US in Asia Pacific

Rebalancing: An Instrument of Economic Diplomacy

14 May, 2014    ·   4436

Urbi Das looks at why it is important for the US to eliminate the differences that stand in the way of the successful conclusion of the TPP

After prolonged engagements in Afghanistan and Iraq, the US has finally made a move to renew its commitment towards Asia, which has always been an arena of US strategic and economic interest. The Asian rebalancing strategy highlights the current power shift in the international order from the west to the east. The economic engagement between the US and the Pacific nations is one the major pillars of the rebalancing strategy as the US identifies ‘economic statecraft’ as a major plank of its ‘Pivot to Asia’. The strategy aims at fostering economic solutions to strategic problems through commercial diplomacy by harnessing both the ‘economies of power and the power of economies’.

Inquiring into the Obama administration’s keen interest in the Asia Pacific, it should be mentioned that the US has always been a Pacific power. The Asia Pacific Economic Cooperation (APEC) established in 1989 already works as one of the key drivers of intensive economic cooperation seeking to promote free trade among the economies of the Asia Pacific. The APEC economies inform a lion’s share of US’ investment and its export markets, amounting to 60 per cent of overall US exports in 2010.

On the onset of the millennium, Asia emerged as the US’ largest source of imports, accounting for 32.2 per cent (2010) of merchandise trade and the second-largest export market with a share of about 23.5 per cent (2010). With a growth rate of about 40 per cent, the East Asia and Asia Pacific region contributes to one third of global trade, which is more than any other region of the world. As the world’s most populous area, its rapidly growing economies provide a vast market, making it more attractive to global capitalism. It is a home to a number of American alliances and treaty partners like Japan, Philippines, Australia and South Korea, among others. Asia Pacific thus presents itself as the land of opportunity for the US.

As a part of this economic diplomacy, a number of steps have been taken by the Obama administration, among which the Trans Pacific Partnership (TPP) is of utmost significance. The TPP represents the most credible road leading to the economic integration of the Asia Pacific, with the US engaging in the most ambitious model of trade relations with the economies of Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.

The TPP stands to enhance US soft power in the region by allowing its companies an easy entry into the markets of the TPP member States. It would enlarge and broaden the Asian market for US exports since the ‘comprehensive and high standard’ Free Trade Agreement under the TPP aims to liberalise trade in nearly all goods and services including areas that go beyond the current commitments under the WTO. If successful, the TPP would give the US an unprecedented advantage in trade and investment since US companies would gain from its provisions for preferential intellectual property rights, thus enhancing its competitiveness in the Asian market.
Here, it should be noted that the US interest in the region is not only to develop and strengthen bilateral relations; a major part of the strategy aims to contain China and offset its influence. China’s rapid growth and muscle-flexing in the region has always been a cause of concern for the US. When the West was undergoing an economic downturn due to the great recession of 2008-2009, the Chinese economy continued to grow. This growing economic power let Beijing unveil its political influence in the region.

The American model of the TPP is a well-crafted trade regime that tactically excludes China. China responded to this by backing the Regional Comprehensive Economic Partnership (RCEP) which is an alternative to the TPP. The RCEP excludes the US, and includes the ten ASEAN member States and ASEAN’s Free Trade Agreement partners (Australia, China, India, Japan, the Republic of Korea and New Zealand).

The China-US conflict can pose a serious challenge to the small Asia Pacific nations since they have to confront the crucial question of siding with a model of trade with either the ‘dominant power’ or the ‘emerging power’.

In a globalised neo-liberal order, economics play a vital role in enhancing the comprehensive power of a nation. In other words, economic diplomacy is integrally linked and forms a necessary corollary to the strategic goal that the US wants to pursue in the region. Analysing the Asian rebalancing strategy within the parameters of its economic dimensions, it can be argued that with the successful conclusion of the TPP, the US stands to gain the fruits of a highly integrated market that will enhance its soft power in the region. However, US’ ‘economic statecraft’ will bear fruit only if it is able to negotiate well with the Asia Pacific nations, and eliminate the differences that stand in the way of the successful conclusion of the TPP. The road to such an ambitious accomplishment seems a long one, given China’s ‘charm offensive’ in the region.