In Asia, U.S. Economic Leadership Is Under Attack

President Obama should take advantage of the United States’ slow but steady economic recovery to strengthen the economic component of the rebalance to Asia.

One of the explicit goals of the Obama administration’s policy of “rebalancing” to the Asia Pacific region is elevating economic statecraft as a pillar of foreign policy.  Completion and ratification of the Trans-Pacific Partnership (TPP) and a precedent-setting U.S.-China bilateral investment treaty would contribute substantially to that objective, but they are not enough to reverse a worrisome erosion of U.S. economic leadership in Asia and the world. China has been quick to take advantage of this trend.

The political-economic imperative facing U.S. policymakers on Asia has three elements: (1) strengthening the bilateral economic component of the rebalance with key countries, thereby boosting the credibility of the U.S. commitment to Asia; (2) supporting high-standard regional economic integration in Asia and across the Pacific while successfully managing U.S.-China rivalry; and (3) restoring and strengthening the global institutions responsible for international trade and financial governance, which have a direct bearing on Asia.         

These three challenges need to be addressed simultaneously and urgently, as U.S. and Western economic leadership and associated postwar institutions are increasingly under siege. 

U.S. Leadership of Postwar Institutions: A Slow Crisis of Legitimacy

To many Asians, the “Western” economic model no longer looks as attractive as it once did. Ongoing economic stagnation in Europe and Japan, Wall Street’s role in triggering the recent global recession, and the burgeoning income inequality associated with free-market reforms play badly in Asia.

U.S. and allied-led international financial institutions, notably the World Bank, the IMF, and the Asian Development Bank (ADB), are also losing some of their attractiveness. The top leadership of these three institutions is still informally restricted to candidates from the United States, Europe, and Japan, respectively. China and developing countries remain glaringly underrepresented in the allocation of shares (and hence voting power). In the ADB, for example, the United States and Japan currently hold about 15.7 percent of the shares each, while China has only 6.5 percent.

For some Asians, the slew of conditions imposed on Western-backed loans are burdensome and unsuitable for poor countries. One condition after another has been added to loan packages, targeted at environmental protection, treatment of indigenous peoples, prevention of fraud and corruption, and other safeguards sought by Western lenders, particularly the United States. Small wonder that China wants its own bank—and sees a diplomatic advantage in creating one.

Doubts about the United States

Asian governments favor robust U.S. economic engagement with their region, but they harbor doubts about the credibility of the rebalance. Their skepticism stems in large part from the combination of U.S. budget cuts and failure to disengage from direct or indirect war-fighting in the Middle East. The premise of the “pivot” (as the rebalance was originally called) was that as the wars in Iraq and Afghanistan wound down,  the U.S. could transfer newly freed up resources and political attention to the Asia-Pacific. But now that security in Iraq and Syria has broken down and the U.S. military is lending support to the fight against Islamist militants, Asians believe that the Obama administration is unable to extricate itself from the Middle East quagmires and is thus incapable of devoting the hoped-for level of resources to Asia.

In the current U.S. political and budgetary environment, some extremely effective “soft power” tools, such as scholarship programs and English-language training, are facing cuts or bare-minimum increases. The budget for Asia-related development assistance and other economic programs is rising, but it starts from an extremely low base compared to military-related outlays. Personnel slots at the State Department and USAID reflect the same shortfall.

Trade is another concern. The United States still maintains steep barriers against low-technology imports from some of the poorest countries in the world. Clothing and shoes, for example, account for only about 5 percent of U.S. imports, but they account for roughly half of collected tariffs. According to data analyzed by Progressive Economy, a policy-oriented research institution, U.S. tariffs on imports from Cambodia (mostly clothing) are 18 times higher than average tariffs imposed on a wide variety of imports from the United Kingdom. Countries like Cambodia and Lao PDR are years and years away from qualifying for either the TPP or a far-reaching free-trade agreement with the United States.

Still another source of Asian dismay is the behavior of the U.S. Congress. Like many Americans, Asian leaders deplore the polarization and political dysfunction that led to a U.S. government shutdown and cancellation of presidential trips. They note with dismay the long and thus far fruitless struggle to obtain Trade Promotion Authority (TPA), assumed to be a prerequisite for Congressional approval of a final TPP agreement.