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The third way: Asia’s economic leadership turmoil
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The third way: Asia’s economic leadership turmoil

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WHAT’S HAPPENING

Trump’s fruitless trip to Asia has left regional countries in a bind, as their values align more with traditional liberal economic practices formerly promoted by the US than those pushed by Beijing.

KEY INSIGHTS

  • The Trump administration’s “America First” policies and China’s predatory economic leadership will bring middle powers together in support of free trade
  • India and members of the former Trans Pacific Partnership will continue to promote liberal economic standards
  • The quadrilateral security dialogue between the US, Japan, Australia, and India will not deepen under the Trump administration

The 19th Chinese Communist Party (CCP) Congress in October, the APEC Summit in Vietnam, and President Trump’s extended trip to Asia have brought to the fore the economic leadership turmoil in the Indo-Pacific region.

Chinese President Xi Jinping has staked out China’s intention to take charge, proclaiming that China has become a “regional super-power”. Yet countries such as Vietnam, the Philippines, Japan, and South Korea are wary of further Chinese political, economic and military influence in the region. Their concerns have become even more pressing following President Trump’s trip to Asia which failed to produce a clear US foreign policy agenda for the region. Instead, Trump spoke extensively about raising tariffs on Asian countries to make the US trade balance more “fair”, even going so far as to suggest that Japanese car manufacturers should open more US plants to achieve this goal.

The combination of the hesitancy of Asia’s middle powers to accept a Chinese led politico-economic order in the region and the Trump administration’s focus on “America First” policies is forcing the region’s middle powers to band together to wade through the turbulence of the current Indo-Pacific economic leadership transition.

ECONOMIC LEADERSHIP: MY WAY OR THE HIGHWAY?

/economic leadership
One manifestation of Asian middle powers teaming together to weather the economic leadership turmoil is the creation of the Comprehensive Progressive Agreement for the Trans Pacific Partnership (CPTPP). This multilateral trade agreement, which includes 11 countries and covers 13% of global economic output, operates under the same framework as the original Trans Pacific Partnership but without a US presence. CPTPP maintains the free trade philosophy formerly promoted by Washington and rejects the lower liberal economic standards of the Chinese-led Regional Comprehensive Economic Partnership (RCEP). Its adherence to long-standing US-backed economic norms — without the guidance or influence of the US — demonstrates a regional rejection of the current US diplomatic trajectory, wariness of China’s growing influence and a collective leadership deficit in the broader Indo-Pacific region.

Moreover, Indo-Pacific middle powers are working with one another via multilateral military agreements to try to cope with the associated political turbulence. Three of the Indo-Pacific’s more sophisticated militaries — India, Japan, and Australia — have returned to the quadrilateral security dialogue with the US. The dialogue was first created ten years ago, but fell apart seemingly over Australian concerns about damaging bilateral relations with China. The revitalised quad appears to have the same overall objective as the CPTPP – to encourage US involvement in Asian political affairs while trying to minimise the expansion of Chinese influence.

The hesitancy to accept a Chinese politico-economic order in the Indo-Pacific is partly due to the predatory loans Beijing has issued to various developing countries in the region. For example, China’s Exim Bank is providing loans to Laos for a $5.8 billion railway system connecting China to Southeast Asia. The annual costs of maintenance and operation are predicted to be a massive financial burden for Laos, which had an annual GDP of $12.3 billion in 2015. The financial obligations associated with paying off the loan to China as well as operating the rail system heavily relies on the transportation network yielding elevated levels of economic output for Laos – this is not expected to eventuate.

Chinese predatory loans aren’t exclusive to Laos or developing countries in Southeast Asia. Similar loans have been given to Sri Lanka, Pakistan, as well as a plethora of East African nations. These states have begun to recognise the potential for China to use debt to manipulate them into abiding by Beijing’s economic norms and practices. Likewise, developed liberal economic countries such as Japan, Australia, Singapore, and South Korea have grown increasingly wary of Chinese investment and have sought to limit the expansion of Chinese influence. This element of China’s economic leadership has been a contributing factor to regional middle powers banding together to maintain and institutionalise liberal economic norms.

The leadership turmoil has been further exacerbated by President Trump’s trip to Asia. According to Ian Bremmer, the President of the Eurasia Group, “The principal takeaway from Trump’s big Asia trip: virtually zero progress on any issue that matters to the Americans”. The President failed to spur productive negotiations concerning trade agreements with Japan, South Korea, and the Philippines, or ease the region’s fears of US abandonment following the Obama administration’s heightened levels of engagement. Instead, the trip appeared to reinforce the lack of US leadership in the region, and strengthened China’s position.

IF YOU WANT SOMETHING DONE RIGHT

 It's a wrap 12 days, five countries, 32,000 kilometers, and the longest trip to Asia by a U.S. President in more than a quarter century /economic leadership

Photo: US Embassy Canberra

Despite the best efforts of Indo-Pacific middle powers (namely India and those affiliated with the CPTPP), leadership turmoil will continue under the current trajectory of the Trump presidency. It appears that Trump’s protectionist trade agenda runs contrary to the Indo-Pacific’s well-established liberal economic norms. CPTPP countries plus India will have to re-evaluate how to best cope with their disenchantment with the idea of a Chinese led politico-economic order paired with the Trump administration’s underwhelming diplomatic engagement with the region. The most likely avenue for CPTPP countries and India will be short-term politico-economic policies aimed at weathering the storm until the next US administration provides further context on which direction US foreign policy will take in the decades ahead.Likewise, the quadrilateral security dialogue between the US, Japan, Australia, and India will likely wither in the current political climate. The entire arrangement hinges on US cooperation, and Trump’s primary military concerns appear to be counterterrorism operations and volatility on the Korean Peninsula. While North Kore’s nuclear and missile developments are pertinent to Japan, the US, and to a lesser degree Australia, the absence of South Korea from this dialogue significantly reduces the practicality of exercises or training in regards to the Peninsula. Therefore, as this quadrilateral framework doesn’t seem serve Trump’s agenda, it will likely not receive the resources or attention in needs to make it relevant to the region’s security dynamics.

The geopolitical complexities and intricacies of the Indo-Pacific region, paired with a wariness of expanding Chinese influence and the Trump administration’s lackluster diplomatic efforts, have forced regional middle powers to band together to weather this political turbulence. Economic leadership uncertainty in the Indo-Pacific region will produce a hodgepodge of short-sighted policies from a range of countries and multilateral organisations. This lack of policy continuity will likely persist until after the Trump administration ends and a longer-term regional political order is established.


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