Free Trade in Asia: Obama at Fork in Road

February 12, 2014 Topic: EconomicsTrade Region: United States

Free Trade in Asia: Obama at Fork in Road

The Trans-Pacific Partnership is wobbling. Will the administration fight to save it?

Trade policy stands at the intersection of a nation’s diplomatic and security strategies and its broad economic goals. By this token, decisions regarding trade agreements, with both individual nations and groups of nations, are calculated to advance US national interests strategically as well as the fortunes of US businesses and workers. Though not necessarily in conflict, security imperatives and economic realities exist in two very different universes, inhabited by very different constituencies and interest groups. The recent history of the free-trade agreements with Korea and Colombia are telling examples of the uneasy juxtaposition of diplomatic priorities with domestic economic interests. In both cases, there were strong regional diplomatic/security rationales to buttress an important ally in a dangerous territory; yet in both cases, US domestic conflicts delayed the advancement of US national interests for some years. Diplomacy and security goals, thus, often must bow to former House Speaker Tip O’Neill’s wise observation that “all politics is local.”

Though the successful ratification of FTAs with Korea and Colombia are examples of important breakthroughs, the drive to conclude and execute the Trans-Pacific Partnership Agreement with twelve nations of the Asia Pacific represents a struggle with vastly greater strategic implications for the United States—and it vividly highlights the difficulties of melding the competing diplomatic/security and domestic economic political universes. The difficulty is compounded by the deep divisions in the Democratic party over trade policy and globalization.

President Obama, after having trashed past US trade agreements during his 2008 campaign, belatedly endorsed the TPP negotiations at the end of 2009. The reversal on TPP was part and parcel of the much hyped Obama administration “pivot” to Asia: in Secretary of State Hillary Clinton’s words (later often echoed by the president): “The future of politics will be decided in Asia...and the United States will be right at the center of the action…We are back to stay.” There was certainly a military and strategic element to the pivot: the stationing of a revolving unit of 2400 Marines on the west coast of Australia and decision to shift 60 per cent of US naval forces to the Pacific were important elements of the administration’s

“forward-deployed diplomacy.” And all this has been played out against the background of increased Chinese belligerence and bullying over conflicts in the East and South China seas, combined with the highly erratic and dangerous behavior of the new North Korean regime under Kim Jong-un.

Symbolically, however, it is the TPP negotiations and the drive to conclude these negotiations expeditiously that stands as the central focal point of the pivot. A successful TPP and the resulting benefits to US businesses and workers will form the economic anchor to persuade Congress and the public that Asia’s security and economic well-being is inextricably linked to US security and prosperity. There are now twelve Asia Pacific nations negotiating the TPP, with a thirteenth, Korea, standing in the wings. The membership (adding Korea) represents over 40 percent of world GDP and more than one-third of total world trade.

Substantively, the TPP aims to create a “gold standard” agreement: meaning that it will set the standard for a twenty-first-century trade regime, including rules for services and investment, intellectual property, health and safety, state-owned enterprises, regulatory transparency and due process, labor and the environment. The key tradeoffs will include balancing the twenty-first-century demands of the US and others against the more traditional twentieth-century priorities of developing TPP nations in areas like textiles, clothes, shoes, sugar, cotton and dairy products.

On TPP, we have reached the endgame negotiations, where all twelve nations will be expected to finally put their bottom line positions on the table. And it is here at this crucial juncture that US domestic politics have crashed the party with as yet incalculable consequences. In his State of the Union address, President Obama called upon Congress to give him so-called trade-promotion authority (expedited rules for Congress to ratify FTAs) in order for conclude the TPP and to move forward on parallel negotiations with Europe. Within twenty-four hours of Obama’s plea, the Democratic majority leader Harry Reid (D-NV) defied the president by signaling opposition to granting trade-promotion authority and warning the administration not to send up such a bill. In the “all politics is local” tradition, Reid’s eye is focused narrowly on holding the Senate in the midterm elections and retaining key support from union and environmental groups who strongly oppose the TPP.

This leaves the ball squarely in Obama’s court: he must quickly decide whether to tackle Reid head on and mobilize other Democratic senators against their own majority leader—or attempt to get an ironclad agreement from Reid to allow a vote on TPP in a lame duck session after the election. He must also forge an alliance with congressional Republicans who—whatever Reid decides—will provide the majority of votes for TPP in both houses of Congress. Other TPP nations will be closely monitoring the administration’s decisions and Congress’ in coming weeks—as a guide to their own negotiating positions.

The outcome of this debate and political battle will have far-reaching consequences. Failure of the US to continue to lead in a successful conclusion of the TPP will likely destroy the possibility of a broader US-led and -anchored Trans-Pacific regional economic structure. In its place, the Chinese are already assiduously pushing for a narrower intra-East Asian architecture that does not include the US. And well beyond the economic consequences, future US diplomatic and security leadership and alliances in Asia will be severely jeopardized as US regional allies come to doubt our ability to overcome local forces in order to pursue vital national interests.

Claude Barfield is a resident scholar at the American Enterprise Institute and contributes to