international analysis and commentary

Mr. Obama goes to China

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President Obama is in Asia for his first visit to the region as President, and – particularly – to China.  He brings with him the fullest agenda a US leader has brought to Asia in a long time.  He has sought to renew and invigorate the US-Japan alliance in the face of new leadership contemplating a future driven more by Asia’s economic growth than the trans-Pacific market.  With regard to the Asia Pacific Economic Cooperation Forum (APEC), his explicit objective is to leverage the rising prosperity of this important caucus to make progress on the global economic goals of the G20 (financial reform), World Trade Organization (completing the Doha Round), and the Copenhagen Conference of the Parties to the UN Framework Convention on Climate Change.  But even more important – to the US – is the implicit objective: reengaging the United States in Asia after a decade of distraction.  Rhetorical assurances that the US remains an Asia Pacific power will need to be backed by concrete evidence that Washington will continue to make economic policy – including policy around the dollar – which reflects not just US interests but also larger responsibilities as the anchor of the international system. 

But APEC was just the prelude to the hard part for President Obama: the visit to China, with three days of public diplomacy, state banqueting, and heavy-duty private meetings with China’s leadership (as well as a little sight-seeing).  His agenda on China has essentially three elements.  First, he must demonstrate – to Chinese leaders and common people, and to the larger world watching from abroad – that the United States visits China as the international system’s leader, not as an apologetic former economic great power.  Second, he must make progress with China on issues of shared global concern.  And third, he must make progress on more narrow American interests, without which his compatriots in the legislature will refuse to entertain his policy agenda at home. 

Job One: Changing Expectation about US Decline
President Obama has ample speaking talents to declare the enduring importance of the United States in Asia, and foreign policy and business professionals eagerly awaited his remarks like theatergoers.  But demonstrating US leadership will require concrete outcomes, not just ethereal talk.  He will be coordinating with Beijing on geopolitical crises and near-crises: North Korea, Iran, Afghanistan-Pakistan, and nuclear proliferation generally.  These “poli-mil” concerns, as they are called in diplomacy, provide excellent opportunities to demonstrate real outcomes. The economic side is more difficult. Obama must prove that the US has an Asia policy; which means he must prove we have an Asia trade policy.  He must convince China’s leaders that we will prioritize ratifying already negotiated trade agreements with Asian nations – foremost Korea – and get back in the game of pursuing additional trade liberalization with ASEAN and others in the region.  To fail to demonstrate such intention is to cede Asian trade leadership to China, which is engaged in trade-opening talks with ASEAN, Japan, Korea and even Taiwan. 

To the outside world, the President must demonstrate that the US has leverage in its dealings with China, and that the cards are in no way all held by Beijing.  Lately it would seem that China is the economic giant, and the US a has-been.  But China relies on foreign demand for its goods, foreign resources for its buildings, foreign commercial norms for its behavior, foreign technology for its innovation (still!), and foreign navies to keep its sea lanes open. China represents just 4% of world consumption, versus 29% each for Europe and the United States. Obama needs to confidently and competently put the bilateral relationship back into perspective.  The bottom line is that he must convince China that the US is a competitive, rising power, not a declining one.  Only in that case will Beijing believe we mean it when we say China’s rise is not America’s loss.  And of course, the only way to make that vision of America believable is to actually enact the bundle of reforms under debate in DC: healthcare, finance, climate and more. In other words, Obama’s China policy is won or lost at home, not in Beijing, but he must convince China as well as others that he can still repair those foundations of competitiveness at home.
 
Cooperating on Critical Global Issues
Beyond the strategic relationship, President Obama must deliver progress on mutual global interests on this trip.  Climate policy & clean energy are the most important of these.  The trip could not produce pledges toward binding commitments for the two on carbon, as some had hoped, but it does demonstrate that the US and China plan to lead on this issue, and not use one another as an excuse for inaction indefinitely.  Barack Obama does not need to plead for China’s participation: fixing China’s GDP growth strategy will naturally lower carbon intensity.  The President will position the US to take some credit for what must happen anyway. 

Climate and clean energy are part of the larger agenda for “rebalancing” China’s growth.  On this larger agenda, the President aims to show a sophisticated understanding of what needs to change in the nature of China’s growth, a task that had not risen above the Treasury Department under President Bush.  He must demonstrate an awareness that China will not shift to consumption-led growth as a favor to the US, for which it must be compensated, but because it has no choice: China’s GDP growth will decline rapidly otherwise. 

Already the Obama Administration has moved the issue of China’s currency out of the bilateral column and into the multilateral sphere. And for good reason: China’s currency is moving down against its other trading partners while it is pegged to the dollar.  Achieving some currency flexibility from China is not just an achievement for the US, it is something for which the President will deserve credit from the rest of Asia and Europe. Fortuitously, China is now fearful of having to revalue the currency at the same time it raises interest rates to tame inflation next year, and thus is nearing a point of necessity to do just what the President needs to see happen. He will play this card very discreetly, and let others claim credit for him later.

Narrow American Interests
Finally, Obama must pursue a number of narrow US aims vis-à-vis China.  First, he must defend the objectivity of recent US trade complaints against China, and in so doing forestall a squall of petty, baldly retaliatory cases launched by China. 

Second, he must secure a commitment to market access in China for our firms, including to government procurement. 

Third, he must show determination to work with China to maintain two-way cross border investment openness, so that we do not smother investment under a blanket of contrived national security concerns. 

Fourth, he must highlight the changing alignment of interest on intellectual property rights protection, as China increasingly sees itself as a potential innovator instead of a serial imitator. 

And finally, playing defense, President Obama must deal openly with Chinese concerns about the future value of the US dollar and the stability of the Treasury bill market – a legitimate area of Chinese concern.  To achieve that, he must describe a policy path forward for the US Government that is fiscally sound.  Fancy accounting will not do the trick.  Obama must inspire confidence among China’s leaders in the fact that he has the vision, intention, and capacity to chart a course forward consistent with maintaining the traditional economic role of the United States.