tilting at ideas whose trajectory it cannot easily halt and whose historical and ideological roots run deep.

The US has never feared competition, but — to defend their interests — Americans must adapt to the contours of a changing Asia.

Evan A. Feigenbaum is Vice Chairman of the Paulson Institute at the University of Chicago.


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