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.

Also disturbing to Asians is the difficulty of securing authorization for timely U.S. payment of replenishments to multilateral development banks. Congressional failure to act on legislation authorizing the United States to vote in favor of IMF reforms, including quota reform, is particularly damaging to Asian perceptions of the United States. Because of a partisan political impasse over campaign financing, the bill has languished in the U.S. Congress for three years. U.S. foot-dragging has undermined not only the credibility of U.S. financial officials but also American economic leadership more generally.

The Rise of “Rival Regionalisms”

Given this fairly dismal international economic landscape, it is not surprising that a set of new or revived organizations—spearheaded or heavily supported by China and Russia—have started to challenge the existing regional and global order.  One is Vladimir Putin’s Eurasian Union, aimed at enhancing Russia’s security and offsetting the pull of the European Union. Another is the New Development Bank established by the BRICS (Brazil, Russia, India, China, and South Africa).  A third example, and the one most relevant to Asia, is China’s new Asian Infrastructure Investment Bank (AIIB). All three are examples of “rival regionalisms,” designed to reduce Western influence and allow governments to escape from U.S.-inspired conditionality.

Implicit in this trend is resentment of U.S. domination. As Mr. Putin remarked bitterly,  when the Cold War ended Americans “decided to…reshape the world to suit their own needs and interests.”  Speaking to a mostly Central Asian and Middle Eastern audience in May 2014, Xi Jinping called for a new Asian security architecture, from which the United States would presumably be excluded. Stressing that “we all live in the same Asian family,” he declared that it is time for Asia to establish “common, comprehensive, cooperative and sustainable security.” In a not-so-veiled reference to the United States and its allies, he added, “To beef up and entrench a military alliance targeted at a third party is not conducive to maintaining common security.”

In short, the United States faces a slow-burning threat to its legitimacy as an political-economic leader in the Asia Pacific. What can U.S. policymakers in the Executive Branch and the Congress do—bilaterally, regionally, and globally—to counter this trend?

Three actions stand out:

1. Strengthening the Bilateral Economic Component of the Rebalance

The most immediate priorities are Congressional passage of TPA and the successful conclusion and ratification of the TPP. But those steps are not enough.

The president and top officials should also transcend issue-specific, conventional arguments and make the case for strengthening the economic component of the rebalance on geopolitical and broad national security grounds as well as economic and commercial ones. Where appropriate, the United States should make and defend unilateral “concessions” to help friendly Asian governments. Goodwill is a strategic asset.

In addition, the United States should fully implement its rebalance policy by greatly expanding funding for its economic and soft-power tools. It may not be able or willing to fund major physical infrastructure projects comparable to those funded by China’s AIIB, but it can do a lot more to build up Asia’s “soft” infrastructure, especially communications technology and English-language capability. Further expansion of visiting fellowships for students and young professionals and more funding for public diplomacy and “American Corners” (featuring American books and videos) would not cost much either.

Furthermore, the United States should eliminate tariffs on imports of textiles, apparel, and shoes from the poorest countries in Asia. U.S. trade and labor officials should find ways to help local governments and communities anticipate and implement measures to cushion the impact on U.S. workers whose jobs are at risk.

Finally, American leaders must do more to reassure and educate the general public about the benefits of trade and investment while simultaneously addressing the legitimate economic needs of those suffering the most from outsourcing, wage stagnation and rising inequality.

2. Supporting high-standard regional economic integration in Asia and across the Pacific while successfully managing U.S.-China rivalry

Many of the emerging economic institutions and initiatives focusing on Asia are initiated, led, or heavily supported by China. In addition to the AIIB, these include the Shanghai Cooperation Organization (SCO), the China-ASEAN Free Trade Agreement, the Silk Road Economic Belt, the Maritime Silk Road, the Network of East Asian Think Tanks, the Conference on Interaction and Confidence Building, and several others.  Launching or reinvigorating pan-Asian organizations in which China can wield influence is clearly part of Beijing’s regional strategy. So are Chinese efforts to promote greater use of the RMB as an international currency.