Tues, Sep 30, 2008
WASHINGTON'S TIES WITH ASIA
Don't write off the US yet
By Chan Heng Chee
TRILLIONS of dollars in wealth have been wiped out in American markets. President George W. Bush said last week that the United States appears to be on the cusp of 'a long and hard recession'. We are seeing a dramatic alteration in the financial architecture of Wall Street.
We also know that problems on Wall Street may soon visit Main Street. Today it is housing mortgages; tomorrow it could be student loans, credit card debt, etc. We should not assume the worst is over.
In East Asia, we have never seen the US so wounded. Rightly or wrongly, it reinforces an impression of America as a distracted power: Struggling with two wars; a single-minded focus on security; and now, this preoccupation, understandably, with the financial crisis. We worry that the US will have little time for Asia, in particular, South-east Asia.
Even before the crisis, there was already talk of the US losing its position of pre-eminence on the world stage. We are witnessing the emergence of a multipolar world. On the military side, there is no question that the US will remain unchallenged for many years to come. But in other aspects, particularly economics and political influence, America's once unassailable lead has been chipped away.
The International Monetary Fund (IMF) already sees China as the world's second-largest economy in purchasing power parity (PPP) terms, and India a respectable fifth. Goldman Sachs has predicted that China will overtake the US within 20 years or even sooner, with India not far behind. Four of the top five countries with the highest national reserves come from Asia (China, Japan, India and South Korea). There has been a massive transfer of wealth from the US to East Asia and oil-producing states. The 'Washington Consensus' is no longer so persuasive.
So where does the US stand in the strategic calculus of Asia and South-east Asia? My answer would be: still a power and partner of great importance - and for some, the greatest importance.
Anyone who predicts the decline of the US does so prematurely. Remember the 1997 Asian financial crisis? It took us five years to come out of it, some countries sooner than that. We thought at that time that it was the most profound crisis since World War II. The US is distinguished by its ability to bounce back. This is a resilient country. It will run smack into a catastrophe and work itself out of the disaster. The US will come out of this crisis. The question is how long it will take.
East Asians and South-east Asians see America as a Pacific power with a long and deep presence in the region. The US is an integral part of Asia's development. It fought three wars in Asia: against imperial Japan in World War II, and communists in Korea and in Vietnam. American technology, capital and markets have helped the rapid development of Asian economies.
US total investments in Asean countries is about US$100 billion (S$140 billion), which exceeds its investments in China, Hong Kong and Taiwan combined. The US is Asean's second largest trading partner and largest investor. Two-way trade amounts to US$170 billion.
There is an ongoing debate about whether Asia and other emerging markets can be insulated from America's financial troubles, with some seeing a 'decoupling' effect. But the fact of the matter is that Asia's economic success has always had a strong correlation with America's. Both China and India's economies have shown signs of slowing following the US slowdown.
The fact remains that the US is the market of final demand. No one has the capacity to replace the US. Take Singapore as an example. We are a country with diverse international linkages. We trade with many countries and have free-trade agreements (FTAs) with many. We started 2008 with a growth projection of 5-7 per cent. As the troubles in the financial markets deepened, we revised it to 4-6 per cent. Our latest estimates is that it might even dip below 4 per cent. So when the US catches the proverbial cold, Asia also sneezes. We are all linked because of globalisation.
What can the US do to restore the faith of Asians in its commitment to the region? I would list five steps:
Maintain leadership in world affairs and in the international economic system. The Pew Global Attitudes Project has highlighted that anti-Americanism has been pervasive and there is growing distrust of American leadership. Yet, no matter what the Pew surveys say, deep down, Asian countries are comfortable with American leadership. They hope for a change in style but the Bush administration really has many friends in Asia. Even the administration's critics have to admit that the administration's Asia policy has been good.
In order to maintain this leadership role, the US must improve its own game at home. Whether in education, innovation or entrepreneurship, the US remains an inspiration for the rest of the world. Thoughtful Americans have said the US needs to improve its education and worker retraining to be competitive. You have been a champion of globalisation and should not be feeling that you are a victim of globalisation. The US needs to keep the forces of protectionism at bay.
The US will also need to tend to its bilateral and plurilateral relationships in the region. You need to engage and pay attention to your friends and allies in the region. Bilateral relationships and security alliances are important but participation in regional processes at the highest levels is also necessary.
The US should understand that Asia is no longer just a follower, but an able and willing partner: Not to be lectured to, but cooperated with. All we ask in return is that you keep your markets for our goods and investments open and engage Asia as you have Europe.
One very welcome step that the US has taken in this regard is full participation in the Trans-Pacific Partnership. The US Trade Representative Susan Schwab announced last week that the US would be signing on to the comprehensive Trans-Pacific Strategic Economic Partnership Agreement initiative, which is an FTA with Singapore, Brunei, New Zealand and Chile. Coming at this time, it is a tremendous signal.
In the last 50 years, America has been the exemplar of free markets and enterprise. Circumstances might dictate that you now need to get your house in order. But you can also deal with Asean and Asia. As the saying goes, America can walk and chew gum at the same time.
The writer is Singapore's Ambassador to Washington. She was speaking at a Center for Strategic and International Studies conference on The United States And South-east Asia: Towards A Strategy For Enhanced Engagement last week.
Anyone who predicts the decline of the US does so prematurely...
The US is distinguished by its ability to bounce back.
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