The third way: Asia’s economic leadership turmoil

The third way: Asia’s economic leadership turmoil

Asia’s middle powers are fighting a dogged defence of US trade values while Washington vacillates.

What’s happening?

President 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

– Chinese predatory loans are alienating regional states from Beijing’s economic vision
– Middle powers are trying to maintain the status quo as the US and Chinese policies disrupt the international system
– The Quadrilateral Security Dialogue will likely wither under President Trump’s administration

DOLLARS AND DEFICITS

The 19th Chinese Communist Party (CCP) Assembly in October, the APEC Summit in Vietnam and President Donald 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 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 Trump’s trip to Asia which failed to produce a clear 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 turmoil.

AMERICA FIRST AND THE MANDATE OF HEAVEN

U.S. President Donald Trump and First Lady Melania Trump during a visit to China accompanied by Chinese President Xi Jinping / Asia's economical leadership turmoil

Photo: The White House / Wikimedia Commons

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 the presence of the US. 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-led 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.

Indo-Pacific middle powers are working with one another via multilateral military agreements to try and 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 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 based in part on the predatory loans that 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 will 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, relies on the transportation network yielding elevated levels of economic output for Laos, an outcome that appears unlikely 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 and a plethora of East African nations. These countries have begun to recognise the potential for China to use debt to manipulate their capitals 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 Beijing’s influence. This element of Chinese economic leadership has been a contributing factor to regional middle powers banding together to maintain and institutionalise liberal economic norms.

The economic 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.

ASIA’S ECONOMIC LEADERSHIP TURMOIL EXPOSED

Portrait of the leaders of the member economies of APEC at the APEC Vietnam 2017 Summit. / Asia's economic leadership turmoil

Photo: Presidency of the Mexican Republic / Wikimedia Commons

Despite the best efforts of Indo-Pacific middle powers, namely those affiliated with the CPTPP and India, economic 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 the US will head moving forward.

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 the Korean Peninsula. While the Korean Peninsula is 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 the 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. Leadership uncertainty in the Indo-Pacific region will produce a hodgepodge of short-sighted politico-military policies from a cast of countries and multilateral organisations. This lack of policy continuity will likely persist until a post-Trump presidency is established.

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