Why it is in US interests to accept China as an equal in the Asia-Pacific
Rick Tang says that, given China’s growing heft in global commerce in a changed world order, the US must accept it as a co-leader in steering the global economic ship
The traditional world of trade and commerce was built on a system of developed nations buying cheap products exported from developing ones. Low labour costs in the emerging economies made it possible for families in the West to own affordable washing machines and dryers, microwave ovens, refrigerators and TV sets. The savings from buying these cheap products were ploughed into their own economies to create healthy domestic consumer markets.
Emerging economies also benefited; they increased their employment, eased poverty and improved the quality of life for ordinary folk. China is a notable example. It has lifted half a billion people out of poverty in less than 40 years and created a vibrant middle class that can today afford to not only buy imported products but also travel overseas. They have become the new demand in overseas markets.
But now, leaders in emerging economies are questioning the assumptions that underlie the traditional model, especially after the 2008 global financial crisis. The biggest question is: is the traditional model fair?
It is worth noting that while a major share of production has been outsourced to developing countries, multinationals from the West continue to transfer lower-grade technology to their outsourced factories but keep sophisticated technology in their home countries.
Then came the 2008 crisis. How could a scam that started in the United States spread like wildfire to the rest of the world? Isn’t the US a land of sophisticated financial institutions and vigilant regulators?
America put its credibility further at stake with its rescue plan. The Federal Reserve’s quantitative easing effectively meant printing money, and printing lots of it. Low interest rates have kept the US economy afloat but created new problems for the rest of the world. Cheap money has flowed to emerging economies in search of better returns and created asset bubbles.
What happens when the Fed raises its interest rate? Will hot money flow back to the US, resulting in financial chaos in the international monetary markets?
With diminished credibility, the US wants to continue to write the rules of trade in the Asia-Pacific. It has engineered the Trans-Pacific Partnership (TPP) but China has been intentionally left out. This makes no sense at all as China is the growth engine for the Asia-Pacific.
The US refuses steadfastly to accept China as an equal regional leader in Asia, never mind a world leader.
China has retaliated by excluding the US from the Regional Comprehensive Economic Partnership of Asia-Pacific countries, which it leads. Again, it does not make sense to exclude the US as it is a significant trading partner for all members of the proposed agreement.
Simultaneously, China is rolling out its “One Belt, One Road” vision, investing in infrastructure in Central Asia in order to connect China with Europe, as the ancient Silk Road did. This ambitious strategy carries huge political, financial and social risks. But China is embarking on this hazardous journey because it has to. It is a necessary gamble.
China can no longer rely on the old trade and commerce model to produce and export products to the West. The markets will be saturated sooner or later. China must ignite new markets in a virgin territory, namely, Central Asia. The Belt and Road strategic plan creates better traffic and flow of products in both directions and is good for international trade and commerce.
Not a day passes without news about Chinese investment in North America, the European Union or elsewhere. Chinese are now the biggest investors in many countries. This is also great for world trade and commerce. While this is happening, the EU has suffered a series of setbacks. Yes, the near-bankruptcy of Greece, Portugal and Spain was avoided, but only to be replaced by Brexit. The effectiveness of the EU is being challenged.
Problems with the EU have propelled China to the forefront as a co-leader with the US in global trade and commerce. Indeed, the world has now become a tri-polar economy, the poles being America, China and the EU. Japan has become irrelevant in being a weak engine to join the three. The BRICS countries (other than China) have long faded from the league table. This tri-polar reality is difficult for the US to swallow, having enjoyed sole leadership for a long time. But the paradigm shift is not stoppable.
In the Asia-Pacific, the same-old, same-old dominance by the Americans is being replaced by a shared leadership between China, Asean and Japan, with China in the driver’s seat.
The China-led Regional Comprehensive Economic Partnership will be signed shortly, while the US-led TPP is heading for failure as neither US presidential candidate supports it. The China-led pact will become the rule book for trade and commerce in this region.
But this new Asia-Pacific partnership has an alarming void which must be cemented sooner rather than later – and that is the inclusion of the US. The ship is big enough for two captains to steer it. The two countries must learn how to co-lead in the Asia-Pacific and then globally with the EU. If not, the economic challenges in the US, EU and China, Brexit, stagnation in Japan, and the insolvency of Latin American countries will be a cumulative overload to sink the world economic ship.
But we have a catch 22 here. If America continues to insist on their “pivot to Asia” narrative, China will never invite the US to join the trade pact it leads. Is the US willing to be a little humble and accept China as an equal leader, at least in this region?
Rick Tang is a private investor and non-practising California lawyer who has lived in the US, Canada, London, Singapore, Thailand and Hong Kong