The readiness of American allies worldwide and numerous major Asia-Pacific countries to ignore Washington’s objections and sign on to the Chinese-led Asian Infrastructure Investment Bank (AIIB) isn’t just a major diplomatic embarrassment for the Obama administration. It also exposes the dangerous naivete of U.S. expectations of how the Pacific rim trade agreement being sought by the president will function.
According to President Obama, the American-spearheaded Trans-Pacific Partnership (TPP) trade deal is needed largely to prevent China and its often free market-unfriendly objectives from dominating the process of writing the rules that govern commerce in one of the world’s most economically vibrant regions. But the folly of faith in international rules should be more painfully obvious than ever from the rush of so many countries to join a regional economic development bank created precisely to marginalize the transparency, environmental and other standards imposed on aid spending by existing, Western-dominated institutions.
It’s true that Asian and other developing countries have long objected to their limited role in the World Bank, International Monetary Fund, and similar institutions. But their main objections are that being outvoted has meant a curbing of their access to resources by requirements of financial and policy controls aimed at ensuring adequate efficiency and sustainability. In other words, results have mattered far more to them than rules.
As for the wealthier countries that have signed on to this Chinese initiative, they’ve clearly been motivated by the lure of contracts that could juice their stagnant economies. Britain’s government and many analysts believe that the presence of European countries and Australia can maximize the odds that the AIIB will operate responsibly. But these countries could already look to existing institutions for lending based on good governance and balanced priorities (not that these institutions have been perfect by these measures). With so much opportunity at stake, will the growth- and jobs-starved Europeans and Australians really challenge – and therefore complicate – Chinese-style procedures?
Australia and several new AIIB participants would also be among the first round of TPP signatories. Moreover, other new AIIB members, like Korea and China itself, are knocking on the door. Mr. Obama’s comments on the Pacific trade deal’s rule-making benefits for America appear to be based on one of two equally illogical propositions.
The first is that once in TPP, these other members will suddenly drop their “anything for a buck” mentality and rediscover their devotion to strong procedures. (In the case of TPP’s Asian members, the belief seems to be that they will convert to rules-based priorities despite rejecting this approach to governing for their entire histories.) The second is that whatever priorities the majority of TPP members bring to its bargaining tables and dispute-resolution systems, the United States will be able to sell them on the superiority of stringent rules and all of the openness and market orientation they foster.
The good news for Americans is that their country retains ample capacity to shape commerce around the Pacific rim to its liking – and in a way that can prevent the reemergence of the historic global trade imbalances that helped trigger the financial crisis and its painful aftermath. As the most important final market for much of what’s produced by export-dependent Asia-Pacific countries, the United States can use its economic power to ensure mutually beneficial, sustainable trade and investment. The bad news is that the president seems ignorant of America’s advantages, and clueless that the TPP can only weaken, not strengthen them.