CoverStory

Obama's big game

Free trade groups are the next step towards greater US involvement in the Asia-Pacific

By Geoffrey Garrett

Something remarkable happened in Washington in October. After three years of recession and inaction on free trade, amid America’s vituperative partisan gridlock, and with rising fears of a double dip recession, a battered and beleaguered Barack Obama managed to convince Congress to pass free trade agreements with Colombia, Panama and South Korea that had been in the deep freeze since 2008.

These free trade wins might seem mostly about domestic politics and economics, but America’s self-styled first Pacific president was hunting bigger game.

What Obama wants is nothing less than US-led Asia-Pacific institution-building centred around free trade, to supplement America’s network of political and military alliances in the region. The strategy–which was announced at the beginning of his administration, then buried by events in Afghanistan, Pakistan, Tunisia, Egypt and Libya, and recently resurfaced—is to shift US policy focus from the Middle East to Asia and commit US resources to strengthen America’s position as a Pacific power.

“One of the most important tasks of American statecraft over the next decade,” Secretary of State Hillary Clinton wrote recently, “will therefore be to lock in a substantially increased investment—diplomatic, economic, strategic, and otherwise—in the Asia-Pacific region.”

Citing the web of partnerships and institutions that the US built in Europe after the Second World War, Clinton wrote in a recent issue of Foreign Policy, “The time has come for the United States to make similar investments as a Pacific power.”

In post-World War II Europe, the enemy was the Soviet Union. Today, China is in US sights. But unlike the Cold War, this strategy isn’t about military containment of China. Rather its aim is to socialise China by building a valuable economic institution China will want to join but will only be able to participate in by opening its economy in ways long wanted by the US but thus far resisted by China.

Clinton spelled out the institutional offensive clearly, “As we proceed, we will continue to embed our relationship with China in a broader regional framework of security alliances, economic networks, and social connections.”

EVEN though the KORUS-FTA deal with Korea is the US’s largest free trade agreement since NAFTA, the costs to President Obama in passing the trio of FTAs were too high to justify in terms of the economic benefits they may generate. Voters invariably dismiss free trade agreements as job killers, particularly so with American unemployment mired above 9 per cent.

Despite their visceral dislike for the president, Republicans were not the obstacles to passing the FTAs. Rather the problem was Democrats who are hyper sensitive about jobs. To appease them, Obama had to support the renewal of government aid for workers hurt by international competition and allow the Democrat-controlled Senate to pass a bill naming China a currency manipulator.

With Democrats very anxious about trade, Republicans labelling him a protectionist, and Beijing predictably prickly, nudging the export-import balance sheet can’t explain Obama’s actions.

Instead, as is invariably the case where US FTAs are concerned, Obama was mostly motivated by geopolitics. The Colombia agreement is all about supporting its government’s campaign against drug warlords. The Panama deal reinforces its still relatively new status as a pro-US source of stability in volatile Central America.

But Korea was by far the biggest piece of the puzzle. Obama views KORUS as the first important step in a major Asia-Pacific gambit that will play out over the coming months.

This time last year Obama spent a lot of time in Asia talking up American alliances with countries like Australia, Korea and Japan and its new friendships with India and Indonesia. This year his focus will be on creating a new US-led economic architecture for the Asia-Pacific.

With the Asia-Pacific Economic Cooperation (APEC) Summit in Honolulu at the top of his agenda, then the East Asian Summit in Indonesia, and a two-day visit to Australia to celebrate 60 years of the ANZUS alliance, November will be a busy month of diplomacy for the president. Expect him to say trade and investment at every stop.

Expect him also to utter the acronym TPP—the Trans-Pacific Partnership for free trade—whenever he gets a chance. After two years of intense negotiations by nine Asia-Pacific countries, led by Australia and the US, Obama has long harboured hopes to announce the completion of this multilateral free trade agreement among the Asia-Pacific economies.

He may not get to do this at the APEC gathering, but a meeting with the leaders of 20 Pacific Rim countries offers the hope of keeping the TPP on track. Plus, the expected announcement that post-KORUS Korea—Asia’s third biggest economy—will take part in the negotiations would give TPP real impetus towards its goal of becoming the template for the long-mooted Asia-Pacific free trade area that the region’s two biggest economies, China and Japan, could ultimately join—and join on American terms.

Japan would already like to join the TPP, but to do so they will have to give up much of their cherished agricultural protection.

China is a member of both APEC and EAS, but neither institution makes any binding demands regarding issues such as intellectual property, market access and the capital account. The TPP would be different.

With three of its major trading partners in the TPP—Australia, Korea and the US—China would have big incentives to join down the road. These would only increase if Japan joins too. But China would have to change some longstanding policies at home to be eligible.

This is Obama’s dream scenario. The US takes leadership on a new Asia-Pacific economic organisation that enshrines American principles. Japan and Korea join the party. China sits and watches, wanting to play but knowing the entry barrier is big changes in its economic governance.

Only trade junkies were probably paying attention to what happened in Washington in October. The coming months may show just how important Obama’s free trade win was for the future of the Asia-Pacific century, in which America plans to play the leading role.

AS the balance of power shifts from West to East, the next decade will be a critical period for the world’s sole superpower. Both Obama and Clinton understand this and while they remain in office will invest time and energy to ensure America will secure its interests and promote its values in this booming region. They will hammer the theme that an engaged-America is vital to Asia’s future.

And if there is any lingering question over American commitment and willingness to maintain its influence and leadership in a part of the world which it has dominated since the end of the Pacific War, Clinton has this to say: “We can, and we will.”