A gaping hole in US Indo-Pacific strategy

Barely noticed in the U.S., China and 14 Asian nations have just signed the world’s largest trade agreement, the Regional Comprehensive Economic Partnership (RCEP), representing 30 percent of the world’s economy. It is a wide but shallow trade deal of which China, Japan and South Korea will be the largest beneficiaries, and the U.S. may be the biggest loser. If Asia is our top strategic priority, something is wrong with this picture.

Despite polls showing that 87 percent of Americans think trade is good for the economy, and 63 percent say U.S. trade deals benefit both sides, U.S. officialdom shuns trade like Typhoid Mary, while Asian nations are busy liberalizing trade. After President Trump withdrew from the Trans-Pacific Partnership, Japan picked up the mantle of leadership, and went forward with the remaining 10 nations to realize the renamed Comprehensive Partnership for a Trans-Pacific Partnership (TPP). Six of its members are also in RCEP.

Why does this matter? The short answer is that it matters to Chinese and U.S. prosperity. The Obama administration negotiated TPP to enhance the United States’ ability to shape global trade rules and standards, which China has been trying to bend in its direction. Obama’s argument was that if we don’t shape the rules, China will. The Asia-Pacific has a $21 trillion GDP, and by 2030 is projected to account for 60 percent of global growth. The U.S. can’t afford to lose equal access to that market.

Like the Obama administration, the Trump administration views the Asia-Pacific as the United States’ top strategic priority for peace and prosperity. Adding India, the administration calls for a “Free and Open Indo-Pacific.” But it has rejected free trade for “managed trade.” Yet any strategy that vacates the economic space of the dynamic region has a gaping hole and is likely unsustainable. The U.S. public needs to see that the benefits from Washington’s large role in Asia are worth the costs. Now U.S. policy is over-militarized and short on the other key instruments of power: economics and diplomacy. 

Trump has pursued a no-holds-barred trade and tech war with China. His trade deal is mainly about getting China to purchase $200 billion in U.S. goods over two years. China is behind on that, but regardless, the global U.S. trade deficit is at record levels. Recovering from COVID-19, China is the only major economy on track to have positive growth for 2020.

Against this backdrop, Asians, fearful of getting caught in the middle of the U.S.-China confrontation, have moved forward, deepening regional economic integration, many fear, at the expense of U.S. exporters. RCEP rationalizes overlapping bilateral deals between the Association of Southeast Asian Nations (ASEAN) and other regional players with common rules of origin. This means products made in any RCEP nation get 90 percent reduced tariffs. Asians are hedging against uncertainty about the U.S. role in the region.

This not only puts U.S. firms at a disadvantage, but companies seeking to avoid getting caught in U.S. tariff wars may move supply chains further into the region. Yet because China’s accession to the World Trade Organization in 2000 led to the loss of perhaps 3-4 million U.S. jobs, there is an aversion to big new trade deals. But new economic realities are that China has lost its cheap labor advantage, and the source of most threats to U.S. jobs are now from automation, AI and robotics.

In any case, the U.S. absence from these trade arrangements will be felt in the U.S. economy and allow China a larger voice in shaping rules and standards, boosting its dominance in Asia. It would almost certainly result in diminished public support for the large U.S. strategic role in the region.

President-elect Biden has said he would consider rejoining CP/TPP on the condition that provisions that the U.S. objects to be renegotiated. Japan wants the U.S. to rejoin and has structured the CP/TPP to facilitate that goal. My discussions with Japanese and others in the region suggest that Tokyo would be open to reviewing the agreement. But first the U.S. needs a seat at the table. So it may be a bit of a catch-22.

Unlike RCEP, which largely omits key growth areas of trade (many services and digital commerce) TPP has high standards, aimed at becoming global norms. If the U.S. rejoined, TPP would account for 40 percent of the world economy and could shape rules for e-commerce and emerging tech like AI, robotics, e-cars and more. TPP is set to expand, as the UK and Thailand are considering joining. The logic of TPP as originally envisioned was that a high standards trade accord covering much of the world market would lead China to change its predatory policies and eventually join or risk losing markets. In fact, Chinese leaders have expressed interest in TPP.

But it is not just about China. Since the 1997-98 Asian financial crisis, which the U.S. did little to manage, and the 2008-09 Great Recession, Asians have increasingly sought to insulate themselves from economic shocks and go their own way. In 1998, Japan proposed an Asian Monetary Fund separate from the International Monetary Fund (IMF). ASEAN promoted the RCEP. China is the largest trading partner of U.S. allies in Asia, and trade arrangements that the U.S. excludes itself from will almost certainly increase Chinese economic dominance.

Thus, with regard to strategic competition with China, the U.S. would recapture some of the economic space it has unwisely relinquished by getting back in the game on trade. To compete with not just China but a rising, increasingly integrated Asia-Pacific, any successful strategy for U.S. policy in the Indo-Pacific needs to do so in all domains — military, technology, diplomacy and economics.

Robert A. Manning is a senior fellow of the Brent Scowcroft Center for Strategy and Security at the Atlantic Council. He was a senior counselor to the under-secretary of State for Global Affairs from 2001 to 2004, a member of the U.S. Department of State Policy Planning Staff from 2004 to 2008 and on the National Intelligence Council (NIC) Strategic Futures Group from 2008 to 2012. Follow him on Twitter @Rmanning4.