Pacific Money

TPP Talks Show Promise for US Asia Strategy—With or Without China

Recent Features

Pacific Money

TPP Talks Show Promise for US Asia Strategy—With or Without China

The trade bloc has the potential to support the U.S. rebalancing to Asia.

The 18th round of the Trans-Pacific Partnership (TPP) trade negotiations ended in Malaysia last week. As the newest participant, Japan's entry expanded TPP's membership to 12; the combined economy represents nearly 40 percent of the world's trade. When this high-standard, ambitious trade agreement concludes, the region's markets would be better integrated and more competitive.

To the United States, the TPP is the cornerstone of the Obama Administration's economic policy in the Asia Pacific, a priority of the "rebalancing to Asia" policy. Through this agreement, the Obama Administration is seeking to boost U.S. economic growth and support the creation of American jobs by increasing exports to the region that includes some of the world's largest economies. Asia's steady growth during and post the financial crisis in 2008 provides the United States with an opportunity that developed economies can no longer afford.

In the past, the Asia Pacific Economic Forum (APEC) has been the primary mechanism for U.S. economic engagement with the region. While APEC is the vehicle for promoting open trade and practical economic cooperation in the Asia Pacific region, it is not a trade agreement and has no legal binding authority.

Rather, economies use multilateral or bilateral free trade agreements (FTA) to negotiate trade rules. TPP started as an agreement among Brunei, Chile, New Zealand and Singapore in 2005. Since President Obama's announcement of the United States' intention to participate in the trade talks in 2009, more countries have followed suit. Since then, the United States has become the perceived leader of the TPP.

The key question, however, is whether China is going to join. As the world's second largest economy and a major trade partner for almost all countries in the region, can the TPP be effective without China? Some commentators believe the United States is using the TPP to contain China, especially after Japan's recent announcement of its participation.

This theory, however, ignores the U.S. consideration of its own economic interests. The United States needs new, emerging markets to increase the demand for American products and services in order to support job creation and reduce unemployment. China's participation in the TPP might benefit all, especially if trade can be conducted with agreed upon principles, preventing further disputes.

In fact, the United States and China are currently negotiating the Bilateral Investment Treaty (BIT). The two counties agreed to begin the process during the latest U.S.-China Strategic and Economic Dialogue in Washington, signaling BIT's importance to both governments.

But according to American business lobbyists, joining the TPP might not be China's short-term goal; after all, the TPP holds high standards and requires domestic reforms for compliance.

In the meantime, the Regional Comprehensive Economic Partnership (RCEP) led by ASEAN + 6 probably deserves more attention. This is a new economic partnership led by ASEAN and its FTA partners. The goal is to further the vision of the ASEAN Economic Community by 2015, creating an economic zone similar to the one in Europe. In addition to ASEAN countries, it also includes Australia, China, India, Japan, New Zealand, and South Korea. Some analysts put the TPP and RCEP in comparison because the TPP has the United States and the RCEP has China.

But some in Washington do not think a "zero-sum game" is an accurate description of the two trade agreements; rather, they could be complementary. Besides the differences in membership, the approaches, timelines, and goals also vary.

The TPP sets a high-standard, comprehensive, high-speed framework for complete liberalization. Once the agreement concludes, some believe it would be the most comprehensive free trade agreement in the world. Whereas the RCEP recognizes the development differences among the countries, and is likely to be more accommodative to its members, providing more flexibility, emphasizing "harmonization" of the region.

Instead of seeing the TPP and RCEP as a competition between the United States and China, it is perhaps more accurate to say that the two trade agreements are tools for the United States to increase its influence in Asia (TPP) and for ASEAN countries to balance American and Chinese influences in the region (RCEP). While the TPP and RCEP could be competitors, they could also co-exist. ASEAN is likely to benefit most from both agreements. As for the other non-ASEAN countries, the goals are probably to maintain competitiveness and influence, to participate in regional economic integration, and not to be excluded.

In recent years, countries have competed to deepen their relationships with ASEAN, given the political and economic integration in Southeast Asia and the region's steady growth. To some developed economies, having a share of the region's market is part of a strategy of economic recovery.

Asia's trade liberalization supports the U.S. "rebalancing to Asia" policy. Even though the U.S. is no longer the only dominant player in the region, most Asian countries, to an extent, are still willing to be led by Uncle Sam. The difference is they also need additional insurance policies. The U.S. will likely need time to adjust to this.

Wenchi Yu is an Asia Society Associate Fellow and a non-resident fellow at Project 2049.