MELBOURNE // The failure to finalise an Asia-Pacific trade pact last month has undermined America’s credibility in the region while bolstering the position of the major economy left out of the agreement – China.
The Trans-Pacific Partnership (TPP) would have enabled free trade across 12 nations on the Pacific rim that account for 40 per cent of the world economy, including two of the world’s largest economies, the United States and Japan. Talks broke down on traditional protectionist issues, such as Japanese auto exports, Canada’s refusal to open its dairy industry, and America’s insistence on extending the timeline of pharmaceutical patents.
Australia’s trade minister Andrew Robb, one of the participants in the talks in Hawaii, said last week the TPP was still “doable” with 95 per cent of the deal completed, but many analysts, including The Economist’s Simon Baptist, have already sounded the pact’s death knell. Robert Manning, a senior fellow at the Atlantic Council, believes the chances are even of reaching an agreement this year.
The stakes are high for the Obama administration, which made the TPP central to its Asia pivot policy. As the US president’s former adviser on Asia, Jeffrey Bader, noted that the collapse of the TPP “puts into question the rebalance to Asia”.
Hugh White, an Australian expert on China, has said the TPP’s primary objective was to reassert America’s economic leadership in the region, and was thus more a political project aimed at China. Mr White noted that the TPP contained little economic benefit for participating countries, many of which have already liberalised trade and lowered barriers.
However, the TPP would have enabled Washington to write the terms of trade in the region, ultimately forcing China to comply with America’s standards.
“The TPP is important for maximising the US economic role in the region, and perhaps more so in setting standards,” Mr Manning told The National.
The TPP aims to set high standards of trade ranging from the environment and fisheries to internet access and intellectual property rights, standards many analysts believe China would struggle to meet.
America’s promotion of the TPP is part of the emerging contest between Beijing and Washington for economic leadership in the region, according to Mark Beeson, professor of international politics at Murdoch University in Perth. And it is a contest the US is currently losing.
“It will be seen as a failure of American power in the region if the TPP doesn’t go through,” Mr Beeson said, pointing to Washington’s inability to pressure its regional allies to conform to its preferences.
This comes on the heels of America’s failure to prevent allies from joining China’s Asian Infrastructure Investment Bank (AIIB). Indeed, China has responded to Barack Obama’s pivot strategy by launching its own multilateral initiatives in a bid to place itself at the centre of economic activity in Asia.
In addition to the AIIB, China is proposing its own region-wide free trade agreement – the Regional Comprehensive Economic Partnership (RCEP). It has also recently signed bilateral free trade agreements with America’s two closest regional allies – South Korea and Australia.
“If TPP fails, RCEP will be the only game in town, and it will become the standard-setter,” Mr Manning said. China has a pan-Asian agenda, he added, that will gain momentum with the demise of the TPP.
China’s decision to devalue its currency last week, marking the biggest drop in two decades, was partly seen as a slap at America’s attempt to set the standards of regional economic trade via the TPP. US politicians were quick to chastise Beijing for manipulating its currency to give its exports an unfair advantage.
“The US looks like it is playing one-move chess and China is gradually eroding US credibility,” Mr Manning said.
China will continue to have a bigger economic footprint, not just in Asia, but throughout the world, and it is a reality the US needs to adjust to, he said.
“Many Americans tend to think the current US predominance in Asia is part of the natural order of things, while Asians understand that the last 60 years of US leadership has been a serendipitous accident of history.”
The best option for the next US administration, Mr Manning believes, is to seek a more collaborative leadership role in the Asia-Pacific region, including with China.
“The US cannot sustain total predominance in the region, even if China’s economy stumbles,” he said.
foreign.desk@thenational.ae
