By now, you’ve probably heard that the recently concluded Trans-Pacific Partnership (TPP), which Australia is a party to, will proceed without China, the world’s leading trading nation. It’s a glaring omission, argue many analysts. Even with China’s slowing economy, concluding a trans-Pacific free trade agreement without it makes little economic sense.
If an analogy is needed, it’s like wanting to assemble the best possible 4x100 relay team and purposely excluding Usain Bolt.
The reasons for China’s exclusion from the US-led TPP are not economic. They are political. The TPP is the cornerstone of the Obama administration’s “pivot to Asia” strategy.
The US wants not only to be at the helm of the world’s most economically dynamic region, but also to ensure that China’s ascendancy does not go unchallenged. Beyond the reduction of tariffs, the TPP will thus intervene directly in the internal affairs of countries in the region.
From corporate governance and environmental standards to financial regulations, the agreement is seen by many as a means for the US to impose its vision on Asian trading partners. Some have even suggested that the TPP will leave certain emerging economies less competitive, while the US reaps the economic benefits.
The ‘new Asian order’
The TPP is part of the US’ vision for Asia. Specifically, it’s an alternative to the economic future that the soon-to-be-operational China-led Asian Infrastructure Investment Bank (AIIB) proposes. Still smarting from its loss of face earlier this year – when US allies ignored pleas to refuse China’s invitation to join the AIIB – the US may see the TPP as a way of tipping the balance back in its favour.
Announced as part of President Xi Jinping’s ambitious “One Belt, One Road” (OBOR) initiative, the AIIB involves global co-operation to finance large-scale infrastructure projects in Asia. Its goal is the development of infrastructure and other productive sectors across the region. These include energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply and sanitation, environmental protection and urban development and logistics.
More than 50 countries – including some of the US’ closest allies, from Australia and Israel to South Korea and the UK – have signed the AIIB’s Articles of Agreement. With US$50 billion of capital at its disposal (eventually $100 billion will be raised), the bank may soon rival the lending power of the World Bank’s International Bank for Reconstruction and Development.
It’s evidence that the “Chinese dream” has gone global. As one Wall Street Journal columnist put it, the AIIB and the OBOR represent a sinocentric “new Asian order”.
Two visions for Asia – or just one?
But are these two instruments of free trade and development really incompatible? Is the US’ pivot to Asia totally at odds with China’s OBOR initiative? More importantly, will the US and China ultimately benefit as a result of their mutual exclusion from these agreements for Asian prosperity?
There’s talk that the TPP will “advance democracy … as an inevitable outcome” despite being largely silent on the matter. The free trade agreement may have democracy promotion as its implicit motivation.
Meanwhile, in line with China’s regime-neutral approach to foreign policy – echoes of which can be found in Xi’s recent UN General Assembly address – the AIIB may represent the newest arm of China’s “no strings attached” model for international development aid. The investment bank could unintentionally promote, or at least sustain, autocracy.
Speculation aside, commentators are now making the case that the TPP and AIIB are not incompatible. Though they appear to represent conflicting visions for the Asia-Pacific, these two strategies are more complementary than we might think. Both the US and China – as well as much of Asia – would benefit from their mutual inclusion in these two trading and development initiatives.
Despite being party to the TPP, it’s clear many Asian nations aren’t completely happy with its terms. Even the US’ two closest allies in Asia – Australia and Japan – fear the TPP will be too intrusive in their domestic affairs.
Here, the US can perhaps learn something from China’s more hands-off approach. Negotiating terms may be easier than believed, given top Chinese officials have already indicated that China would be “very open” to joining the TPP.
Similarly, the AIIB would only improve its credit rating and international legitimacy if it included countries such as the US and Japan. However tricky these negotiations may be, it is necessary for the AIIB to be seen as a true Asian alternative to the World Bank. Given that some Asian countries are already suspicious about what the flood of Chinese investment might do to local culture, the US’ involvement might provide some reassurance.
More pragmatically, the TPP and the AIIB could together ensure greater trade and development than either would alone. With the TPP’s focus on “software” (rules for commerce and trade) and the AIIB’s emphasis on “hardware” (infrastructure and development initiatives), the two instruments could complement each other. In turn, they could ensure greater co-operation in Asia.
Countries like New Zealand, Singapore, South Korea, Malaysia and Australia have signed up to both the American and Chinese initiatives. Their vision for Asia sees both superpowers at the helm, sharing responsibility and counter-balancing power. Isn’t it time the US and China accepted this too?