America, Trade, and Asia
from Asia Unbound

America, Trade, and Asia

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Diplomacy and International Institutions

Photo courtesy of the MIT Visualizing Cultures project.

Here’s the thing about trade policy:  the United States can’t be a leader in Asia without one.

That was true in the 19th century, as fast-sailing clipper ships from Salem to San Francisco vaulted America into a role in Asia, spanning the trade from China to India.  It was true in the 20th century, from the Open Door through the Cold War.  And it remains very true today.

So it’s worth taking a look at a pair of articles in today’s Washington Post.

On the cover, the Post’s Howard Schneider notes that America is losing its edge in Asia.  Asian economies are leading the global recovery, not least through a surge in investment and increased domestic demand.  On the editorial page, the paper’s editors make “the case for Korea.”  They praise a bipartisan letter to the administration from Senators John Kerry (D-MA) and Richard Lugar (R-IN) urging rapid movement on the Korea-U.S. Free Trade Agreement (KORUS).

The Post’s editors ask pointedly:  “Can the United States do anything now that is both in its self-interest and in the interest of a strong South Korea?”  Three cheers for the senators.  Three cheers for the Post.

But let’s broaden the issue beyond KORUS.

Schneider has a nice quote from U.S. Chamber of Commerce Asia guru, Tami Overby:  "Trade architecture is being set,” she notes, “and we are not at the table … Countries are talking, and we cannot afford not to be there."

Actually, I’ve said and written a lot about this in recent months, including this piece in the Financial Times, a Council on Foreign Relations Special Report, and in some (hopefully pointed) interviews here and here.

I’ll leave the economics to my former roommate, uber-blogger Dan Drezner, and to my friend Phil Levy. They’ve both written some great stuff on this.  Instead, let’s connect trade to a couple of larger questions about America’s role in Asia:

First, is American strategy in Asia sustainable with the kind of trade policy we have presently?  The answer, I think, is a resounding “no.”

Second, is America keeping pace with change in Asia?  Here, too, I think the answer is “no.” Or as the FT’s editors pointedly titled my piece back in November, “America risks being left behind in Asia.”

Here are a few important issues:

America’s economic role in Asia, particularly during the Cold War, was underpinned by three pillars:  sustained commitment to openness at home, deep faith in American competitiveness abroad, and strong U.S. leadership on international trade agreements and regimes.  Yet all three pillars are now under fierce attack in the United States.

Meanwhile, others are not standing still.  Already, we see, for example, South Korea moving forward on a free trade agreement with the European Union as KORUS continues to languish in Washington.  Asians are, in various ways, redefining their region, not least through a nascent pan-Asian trade and financial architecture.  Thus regionalism is quickly becoming one layer of the emerging multi-layered international system.  One challenge, then, is to ensure that Asia’s regionalism is consistent with global norms and practices, including, for instance, those of the World Trade Organization (WTO).

But another, quite immediate challenge is to get more American skin into the game, and fast.

When the dust settles from the current financial crisis, the character of economic globalization may be significantly changed with respect to capital flows, production chains, and trade patterns in Asia.  Take China, Japan, and South Korea.  Beijing, Seoul, and Tokyo are moving forward together in various ways.

That could have real consequences for the United States.  If Japanese and Korean firms enjoy tariff-free treatment of the manufactures they sell in China while U.S. firms face the current average most-favored nation rate of 9 percent, American firms will lose substantial sales in an import market worth well over 1 trillion dollars.  And they will lose substantial sales in Korea and Japan, too, as these countries move toward further tariff reduction with Southeast Asia.  Even India is now in the game, completing free-trade agreements with South Korea and ASEAN, and launching trade discussions with Japan.

But there are big consequences, too, for America’s strategic position in Asia.

The good news, I suppose, is that the administration joined negotiations earlier this year on the Trans-Pacific Partnership (TPP), a modest effort among some APEC members to move beyond consensus decision-making and take concrete steps toward WTO-compatible free trade expansion.

That’s good, for the many reasons Fred Bergsten and others have laid out.  But ultimately, will TPP cut that much ice in Asia?  I doubt it.  And it won’t do quite so much for the traditional economic pillars of American leadership across the Pacific, either.

With a successful Doha round, the administration would be able to leverage multilateral liberalization to erase intra-regional preferences in Asia.  But such a success seems awfully unlikely now, so the administration needs to look elsewhere.

That’s why KORUS becomes so important.  And it’s why others have urged the administration to look also to things like bilateral investment treaties, or to sectoral trade agreements—for example in services.

Otherwise, as others have noted, U.S. economic losses will mount.  I’d simply add that it’s also hard to see how the U.S. can sustain its strategic position in a changing Asia. 

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