Asia, let's make a deal

PUBLISHED : Friday, 18 November, 2011, 12:00am
UPDATED : Friday, 18 November, 2011, 12:00am


Since the beginning of this century, the rivalry between the United States, the world's sole superpower, and China, a fast rising one, has been at the forefront of global diplomacy, with disputes ranging from US arms sales to Taiwan, China's military build-up in the Pacific, Tibet , and China's human rights record.

But the latest flare-ups are about economics, with US President Barack Obama launching an offensive to reassert the US economic leadership, by attempting to forge a multilateral free-trade agreement, which, in its present form, is unacceptable to China.

Analysts say Washington is pivoting its foreign policy away from wars in Afghanistan and Iraq to Asia - where its economic and strategic interests increasingly rest - and its diplomacy from politics and security to economics in times of downturn and uncertainty. But these efforts are also being increasingly challenged by a rising China. 'China has seriously weakened the United States' economic influence in the region,' said Ben Simpfendorfer, managing director of Silk Road Associates, a political and economic consultancy.

Lu Hongjun, president of the Shanghai-based Institute of International Finance, said the global growth momentum had been shifting from the Atlantic in the past century to the Pacific in the new century. 'And, at a time of economic globalisation, those who lead the global economy will lead the world,' he said.

Tension had been building up ahead of last weekend's annual Asia-Pacific Economic Co-operation (Apec) forum in Honolulu, where a proposed US-led free-trade deal was discussed, a deal that Beijing sees as an attempt by Washington to counterbalance Chinese influence by attempting to force it to play by US rules.

Disputes over trade, currency and property rights, both physical and intellectual, seem to have replaced political issues as flashpoints between them at a moment when the US economy is fragile and the global economic outlook remains bleak. With US voters expressing growing dissatisfaction with high unemployment and the economic slowdown at home, Obama is under pressure to find markets for US products and investment opportunities for US business.

In Honolulu, US Secretary of State Hillary Rodham Clinton went so far as to forcefully assert that the 21st century would be the United States' Pacific century.

Another round of the Sino-US rivalry will take place this week when the leaders of the world's two largest economies meet at the East Asia Summit in Bali, which opened yesterday and ends tomorrow, along with the heads of 16 other nations in the region.

Since taking office in early 2009, the Obama administration has pursued a back-to-Asia strategy to maintain US leadership in both economic and security arenas in the region. As part of this re-engagement effort, Obama has become the first American president to attend the Asean-sponsored summit.

Asia's increasingly important role as a driver of global growth has added urgency to the campaign to remove barriers and bottlenecks that slow trade and business - the original mission of the Apec forum, whose 21 members represent more than half of the global economy and trade.

Analysts believe that US officials hope to use a multilateral free-trade mechanism to hit back against what they see as unfair trading practices by China, the world's second-largest economy and largest exporter, as Washington has found no way of addressing these issues bilaterally. Since Apec's 2009 meeting in Singapore, Obama has focused on developing the Trans-Pacific Partnership (TPP) agreement, aiming to open Asia-Pacific markets to the US.

The US-initiated TPP has received a substantial boost as the US and its eight other members - Chile, New Zealand, Brunei, Singapore, Australia, Malaysia, Vietnam and Peru - have agreed on a framework to be finalised next year. Support for the fledging TPP rose sharply after Japan, Canada and Mexico all declared that they wanted to be included. That brings the number of interested parties to 12, representing a market of 800 million consumers, or potentially the world's largest free-trade zone.

The US has also recently clinched long-sought free-trade pacts with South Korea, Colombia, and Panama - agreements that if ratified would bring to 20 the number of countries having free-trade agreements with the US.

Washington's ambitious move without China's participation has raised Chinese suspicions over US geopolitical objectives.

A commentary in the official China Daily said this week that the regional trade pact could be considered 'a means for the US to suppress the several regional bilateral processes that China has been advocating'. Another newspaper, Global Times, suggested that the US was trying to lock China out of the TPP talks by insisting on preconditions that Beijing could not meet.

Beijing's reluctance to endorse the proposal likely reflects wariness about being drawn into what has become a US-led initiative that encroaches on its own sphere of influence in Asia. To strengthen its economic ties and its leadership role in the region, China has been pushing Asean behind the scenes to agree to a regional free-trade agreement, following the launch of the China-Asean Free Trade Area last year. Beijing is a crucial participant in the Asean Plus Three, which includes the 11-member Southeast Asian economies and Japan and South Korea, and Asean Plus Six, which also includes Japan, South Korea, India, Australia and New Zealand.

Cai Penghong, head of the Apec Research Centre under the Shanghai Academy of Social Sciences, said the US push for the TPP indicated a shift in the superpower's trade policy from a bilateral to a multilateral approach.

Li Xiangyang, director with the Institute of Asia-Pacific Studies under the Chinese Academy of Social Sciences, a top central government think tank, said Japan's participation in the TPP would force Beijing to rethink its bilateral trade strategy in Asia.

Tim Condon, chief economist with ING Asia, said US power politics was about keeping any country from getting into a position where it could threaten vital US interests.

'Power politics is practised by getting other countries to act on the US' behalf, leaving the US to act only as a last resort,' Condon said.

Condon said the US-initiated TPP proposal was an exercise in such power politics.

'It is a means of increasing the US' integration within the Asia-Pacific region. The larger US presence in Asia will complicate China's efforts to pursue its economic and political objectives in the region,' he said.

John Lee, an adjunct associate professor with the University of Sydney's Centre for International Security Studies, said America had been leading efforts to 'strategically inhibit Chinese options'.

But, he said, the US had not been seeking to contain China economically.

'Indeed, the evidence is to the contrary - in which the US genuinely requires Chinese economic growth for the continued prosperity of its own economy and has done much over the past two decades to aid the economic rise of China,' Lee said.

He said there was growing concern in the US that progress on free-market reform in China had stagnated and even gone backwards.

'The US focus on the TPP is designed to build a greater common Asian market without having to rely on Chinese acquiescences, develop and secure greater access to some 500 million Southeast Asian consumers,' Lee said, adding that it was also designed to put pressure on China to speed up free-market reforms by building a trade regime of which China is not a part.

While the two giants are working toward their broader regional goals, countries are still forging separate free-trade deals, aiming to re-energise growth at a time when the world economy most needs dynamism in the Asia-Pacific region to offset the malaise spreading from crisis-stricken Europe.

Condon said the increased economic integration, including via the TPP, had the added benefit of boosting growth, and thus other Apec members were receptive to it. 'Other Apec members have committed to a rapid timeline for concluding an agreement so from the US vantage point the first impression is that it is a success,' Condon said.

But the growing rivalry between Beijing and Washington could also complicate a delicate balancing act played by Asia's smaller nations, who have long seen themselves caught between the economic behemoth of China and the security blanket provided by US military forces spread from Hawaii to the Korean peninsula and beyond.

As China grows more aggressive in its territorial claims, some of those countries have edged closer to Washington for shelter.

This week, they seemed to cautiously welcome Obama's pledge to look more across the Pacific, after a decade of American foreign policy tied to the sands of Iraq and the mountains of the Hindu Kush.

Lu acknowledged that Asian countries were concerned about China's growing clout, despite benefitting economically through trade from its ascent.

'That is why I expect them to seek US involvement and presence in the region, not only politically, militarily, but also economically,' Lu said.

Simpfendorfer said that, as the United States operated largely on the basis of a free market, it was difficult for the country to intervene economically in Asia-Pacific other than through direct policy loans.

'Trade agreements signed for political reasons are often of lower quality than those signed for economic reasons,' he said.

Lee said that, so far, China had been the more eager of the two to link economic with strategic objectives.

'For example, China views free-trade agreements more as a political instrument than as purely economic win-win agreements,' Lee said.

He said China's free-trade agreement (FTA) with Asean, while doing much to streamline 'processing chains' in the region, was also viewed as strategic.

'In contrast, the US has traditionally viewed FTAs as primarily economic instruments,' Lee said.

But he added that the US had shown eagerness recently to increase its use of 'economic statecraft' to bolster its strategic influence, of which the expansion of the TPP was the most striking example.


The proportion of US exports that went to the Asia-Pacific region last year