Asia is now home to more than 50 percent of the world’s economic activity, a long-anticipated benchmark vastly accelerated by China’s stunning, swift economic growth and its overtaking Japan as the planet’s second-largest economy. Asia’s dynamism is transforming the world, its institutions, and U.S. strategy. Secretary of State Hillary Clinton has described the shift to Asia as a strategic pivot.
While U.S. foreign policy and security leadership are aptly refocusing on Asia, more needs to be done—and fast. This is particularly the case on trade.
The United States has lost ground in Southeast Asia over the last decade. In 2004, the United States was ASEAN’s largest trading partner, with total trade valued at $192 billion. Today, China, a non-consequential partner for ASEAN in the early 1990s, is the region’s largest trading partner, with two-way trade totaling $293 billion in 2010.
Over the past 10 years, ASEAN has inked free trade agreements (FTAs) with China, Japan, Korea, Australia, New Zealand, and India. The United States has only one FTA in ASEAN—with Singapore. The result has been a ceding of market share and presence in the world’s fastest growing and most dynamic markets. No wonder that U.S. economic growth has suffered. Ignorance and relative neglect of Southeast Asia have cost the United States jobs, growth, and influence.
That is why the CSIS-U.S. ASEAN Strategy Commission has recommended that the Obama administration put a stake in the soil when President Obama travels to Indonesia for his third U.S.-ASEAN Leaders Meeting and first East Asia Summit and tell the region that the United States wants to negotiate a U.S.-ASEAN FTA. The signal would resonate loudly in capitals around the Asia Pacific. It would demonstrate that the United States is back, serious, and committed to reasserting its role as an economic leader in Southeast Asia.
There is a real competition under way to define how economic integration of Asia will proceed. The wagers are high. The winning model will determine standards and rules. It will define the pace of trade and investment and support a move toward either global free trade or a return to regionalism and nationalism. Those left out of the predominant structure will experience slower growth and face grinding competition to engage from outside.
The two competing models are those of the U.S.-led Trans-Pacific Partnership (TPP) and the China-led ASEAN Plus Three — ASEAN plus China, Japan, and South Korea. Competition for economic integration is good for Asia. It should sharpen the sense of urgency for governments to move faster and more decisively. The TPP model is one based on a high-level U.S. FTA standard that is comprehensive and binding.
The Chinese ASEAN Plus Three model puts geopolitical concerns above specific trade and investment rules and links countries together through a lowest-common-denominator formula that is very effective and has a high impact in the short term. Trade expands rapidly as tariffs are reduced, but binding rules on investment, procurement, intellectual property, environment, and labor provisions are not addressed.