From Pacific power to partner

Although the US is still by far the world's largest economy (with a GDP of more than $14 trillion versus China's fast approaching $6 trillion), its economy is in a poor state and its unemployment rate remains stubbornly around 9 percent.

The true depth of the malaise dates back further, with the US' official data showing that middle class/middle income Americans have a lost decade in which their living standards were no higher last year than in 1997. This is not just the result of the current financial crisis but the cumulative effect of unsustainable bubbles in the dot.com, stock and housing markets which led many Americans to spend their annual household income in the belief that asset values will always rise, while the real productive economy was treading water with the US dropping a notch in international competitiveness for the last three successive years.

Perhaps the most disturbing statistics are those released by US Census Bureau recently, which show that about 1 million more children were living in poverty in the country last year, that is, more than 1 in every 5 children of all kinds - Whites, Latinos, Asians. More shocking is that the figure has reached nearly 40 percent among black American children.

There are only two ways that this unacceptable poverty can be addressed. One is by redistribution of the existing cake for which there seems little political will, as illustrated by the failure of the US Congress super-committee to reach an agreement on tax increases versus government expenditure cuts. Fiscal deficits have to be reduced so that tax revenues are used to fund expenditure programs. Yet tax increases on middle class Americans and the rich are seen as a political liability in an election year, despite US President Barack Obama's efforts to raise some.

The second method is to look to economic growth to fund initiatives without the pain of tax increase.

The US cannot look to trade with, and investment by, Europe to help raise growth rates given the current eurozone crises. Since this is Asia's century, the US needs to hitch its prospects to the rise of Asian economies as the only show in town. The success or otherwise of that effort will determine Americans' living standards for years to come.

The engine of Asian growth is the China-ASEAN Free Trade Area (CAFTA) members, or ASEAN+1. Although China has grabbed headlines for averaging more than 9 percent growth a year since 1978, the top 10 countries in the growth table over the last 30 years are Asians, including Vietnam, Singapore, Thailand and South Korea, and of course India. It is inevitable that CAFTA will evolve into a major regional trading block (and even be joined by Japan and South Korea in a proposed "East Asian Free Trade Area") along the lines of the European Union and speak with an increasing voice in international economic forums.

China is well placed to be the provider of a useful regional trading currency in the form of the yuan - Sino-ASEAN trade is expected to reach $400 billion by the end of 2011, making China ASEAN's largest trading partner.

How does the US fit into all this as an "Asia-Pacific focused nation" as it has been recently proclaiming? The last time I looked, the US was also a North Atlantic focused nation, and although it has important 20th century economic and political ties with Europe (dating back from the Marshall Aid program that helped rebuild a war-ravaged Europe, through to the establishment of US multinational companies there and the political and security cooperation of NATO based in Brussels), the EU has evolved through the decisions of its own member countries.

East Asian integration must proceed on such terms and reflect the cultural and political dynamics of that region. The US has been a full member at the recent East Asia summit, and came with an ambitious agenda. While the Chinese officials recognize that the Pacific Ocean is big enough to accommodate the interests of all parties through an Asia-Pacific dialogue, even partnership, East Asia does not need the US as an international economic policeman to determine and supervise "the rules of engagement".

For sure, rules are important and there are appropriate international organizations like the WTO and the IMF, to refer disputes to and help with enforcement - but the US needs to remember that the operating policies of those organizations are under review, reflecting the recognition that emerging economies' interests have not been adequately represented.

While such a regional block will look increasingly to more trade among members and some protection from the damage to exports from Western economic ills, it will also look to engage in more global trade. But Western Europe, Africa, Australia and South America will expect to benefit from this, too, and the US has no monopoly of that opportunity. What seems to distinguish the US' ambitions is a desire for hegemony that is not found in the other players. This is a weakness, not strength, of the US' ambitions.

How the US engages with Asia in its century will determine its economic prospects. Central to this is how the US sees China and, despite many statements on the importance of mutual cooperation, Washington's behavior suggests that it sees the relationship as a zero sum game - meaning that as China gains and grows in Asia, the US loses its influence.

That would not be the best way for the US to proceed, and the concept of China as a threat needs to be replaced by China as an ally in promoting global economic growth. The US changing its tone from "Pacific Power" to "Pacific Partner" with Asia would be a good start.

The author is an economist and director of China programs at CAPA International Education, a UK-US based organization that cooperates with Capital Normal University and Shanghai International Studies University.

(China Daily 11/30/2011 page9)