The United States, China, and the Trans-Pacific Partnership

By Daniel Chen, BASC Research Assistant

On March 9, 2012, the eleventh round of the Trans-Pacific Partnership negotiations came to a close. TPP, a “21st century trade agreement” that spans three continents and covers a multitude of issues from trade in goods and services to regulatory coherence, encompasses nine members and hopes to be a centerpiece of increased interaction in the Asia-Pacific region. TPP has become a priority of the Obama Administration in its “pivot” back to Asia, and one need only look at the TPP webpage at the USTR website to understand that the United States is investing considerable diplomatic energy in ensuring its creation.

TPP makes strategic sense to the United States for three paramount reasons. First, the Asia-Pacific is currently witnessing a rapid proliferation of FTAs with varying trade standards and rules that are diverse in scope, architecture, and objectives, hindering trade and investment and preventing deeper integration. However, by “multilateralizing regionalism,” TPP rationalizes these webs of bilateral agreements into a coherent whole that lessens transaction costs. Second, TPP promises long-term economic benefits as more and more countries join the agreement through its open accessions clause. While the United States currently has FTAs with four out of the other eight negotiating members and the remaining countries have relatively small and liberalized economies, TPP’s enlarging capabilities bode well for future liberalization in the Asia-Pacific. Lastly and perhaps most importantly, the United States has emphasized TPP for political reasons. As Hillary Clinton noted, “In Asia, they ask whether we are really there to stay, whether we are likely to be distracted again by events elsewhere, whether we can make — and keep — credible economic and strategic commitments, and whether we can back those commitments with action. The answer is: We can, and we will.” TPP is then a signal that the United States will remain an engaged player in the Asia-Pacific.

It is this last aspect that is the most controversial. Given the latest Sino-American trade disputes, such as the Senate passing a bill condemning China’s currency manipulation and the recent imposition of tariffs on Chinese solar panels, many people reasonably suspect that any American moves in the Asia-Pacific are meant to contain China’s Rise. American involvement in TPP is then viewed with intense scrutiny. Moves such as Senator Hatch’s attempt to include currency provisions in TPP exacerbate these tensions. Similarly, cries concerning China’s rise and our relative decline compound fears on both sides of the Pacific.

Since 2009, China has acted more aggressively toward its neighbors. Episodes like the Senkaku Island dispute with Japan and its continued support of repressive regimes like that of North Korea presage China’s increasingly assertive role in Asia. Nonetheless, China cannot be thought of as an American enemy. The two countries are increasingly dependent on one another; for example, China needs the United States as a consumer and the United States relies on China as an investor. While critics often worry about China’s rise, the truth is that Americans have directly benefitted from China’s economic miracle. Furthermore, tackling many important global problems, such as North Korean proliferation and global imbalances in trade, requires dialogue and agreement between both powers. Without the involvement of either China or the United States, constructive solutions cannot be reached. In this way, TPP should also not be thought of as an American attempt to stymie China’s increasing dominance; TPP is more of a way to keep counteract diminishing American relevance rather than a means to contain Chinese ascendancy. As Fred Bergsten and Jeffrey Schott of the Peterson Institute of International Economics assert, “‘Hedging’ strategies are not the same as ‘containment’ strategies. For most countries in Asia, the TPP is about keeping the US in, rather than keeping China out.”

Overall, TPP and active U.S. engagement with the Asia-Pacific should both serve as signals that the United States will remain relevant in the region while reassuring China that TPP is not an effort at containment. In this way, countries like Japan, South Korea, and members of APEC can pursue “hedging” strategies while simultaneously ensuring the Asia-Pacific remains an area conducive to commerce and trade.

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