5. Building Regional Economic Architecture
U.S. investment in Asia has already been on the increase, according to Joseph Yun’s testimony, growing from $22.5bn in 2009 to $41.4bn in 2011. Now, the U.S. is betting heavily on the TPP – which does not involve China – to supercharge its regional economic presence.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Japan’s recent decision to negotiate entry into the TPP could be the making of the project. Yet the TPP exposes another serious pivot contradiction, namely that it runs counter to Donilon’s #3 objective: improving relations with China. “The TPP is seen by China and as anti-China initiative,” says Huxley. There certainly seems little prospect of China joining, even though other countries which have signed up – notably Vietnam – have the kind of illiberal economies which, like China’s, might be thought to preclude TPP membership.
The problem for the U.S. is that, even with Japan’s participation, China already heavily dominates Asia-Pacific trade. “The net economic effect of the TPP is negligible,” argues Zhang. “The pivot has achieved very little in reality – it is losing momentum … [and] a key reason is that every one [of the relevant Asian countries] has China as its largest trading partner.” The TPP will survive, Zhang expects, but “alternatives such as the RCEP [Regional Comprehensive Economic Partnership, which the U.S. is not currently party to] will offer incentives for other countries, as China will be included.”
However, Harold is more upbeat about the TPP. “The big benefit of the TPP is that it is essentially a U.S.-Japan free trade agreement,” he says. The RCEP will co-exist alongside the TPP, he predicts, but “[the proposed] China-Japan-Korea FTA is the real rival to the TPP,” since this would create a China-centric economic bloc that excludes the U.S. while embracing two of its key partners in the region.
Japanese support for the TPP has breathed new life into the U.S.’s economic pivot. But Washington still needs to attract new TPP partners in an environment containing some tempting China-sponsored alternatives. Indonesia, for example, is one potentially key partner that appears to view membership of the TPP and the RCEP as an either/or. In the end, whatever the TPP’s virtues, it is hard to escape the conclusion that any economic engagement that skirts around the region’s – and soon the world’s – main economic power is somehow missing the point.
Policy Area Progress Rating: 6/10
Overall Score: 34/50. The pivot is a smart policy which is more nuanced than most people realize, and the U.S. government is achieving some of its key objectives. But its China blind spot could be its undoing.