Setbacks in Obama’s Asia Trip

Obama was hoping to revive his popularity and consolidate his authority with the Asia trip after having lost the midterm elections. Before the trip, he declared that he would critique the RMB exchange rate issue at every stop, strengthen relations with Asian countries and push for a trading environment favorable to the U.S. While he received warm welcomes in New Delhi and Jakarta, he fully experienced the taste of being a “lame duck president” in the international arena at the G-20 Summit in Seoul, Korea, and at the APEC Leaders Summit in Yokohama, Japan.

When Obama and Chinese President Hu Jintao met on Nov. 11, 2010, at the sidelines of the APEC Meeting, Hu turned the tables on Obama, pointing out that U.S. quantitative easing will adversely impact emerging markets and developing countries. The next day, Obama, directed at China, pointed out that countries with large trade surpluses cannot overly rely on exports and that each country’s currency should reflect economic realities. Hu retaliated, indicating that China will maintain its own pace in reforming its exchange rate policy; both parties came to a draw in this direct confrontation. On Nov. 13, 2010, in Yokohama, Obama exerted pressure on China once more, raising the suspicion that China is supporting export growth with cheap RMB. However, other participating leaders could not agree with Obama. They voiced that significantly appreciating the RMB will not solve the imbalances within the U.S. economy and may push China toward the fate of Japan, implicating the global economy.

There are three main reasons why Obama lost his aura in these two summit meetings. Firstly, the G-20 Summit is aimed at preventing a global currency war, and the theme for the APEC Summit was “regional integration,” to discuss the specifics of the “Asia-Pacific free trade circles” (FTAAP) concept. Obama has not only failed to provide specific recommendations to prevent a “currency war” and contribute to “regional integration,” he specifically attacked the RMB exchange rate issue. To be cold-shouldered by other countries was only to be expected.

Secondly, the participating countries at the G-20 Summit were very concerned with the threat of a “currency war.” Even though it has yet to happen, once it does, each country would necessarily have to depreciate its currency to gain comparative advantages. Ever since the U.S. announced the second round of quantitative easing, leaders of participating countries have started targeting the U.S., and not China, in the attempt to prevent “competitive devaluation.”

Thirdly, leaders of participating countries are unhappy that even as the U.S. explicitly accuses others of manipulating currencies, the Federal Reserve contradictorily printed $600 billion to buy bonds. There are two motives behind the large-scale printing of dollars: first, to devalue the dollar through the purchase of bonds, facilitating exports, and second to devalue the bonds and dollars held by other countries. These are selfish actions that harm others, and the U.S. has thus lost its position as the leader.

The most-discussed issue during the APEC Summit was the “Pan-Pacific Strategic Economic Partnership Agreement” (TPP). The TPP was first signed by Singapore, Chile, Brunei and New Zealand, forming the “P4.” Subsequently, the U.S., Australia, Peru, Malaysia and Vietnam joined in the discussion, forming the “P9.” Currently, the nine countries are in negotiations.

The joint statement from the APEC Summit reiterates the region’s commitment to promote free trade and investment, with leaders vouching to take “concrete actions” to achieve a comprehensive regional free trade deal. Yet, no timeline has been set, and leaders have only indicated that the timeline is dependent on the progress of the TPP negotiations between the nine participating countries.

Obama first met with leaders from the eight other participating countries on Nov. 14 to discuss the TPP, with the hopes of signing the TPP before the U.S. hosts the APEC next year. Obama had initially expected Japan to indicate interest in joining, but that has not happened. The TPP will eliminate all tariffs and trade barriers between member states, with the goal of reaching zero tariffs by the year 2015.

The TPP does not include China. On one hand, the U.S. is intentionally keeping China out, and on the other hand, China’s inclusion in the TPP negotiations would be problematic, as Beijing hopes to avoid the White House using this opportunity to pressure China on issues of RMB appreciation and trade imbalances. The host country of this APEC Summit, Japan, has already announced that it would decide whether to join the TPP in half a year. On one hand, Japan hopes to temporarily calm the strong opposition toward trade liberalization within Japan, and on the other hand, Japan, as host country, did not want to cause unhappiness with China. Evidently, the metaphorical barriers between the U.S., China and Japan are at work.

Therefore, if Obama’s initiative to expand the TPP is successful and is actualized next year, it should be morale-boosting. While eliminating tariffs and trade barriers are conducive to progress toward an “Asia-Pacific free trade area,” if Asian-Pacific states could only break down the walls in each others’ hearts, it should be helpful for regional integration.