Following Up: More on the Trump Tariffs

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aluminum, Australia, Canada, David J. Lynch, Defense Department, defense manufacturing base, downstream industries, European Union, Following Up, George W. Bush, Gordon Hanson, James Mattis, Kentucky, manufacturing, Mitch McConnell, multiplier, Paul Krugman, Paul Ryan, steel, steel-consuming industries, tariffs, terrorism, The New York Times, Trade, Trump, U.S. Business and Industry Council, United Kingdom, Washington Post, Wisconsin

I could spend all day today rebutting ignorant, biased, and simply inane commentary on President Trump’s Thursday announcement that stiff tariffs will be imposed on U.S. imports of steel and aluminum (along with watching the plethora of college hoops on TV today!). Instead, I’ll offer some follow-on thoughts to the tariff talking points I posted yesterday.

>The European Union in particular seems outraged by the Trump decision, and has threatened to retaliate with tariffs on its own on a wide range of products, including some from Wisconsin and Kentucky. These of course happen to be the home states of House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. It’s an understandable, and certainly clever, impulse, and in 2003, something like it succeeded in convincing former President George W. Bush to lift steel tariffs he had imposed 18 months earlier.

Of course, Bush 43 was no Trump. He was a committed free trader and globalist, and/or agent of of America’s powerful corporate offshoring lobby. But here’s something that needs to be considered by Messrs Ryan, McConnell, and other lawmakers at whom the Europeans or other powers may take aim: What if, shortly after September 11, Osama Bin Laden had threatened to destroy major targets in their home states or districts unless the United States withdrew militarily from Afghanistan and left him alone. Would the affected legislators have run to the White House to plead for an abandonment in the war on terror? Not likely.

I know that war and economics are different (although given the importance of economic strength as a source of military strength and overall national success, the similarities and overlap are widely overlooked). But don’t doubt for a minute that American politicians’ reactions to these European threats will be watched closely in all the world’s capitals, and that signs of weakness will be factored into foreign decisions to abide by or violate current trade agreements at the U.S.’ expense, or take other measures to gain advantage in their own, American, or third-country markets that clash with free market and free trade norms.

So here’s hoping that American Members of Congress and Senators will show some backbone, and make clear to the nation’s trade partners that they won’t permit themselves and the country at large to be hanged separately.

>Speaking of hanging separately, quite naturally, U.S. steel- and aluminum-consuming industries are concerned that their global competitiveness will be harmed if they’re forced to use more domestic metal in their products. They need to keep two considerations in mind. First, if foreign governments are permitted by Washington’s inaction to dump major American industries like aluminum and steel out of existence, consuming sectors would be next in line. 

Second, there is indeed no inherent reason to make the consuming industries pay any penalty at all. When I was at the U.S. Business and Industry Council, which represented many steel-consuming companies and industry groups, we persuaded them that the best solution would be tariff protection for them as well. The tariff complaints coming from such sectors today reveals that the Trump administration hasn’t put this possibility on the table. That’s a major missed opportunity, and the President should realize that such offers not only can build support for the steel and aluminum tariffs. They can also expand the constituency for broader America First trade policies. (New Trump statements on possible auto tariffs make clear exactly the types of steps needed, although as is usually the case, they work best when applied across-the-board.)   

>Speaking of missed opportunities, here’s another (big) one – the handling of some allied countries’ indignation about being treated as threats to America’s national security because of their steel and/or aluminum shipments. In several major cases, these complaints could have been prevented had the administration recognized that Australia, Canada, and the United Kingdom are defined by American law as part of the nation’s defense “technology and industrial base.”

I’m not necessarily a supporter of this policy, but since it exists, these countries have an entirely legitimate point regarding their possible inclusion in the metals’ tariff regime. And the Trump administration should have explained to them that they were of course being exempted. Moreover, the Defense Department should have told the rest of the administration about the legal and legislative situation. Yet Pentagon chief James Mattis’ memo to his administration colleagues outlining his department’s position on the tariffs never mentioned it.

Not that these allied countries are entirely blameless for the row. They could have raised the issue when the prospect of sweeping U.S. tariffs was first raised. But all indications are that they preferred to grandstand.

>As should now be expected, the media coverage of the tariff controversy has often veered off into economics and policy La-La Land. Two of the funniest examples I’ve seen so far (and they’re nearly identical): criticizing the announced tariffs because they only boast the potential of bringing back high-value manufacturing to the United States instead of lots of industrial jobs.

Think I’m kidding? Here’s Washington Post correspondent David J. Lynch: “If tariffs prompt companies to move production back to the United States, they would likely opt for highly automated plants that require fewer workers. Trump’s tariffs ‘would bring back 21st-century factories where we lost 20th-century factories,” [economist Gordon] Hanson said this week at the National Association for Business Economics conference in Washington.”

Here’s no less than Nobel Prize-winning economist and New York Times columnist Paul M. Krugman: “[T]he tariffs now being proposed would boost capital-intensive industries that employ relatively few workers per dollar of sales; these tariffs would, if anything, further tilt the distribution of income against labor.”

What both authors are somehow missing is how manufacturing is valuable for much more than high wage employment. It’s long been the nation’s leader in productivity growth. It generates nearly 69 percent of private sector American spending on research and development. And don’t forget its high employment and output multipliers – which mean that each dollar of manufacturing output punches far above its weight in generation production and jobs elsewhere in the economy.

That last point is particularly relevant to Krugman’s claim about labor’s low share of national incomes. The manufacturing employment multiplier tells us that adding to industry in America – including capital-intensive industry – will promote employment in related sectors like logistics, plus revitalize the retail and other service sectors of the towns and cities and counties where the new factories are built. Those jobs may not pay as well as the manufacturing jobs lost. But they’re sure better than the economic death that often results when communities lose their factories.

Our So-Called Foreign Policy: Desperately Needed Common Sense About North Korea and Asia

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alliances, Asia, Australia, China, deterrence, Hugh White, Indo-Pacific, National Security Strategy, North Korea, nuclear weapons, Our So-Called Foreign Policy, Trade, Trump

How nice it would be if the United States had, like forever, or even close, to figure out how to resolve the North Korea crisis safely and peacefully. That’s far from the case, of course, which is why I found this recent Bloomberg interview with a noted Australian strategist so bittersweet to read.

One the one hand, although he didn’t address the scary situation on the Korean peninsula created by the Pyongyang regime’s progress in building nuclear weapons that can strike the American homeland, this strategist did join me in asking the key question that American leaders have so irresponsibly ignored at least since the Cold War came to an end. On the other hand, it’s awfully late in the game, and official Washington is still in evasion mode.

The big question broached by Hugh White, a former top adviser to the Australian government and leading writer on Asian security affairs: Whether it should be a top American priority to preserve its decades-long position as East Asia’s leading power against a steadily intensifying challenge from China.

For all its alleged and even sometime stated determination to disrupt the central assumptions underlying U.S. foreign policy since not only the Cold War but even the end of World War II, the Trump administration has answered this question with an emphatic “Yes.” According to its National Security Strategy document, released last December, the Asia-Pacific region (which it now calls the “Indo-Pacific,” in order to emphasize India’s importance in achieving U.S. aims:

“The region, which stretches from the west coast of India to the western shores of the United States, represents the most populous and economically dynamic part of the world. The U.S. interest in a free and open Indo-Pacific extends back to the earliest days of our republic.” And for good measure, it discusses American policy in this area before it turns to Europe.

The document also explicitly states that the main challenge to this freedom and openness so long prized by the United States comes from Beijing. China is accused of “using economic inducements and penalties, influence operations, and implied military threats to persuade other states to heed its political and security agenda” and of mounting “a rapid military modernization campaign designed to limit U.S. access to the region and provide China a freer hand there.”

And the President himself has insisted that America’s alliance with South Korea – and the need to protect it from its northern neighbor despite the growing nuclear threat to the United States – “is more important than ever to peace and security on the Korean Peninsula and across the Indo-Pacific region.”

As I’ve repeatedly written, I completely disagree – especially given not only the quantum leap in the North Korean nuclear threat, but China’s impressively growing nuclear capabilities as well (which of course mean that the U.S.’ determination to keep the South China Sea free of Chinese control has become much more dangerous, too). So it is more than high time for American leaders to fall out of love with diplomatic boilerplate and start asking themselves what possible benefits – whether in the national security or economic fields – can possibly compete with the risk of nuclear warheads landing on American soil.

Because White is a big name in the field, it’s encouraging to see him making a point like this – which directly clashes with the conventional wisdom that the United States would face disaster if China gained the ability to set the framework for doing business in the Indo-Pacific, or whatever you want to call it. If China prevailed, White told a journalist this past week:

“Of course America will remain a major economic player globally, and in Asia, for as far ahead as we can see….Its position will be like that of the Europeans, who trade and invest massively in Asia without any real strategic presence there.

“Of course, that will mean that America will have to engage economically within the terms set by a regional strategic order led by others — presumably by China. That won’t be ideal for America, but it would be better than the alternative, if the alternative is to confront China in a bitter all-out contest for regional leadership in which China enjoys many asymmetric advantages. A contest like that would most likely be much more damaging to America economically than accepting the rules in Asia as set by China.”:

For the record, I can’t imagine that even a U.S. military withdrawal from East Asia would result in China “writing the economic rules” for the simple reason that the United States would remain such a supremely important market for the region’s economies – which remain heavily dependent on racking up export sales and trade surpluses for their growth. Indeed, given the massive deficits America keeps amassing with these same countries, and the towering trade barriers maintained by allies like Japan and South Korea, it’s hard to understand the argument that the U.S. military presence has created any net benefits for the American economy at all during any period.

But White’s point about possible economic losses paling before potential security disasters is of paramount importance – precisely because the threats now posed by American adversaries are nuclear in nature.  And this development makes the case for an American military pullback even more compelling. That’s why we should all hope like heck that someone with some influence on the Trump administration reads these statements by White. The stakes of getting U.S. Asia policy right are rapidly approaching the life and death zone for millions of Americans.. 

Our So-Called Foreign Policy: Is Trump Isolating the U.S. in Asia? Apparently No One’s Told the Asians

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alliances, Asia, Australia, Barack Obama, China, India, Japan, Our So-Called Foreign Policy, Quadrilateral Security Dialogue, Susan Rice, TPP, Trade, Trans-Pacific Partnership, Trump

Ever since President Trump kept his campaign promise and nixed U.S. participation in the Trans-Pacific Partnership (TPP) trade agreement, America’s chattering classes have been charging that his decision has opened the door wide to China to expand its influence in East Asia at America’s expense, and shunted the United States to the sidelines of the regional and international economy. Mr. Trump’s just completed visit to Asia has revived all these accusations – and not so coincidentally, afforded yet another opportunity to demonstrate just how ludicrous they are.

Most embarrassingly, if the president’s approach to “this vital region,” in the words of Barack Obama’s national security adviser, Susan E. Rice, even has much potential to leave “the United States more isolated and in retreat, handing leadership of the newly christened “Indo-Pacific” to China on a silver platter,” no one seems to have told Asia’s leading powers. For they have been hard at work helping Washington develop a new grouping that’s obviously aimed at frustrating Beijing’s ambitions.

So even as Rice and the rest of the foreign policy establishment were bemoaning the United States’ supposedly declining influence in the first year of the Trump presidency, representatives of Japan, Australia, and India were meeting with American counterparts in the Philippines, site of the latest series of regional summits, to breathe life into longstanding plans to foster greater cooperation among their four democracies.

And if you don’t think that the effort is amply capable of worrying the Chinese, don’t take my word for it. Take China’s. Just as the meeting was concluding, Beijing was out with a statement warning that no joint ventures among regional countries should target or damage a “third party’s interest.”

Just as interesting: Plans for such a “Quadrilateral Security Dialogue” were first advanced by Japan in 2007. But Australia and India weren’t especially interested – the former for fear of antagonizing the Chinese. Apparently nothing that Washington did during the ensuing Obama years changed their minds. Now, however, they’re at the table.

At least two overlapping developments appear to be responsible. First and most unmistakably, America’s pushback against China under Obama on both the national security and economic fronts was so feeble and ineffective that the PRC’s power grew tremendously. So the Australians and Indians no doubt now view the need to contain China more seriously. Second, it’s entirely possible that President Trump’s indications that the United States will no longer assume the bulk of the burden and risk of maintaining Asian security while getting shafted continuously by Asian trade policies has convinced those two countries in particular that they’d better get into a proactive mode.

And maybe most interesting of all, the Trump decision to exit TPP (whose signatories included Australia and Japan) apparently did nothing to discourage Canberra, New Delhi, or Tokyo from teaming up with the United States.

The main reason could not be more obvious (except to the American establishment): Keeping America engaged however possible is the only alternative conceivable for the time being to greater Chinese control. And herein lies a crucial lesson that Mr. Trump may have grasped but that his establishment critics have unmistakably ignored: The United States is not a superpower because of what it does on the world stage. It’s a superpower because of what it is.

That is, the source of American strength is not how many alliances it joins or trade treaties it signs or international regimes it creates – or even how many conflicts it enters. Instead, the source is strength itself – in all of its interlocking forms: military, economic, and technological.

So as long as the United States maintains this strength – which of course can be and has been greatly undercut by the kind of Asian mercantilism winked at by American presidents for decades but protested loudly by President Trump – it will remain a player wherever it wishes. But nothing is likelier to limit America’s global reach – and threaten its interests – than the apparent establishment belief that international activism per se can somehow substitute for power.

Not that I’m a supporter of what may be an emerging American strategy here. For as I’ve written, the nation’s essential interests in East Asia are economic – creating satisfactory terms of trade and commerce. And as long as the United States serves as an irreplaceable final market for Asia’s export-heavy economies (that is, as long as it remains soundly and sustainably wealthy), it will be able to lever that power to achieve its goals whoever runs Asia politically.

And as I’ve also written, East Asia’s major powers (e.g., Australia, Japan, and India) should be strong enough, especially together, to resist China’s designs on their own. Further, to give them an extra edge, the United States can always sell them advanced weapons, and if need be drop its insistence that they forswear (in the case of Australia, Japan, and South Korea) nuclear weapons.

But if Mr. Trump is going to double down on the United States’ traditional strategy of Asia’s stabilizer and defender, his apparent understanding – expressed most often during the campaign – that America’s economic ties with the region will need to change dramatically provides the only hope of enduring success.

(What’s Left of) Our Economy: New Body Blows for Three Major China Currency and Economy Myths

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Australia, Canada, China, Congress, currency, currency manipulation, devaluation, dollar, export-led growth, Federal Reserve, infrastructure, Jack Lew, Janet Yellen, New Zealand, purchasing power parity, The New York Times, The Wall Street Journal, TPP, Trade, Trans-Pacific Partnership, Treasury Department, {What's Left of) Our Economy

For all the intensive and wide-ranging media coverage of China’s yuan devaluation just over a week ago, three crucial aspects with big implications for Sino-American trade relations and for President Obama’s Trans-Pacific Partnership (TPP) have been neglected.

First, compelling new evidence has emerged that China’s currency move does indeed represent manipulation to achieve advantages in trade – a conclusion that the U.S. Treasury Department has long balked at reaching in its Congressionally mandated reports on foreign exchange rate policies. Of course, Treasury has for years called the yuan undervalued. But it’s excused Beijing of the currency manipulation charge by (most recently) citing the yuan’s “real progress” in appreciating in real terms versus the dollar and China’s reduced intervention in foreign exchange markets.

Treasury, however, will be hard pressed to explain away The New York Times‘ disclosure earlier this week that:

“In a little-noted [July] advisory to government agencies, [China’s] cabinet said it was essential to fix the export problem, and the currency had to be part of the solution….Soon after, the Communist Party leaders issued a statement also urging action on exports. It all set the stage for the currency devaluation last week that resulted in the biggest drop in the renminbi since 1994. The cabinet’s call to action: The country needed to give the currency more flexibility and to reinvigorate exports. If officials did not act, China risked deeper turmoil at home, threatening the stability of the government.”

In other words, the entire top Chinese leadership – not just the Ministry of Commerce, which has explicitly championed a cheap yuan as an export booster frequently in the past – is now on record as having supported a deliberately weakened yuan in order to improve China’s global price competitiveness. What else do American authorities need to make the manipulation accusation officially?

More important, because a Treasury manipulation finding does not, contrary to the conventional wisdom, require any policy follow up, how can supporters of the TPP now justify the agreement’s failure to incorporate effective curbs on such exchange-rate protectionism? During Congress’ recent debate, lawmakers who opposed such measures, along with the administration, insisted that TPP currency sanctions could backfire against the United States because they could be legitimately used to counter any currency effects of the easy money policies of America’s Federal Reserve.  So did Fed Chair Janet Yellen herself, along with Treasury Secretary Jack Lew.

Now, however, it couldn’t be clearer that trade-related currency devaluations having nothing to do with monetary policy are a clear and present danger to the U.S. economy. It’s true, as I’ve noted, that even strong currency language in the Pacific Rim trade deal would not automatically amount to solving the problem, since many other first round and follow-on TPP countries have powerful incentives to retain a currency manipulation arrow in their policy quiver. But at the very least, it’s no longer possible to argue that TPP currency provisions inevitably create a dangerous downside for the United States. And however unlikely, an upside can’t be completely ruled out. The case for unilateral American responses, which the president also adamantly opposes, just got a lot stronger, too. 

Second, new data challenges the claims of administration and other opponents of any currency curbs that the yuan undervaluation problem is steadily solving itself thanks to China’s voluntary actions. Yes, the International Monetary Fund in April declared that the yuan is now appropriately valued. But exactly the opposite conclusion looks more accurate upon bringing into the picture one widely accepted tool for dealing with analytical complications arising from the often dramatically differing price levels among economies – especially those at different stages of economic development.

Thus according to Purchasing Power Parity methodology, the yuan is still more than 40 percent undervalued versus the dollar. Not far behind is the Japan’s yen. And the currencies of three other first-round TPP countries – Australia, Canada, and New Zealand – also supposedly belong in this category.

Finally, even more new data debunks another major argument against strong currency manipulation actions – the contention that China is shifting dramatically from an export-led growth model to a demand-led blueprint. Optimists on this score typically cite figures showing much faster growth in investment in China than in exports. But yesterday, an important Wall Street Journal piece featured an insight regarding the makeup of China’s economy and growth that decision-makers and analysts urgently need to understand: Properly measuring the importance of exports to China requires counting much more than the country’s total overseas sales or even its trade and current account surpluses. It requires counting all the infrastructure spending on all of the roads, bridges, ports, airports, and other projects that are needed to support exports, and that have been one of China’s major competitive strengths.

Figures reported by Journal correspondent Greg Ip show that, when the export sector is properly defined, its contribution to China’s growth is down since 2010, but “still remarkable amid slower growth in its trading partners and a higher yuan.” In the process, he supported a point that I’ve been making for several years. On top of this finding, data I’ve previously spotlighted shows that, given its overall growth slowdown and expanding trade surpluses, China has been getting even more export-oriented lately.

A China that’s unmistakably manipulating its currency and increasingly export-heavy, and a yuan whose value remains massively distorted by Beijing don’t of course guarantee that Congress will start expressing big second thoughts about endorsing President Obama’s TPP and China trade status quos. But they do mean that lawmakers will be even shorter than usual of reasons not to.      

(What’s Left of) Our Economy: After the Fact, a Big TPP Rationale is Shredded

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Asia-Pacific, Australia, China, CNN, Congress, credibility, fast track, global leadership, Obama, Pew Research Center, TPA, TPP, Trade, Trade Deficits, Trade Promotion Authority, Trans-Pacific Partnership, {What's Left of) Our Economy

Now that Washington’s big fight over the fast track bill is over, the national media will surely return to its norm of almost completely ignoring trade policy until a new trade deal like a Trans-Pacific Partnership (TPP) comes before Congress. The only likely exceptions will be the extent that trade comes up in the intensifying presidential campaign.

This neglect is even more of a shame than usual, and not just because America’s relentlessly growing trade deficits keep slowing its already slow-enough semblance of a recovery. It’s a shame because the main justifications for the TPP keeping falling apart – most recently with the release of a new survey of international opinion from the Pew Research Center.

As will be recalled by those whose memories exceed the short term, a major set of arguments for concluding the TPP pretty much as it stands sprung from geopolitics. One especially prominent claim was that the agreement was vital for maintaining and strengthening America’s preeminence in the fast-growing Asia-Pacific region.

No one should be surprised that President Obama himself insists that the fast track legislation that will ease TPP’s journey through Congress “will reinforce America’s leadership role in the world -– in Asia, and in Europe, and beyond.” (The wisdom of a national leader suggesting that his country’s position needs strengthening is another subject entirely.) Somewhat more surprising is how completely the national chattering class accepted this view. Thus even someone as remote from trade (and foreign policy) issues as senior CNN politics reporter Stephen Collinson felt comfortable presenting as a fact, “Had the fast-track provision crashed,” the TPP “would have died, likely taking U.S. credibility in Asia and Obama’s pivot to the region with it.”

As I have repeatedly pointed out, such assertions are (take your pick) moronic or deceptive on their face. Examining America’s role as the leading final consumption market for export-dependent Asia, and its role as the only conceivable source of protection against a rising China, makes its centrality beyond legitimate dispute. But since doubters will always remain – and especially self-interested ones – it’s great that Pew has just made clear that the populations of the Asia-Pacific region itself clearly understand America’s importance economically.

Pew asked publics in several first-round TPP countries (and many other countries) to “name the world’s leading economic power” and gave them the choice of the United States, China, the European Union, Japan, or “Other/None/Don’t Know.” Although there was some country-by-country variation, the Asia-Pacific region was the one that most often awarded the United States the top spot – with solid majorities.

Specifically, respondents in Japan, Malaysia, and Vietnam considered the United States to be Number One by majorities of 59 percent, 53 percent, and 50 percent, respectively. The share of their populations that believed China had gained the lead? Twenty-three, 33, and 14 percent, respectively. Only one TPP first-round country placed China atop the world economy – Australia, by a whopping 57 percent to 31 percent over the United States. These results indicate that Australians know that their economy has relied heavily on exporting raw materials to China – but also that Australians need to learn about where much of China’s own growth comes from.

Indeed, the Chinese are apparently well-positioned to instruct the Aussies. They named the United States as the world’s leading economy over their country by 44 percent to 34 percent.

In fairness, another Pew survey reveals some evidence of America’s perceived top dog status slipping between 2014 and 2015. At the same time, this decline could have resulted from several months of Mr. Obama and other American leaders warning about China’s rise and thereby implicitly poor-mouthing their own country.

In fact, the only main TPP-related question surrounding the Pew results concerns timing: Why did the Center wait to release them four days after fast track’s final passage by the House?

Following Up: The China Aid Bank Debate Gets Dumb and Dumberer

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AIIB, allies, Asian Infrastructure Investment Bank, Australia, China, containment, Financial Crisis, Following Up, Global Imbalances, IMF, Japan, pivot, quotas, TPP, Trade, Trans-Pacific Partnership, World Trade Organization

It’s been a while since any global development has generated so much hypocrisy, baloney, and hypocritical baloney as China’s new Asia infrastructure bank and America’s response. (OK – maybe it’s only been a couple of days.) Still, the hubbub about something whose name is dominated by a MEGO word if ever there was one (“infrastructure”) is worth examining again. For it once again reminds that U.S. leaders, as well as most of our leading commentators, really aren’t smarter than a fifth grader when it comes to foreign policy, international relations, and the Pacific Rim.

Last week, I focused on how the rush of American allies to join the Asian Infrastructure Investment Bank (AIIB) exposed the folly of President Obama’s dream of a Pacific Rim trade zone that would be governed by U.S.-style commercial rules. Since then, however, it’s become embarrassingly clear that the same ridicule is deserved by the president’s belief that his Trans-Pacific Partnership (TPP) trade deal will balance rising Chinese power in the region. For Japan is now apparently ready to join the long list of TPP countries (including Australia, one of the planned pact’s other major economies) that is signing up with the Chinese. Whether Mr. Obama really does believe in “leading from behind” or not, it’s getting painfully obvious that he has precious few followers.

In addition, some recent commentary shows that it’s imperative to dispel two other myths surrounding the AIIB and hanging over the future of the Asia Pacific region and the rest of the globe.

The first has to do with the nature of President Obama’s China strategy. Critics of his administration’s opposition to the AIIB’s creation charge him with pursuing a crude, outdated strategy of containing China’s rise the way many of his predecessors sought to contain the former Soviet Union. Nothing could be further from the truth. There’s no question that the president wants the United States to remain the Asia-Pacific region’s preeminent power, that he sees China as America’s main challenger, and that he’s even announced that America’s grand global strategy will “pivot” from its preoccupation with the Middle East to give economically dynamic Asia its proper due. There’s also no question that, even before the last year’s flareup of large-scale Middle East violence, it was apparent that the Obama pivot was nearly all talk and little military redeployment.

But Mr. Obama’s China/Asia strategy is not simply half-hearted. It is completely incoherent. For despite his stated China concerns, the president has steadfastly continued his predecessors’ policies of looking the other way while Beijing’s predatory trade policies led to huge trade surpluses with the United States (which have undoubtedly helped China finance its huge, ongoing military buildup), and while U.S. technology and manufacturing companies transferred much of their most advanced knowhow to China (which has undoubtedly increased the sophistication of China’s weapons and helped teach the Chinese how to hack effectively).

In other words, Mr. Obama has kept feeding the beast he has warned against. As a result, the only legitimate beef American allies have with the administration’s current opposition to the AIIB is that it has been so sudden, and so completely out of character.

The second myth entails the claim that the United States (and especially the hawks in its Congress) are reaping what they have sown when they decided to block a decision by other International Monetary Fund members to give China more voting power in the institution. What the critics forget is that the world already has experience bringing China into a front-line international organization before making sure that Bejiing would act as “a responsible stakeholder” of the international system (as a former senior Bush administration policymaker once put it). And it’s backfired disastrously.

Since joining the World Trade Organization, China has profited handsomely from the benefits of membership (which include substantial immunity from unilateral American counters to Chinese protectionism). But it shouldered few of the obligations. The immense, China-centric global trade and investment imbalances that built up subsequently were crucial in setting the stage for the financial crisis. Those who hope that dealing with Western powers in the AIIB will lead to more constructive Chinese behavior need to explain why China will not remain as parasitic as ever, and even backslide – as it has on trade and economic liberalization during its WTO years.

More broadly, the free-riding U.S. allies who are grabbing for Chinese money while still enjoying American military protection are forgetting a vitally important (for them) truth. The United States is geopolitically and economically self-sufficient enough now – and potentially much more so – to be able to get by quite nicely a world with a much more influential China. Few of them, particularly in China’s neighborhood, can say the same.

(What’s Left of) Our Economy: China Aid Bank Success Reveals Obama’s TPP Naivete

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AIIB, allies, Asian Infrastructure Investment Bank, Australia, China, IMF, Korea, TPP, Trade, Trans-Pacific Partnership, transparency, United Kingdom, World Bank, {What's Left of) Our Economy

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.