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United States and Asia: Inextricably Linked

S. Rajasimman is Research Assistant at the Institute for Defence Studies and Analyses, New Delhi.
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  • November 26, 2009

    President Obama’s first visit to Asia that included Singapore, Japan, China and South Korea was an acknowledgment that it was a declining power. Though the US may continue to wield the power to set the global agenda, it will not be able to carry it out unilaterally without support from other countries, particularly in Asia. Asia is leading the global economy out of recession however the recovery will be marred by high unemployment and huge government debt across the industrialised countries according to the Organisation for Economic Co-operation and Development (OECD) in its latest Economic Outlook. It has raised the global growth forecast for 2010 to 3.4 per cent. It predicts unemployment will remain high, hitting 10.6 per cent in the euro zone next year and 10.8 per cent in 2011.

    Obama’s visit must be seen in the context of the current recession in the US, which is the worst since the Second World War. About 30 trillion dollars of wealth has disappeared from the US treasury. This is about twice the GDP of the United States and about half the annual GDP of the world. Sixty one percent of total American manufacturing exports are destined for the Asia Pacific Economic Cooperation (APEC) economies, and roughly 3.7 million American jobs are supported by those exports. Since US-Asia relations are located within this complex interdependent strategic environment, the rules of the game appear altered. According to President Obama power in the 21st century is no longer a zero-sum game; one country's success need not come at the expense of another. The central theme for this visit as put forth by the President Obama was “engaging in new markets that hold tremendous potential to spur job creation here at home”.

    Though Asia has emerged as an important region for the United States, China is the most critical player for the US in Asia. The US’ economic growth is directly linked with China’s economic performance. Therefore this relationship is more crucial than others. China has surpassed Japan as the second largest economy reducing Japan’s importance to the United States. However Japan-US relations only complicate China-US relations further. Before arriving in China, Obama described the country as a “vital partner, as well as a competitor.” He further clarified that mismanagement of their economic relationship may strain their political relationship. While extending US political traditions in China by organising a town hall meeting with university students in Shanghai, President Obama highlighted that trade between China and the US in 1979 was only 5 billion dollars and in three decades since, it has touched 400 billion dollars. However the nature of trade is such that China can choose to ignore the US while the US cannot choose to ignore China. In 2008, the US imported nearly five times as much from China as it sold to the Chinese – 338 billion dollars against 70 billion dollars. Last year, cross-Pacific commerce was worth more than 400 billion dollars. The US bought more than 330 billion dollars worth of Chinese goods, around five times the amount of trade going the other way, which means an annual American trade deficit of around 260 billion dollars. The largest US imports into China are agricultural products, particularly soybeans, semiconductors and airliners. Therefore the relationship is based on the fact that Americans buy Chinese products and China finances the national debt in the US. Without this financing, life would be much harder for Americans. The imbalance in trade risks breeding a trade war. Some US economists propose artificial devaluation of Yuan’s value to make Chinese exports cheaper and US goods more expensive in China.

    The Chinese blame the US for trade protectionism. For example the US recently imposed tariffs on Chinese tyres and steel pipes claiming they were being sold at less than their fair value. On the other hand Beijing released figures that showed tyre exports to the US actually fell by more than 15 percent in the first half of 2009. After Washington slapped an extra 35 percent duty on Chinese tyres, China lodged a complaint at the World Trade Organisation (WTO). Zhang Hanlin, President of the China Institute for World Trade Organisation Studies said: “If the exports to any WTO member grow too quickly, and so harm their own national industries, and if the harm comes from Chinese products, only in that situation could you do what the US government has done. But at the moment, the problems of America’s tyre, car and even steel industries are not caused by China.”

    Trade relations between the US and China only exemplify the true nature of a complex interdependent international environment. This limits or alters foreign policy options for both countries and directly connects domestic politics to international politics. In this game of interdependence, China has stayed ahead due to unique domestic political and economic conditions. However as it is true for many developing countries China too will feel international pressure to alter some of its domestic policies regarding trade in order to accommodate others. As Kissinger observed in 2002, national governments of both industrialised and developing countries around the world will face one critical problem in a globalised environment which is, while national governments chart out policies to resolve some of their domestic issues, they will have to constantly negotiate with other nations. This phenomenon will get further complicated in the twenty-first century.