The Debate

The Elephant in the Room: US Needs A Geo-economic Strategy For Asia, Now

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The Debate

The Elephant in the Room: US Needs A Geo-economic Strategy For Asia, Now

Washington urgently needs a comprehensive geo-economic strategy to counter China’s hegemonic ambition.

Washington urgently needs a comprehensive geo-economic strategy to counter China’s hegemonic ambition to establish a Sino-centric sphere of influence. If unchecked, this threatens to weaken the U.S. security alliance system as well as displace the U.S.-led open and rules-based order that has brought relative stability and astounding prosperity to Asia since the end of World War II.

To be sure, when it comes to Asia policy, the White House has had a surprisingly good run after an uncertain and disruptive start. If recent development are any sign of the future, then the White House may be expected to take a more risk-tolerant yet measured approach toward challenging China’s hegemonic ambitions in Asia. However, there is no indication that the White House currently has, or even contemplates, a geo-economic strategy — that is, deliberately leveraging trade and financial tools to advance specific geopolitical and security goals.

Economic nationalism is not a geo-economic strategy. Trump’s decision to withdraw from the Trans-Pacific Partnership (TPP), a 12-nation multilateral trade agreement, is a major setback for reasons discussed below. To be fair, the Obama administration’s support for the TPP stalled once it become the target of populist domestic politics. And, while the TPP was promoted as a component of the so-called “Asia Rebalance” it was not part of a larger geo-economic strategy.

The Trump administration has a stated preference for bilateral free trade agreements (FTAs). Yet, regardless of how many FTAs the White House successfully negotiates over the next four years, it will not have the same network effects of the multilateral TPP. This bilateral approach will not give the U.S. a leading role in writing the rules of regional trade and commerce in the Asia-Pacific. Most member countries, especially Japan, invested considerable political capital in overcoming domestic opposition to move the TPP forward. As a result, the decision to withdrawal from TPP further undermines regional perceptions of U.S. credibility.

It is uncertain whether the White House will renegotiate and repackage the TPP or if other member countries will proceed with a so-called “TPP-minus-one” option. Without the TPP or some variation, the Asia-Pacific is more likely to move forward with the Regional Comprehensive Economic Partnership (RCEP). This proposed multilateral trade agreement includes the ten Association of Southeast Asian Nations (ASEAN) member states along with Australia, China, India, Japan, South Korea, and New Zealand. Notably, RCEP does not include the U.S. as a participant and would give China a role in writing regional trade rules — which are certain to have less stringent standards than the TPP and also be less favorable to U.S. interests.

Building Bridges

In a best case scenario, bilateral FTAs with Japan, Malaysia, and Vietnam as well securing more favorable and reciprocal trade relations with China will do little to enable the U.S. to halt China’s geo-economic march across the Indo-Asia-Pacific region and Eurasian heartland. This is because trade agreements alone are an inadequate and mismatched response to the transformational potential of China’s One Belt, One Road (OBOR) initiative, also known as the Silk Road Economic Belt and 21st-century Maritime Silk Road. Through an extensive network of energy, transportation, and communication infrastructure projects, OBOR seeks to integrate large swaths of Asia, Africa, and the Middle East into a Sino-centric economic order that advances China’s larger geopolitical and strategic interests. OBOR is partly funded by the China-led Asian Infrastructure Investment Bank (AIIB), China’s Silk Road Fund, and China’s state policy banks.

Combined with China’s impressive military modernization and naval expansion, OBOR and AIIB are the strategic building blocks of an emerging Sino-centric sphere of influence. Indeed, China uses its economic leverage (both carrots and sticks) to shape the behavior of U.S. allies and partners through engagement, coercion, and alliance splitting. Many U.S. allies and partners in Asia are increasingly tied to China’s economy while relying on the U.S as a security provider. This fundamental tension between economics and security is driving small states in China’s periphery to pursue “hedging strategies” to balance relations with Washington and Beijing, while some eventually choose to “bandwagon” with China as the real or perceived balance of power continues to shift in China’s favor. These trends carry the risk that U.S. allies and partners — such as Thailand and Philippines for example — may increase defense and security ties with China as economic interdependence with China deepens.

So what is to be done? The elephant in the room is that Washington must directly respond to China’s geo-economic strategy with its own regional infrastructure initiative. However, the United States lags behind in international competitiveness — with seven of the top ten global engineering and construction firms being Chinese. Washington also lacks a “whole of government” approach to promoting global infrastructure development and doesn’t have the political will to fully fund such an initiative alone.

To overcome these constraints and limitations, Washington should join Tokyo in leading a coordinated strategic initiative that jointly pools capital, technology, and know-how to promote infrastructure projects in the Indo-Asia-Pacific region and beyond. Other U.S allies and partners should be invited to participate, such as Australia, India, Singapore, and South Korea. Notably, Japan has been doing this on its own for years. More recently, Tokyo launched a five-year $200 billion infrastructure initiative in 2016 that doubled AIIB’s $100 billion founding capitalization—a herculean and underappreciated effort.

Standing shoulder-to-shoulder with Japan in the face of China’s geo-economic offensive would send a strong signal about enduring U.S. leadership and commitment to the Asia-Pacific.  Putting “America First” means continuing to uphold an open, stable, secure and prosperous rules-based order in Asia. It is therefore imperative that the White House invest the political and financial capital necessary to counter China’s ground game. If, however, the White House chooses a misguided economic nationalism at the expense of a coherent geo-economic strategy, then the U.S. risks losing much of what it and its allies have established in Asia over the past 70 years.

Jeremy Maxie is an Associate at Strategika Group Asia Pacific. He tweets at @jeremy_maxie.