China's End Run Around the U.S.

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Chinese companies aren't complaining. After the Southeast Asian trade bloc decided to shed agricultural tariffs and ease manufacturing and property investment rules for Chinese companies, for example, Nanning-based Guangxi State Farms Group signed deals worth more than $620 million in the region. The U.S. has been talking about joining the same trade group since 2002. The delay puts American companies at a disadvantage, says Karan Bhatia, a former U.S. trade negotiator who now is General Electric's (GE) vice-president and senior counsel for international law.

CHANGING PERCEPTIONS

Most manufactured goods made in Southeast Asia will now enter China duty-free. But goods shipped from the U.S. will still face average duties of 9%. "That is a meaningful differential," Bhatia says. Much like Nafta, which prompted many global companies to produce in Mexico in order to export duty-free to America, many U.S. manufacturers will have to go to Southeast Asia to have better access to China. That would be bad for U.S. exports.

Obama is aiming to change the perception of American indifference. Trade issues will be on the agenda in Seoul and Tokyo as well as in Beijing, and Obama's team will include top economic officials Treasury Secretary Timothy Geithner, Trade Representative Ron Kirk, and Commerce Secretary Gary Locke, as well as Energy Secretary Steven Chu.

The message, says White House foreign policy spokesman Ben Rhodes, is that "the President is very committed to being competitive in this region." The Administration also knows that American executives are getting nervous. "What the companies are expressing is a strong interest in the U.S. being engaged in [Asia]," says the senior White House official. "That is our position, not to sit on the sidelines."

Rather than bringing concrete proposals, though, Obama is likely to talk in generalities, says Ernest Bower, Southeast Asia director at Washington's Center for Strategic & International Studies. "We are coming without any goodies in our basket," he adds.

The change in thinking in Tokyo and Seoul illustrates Washington's problem. In Japan, new Prime Minister Yukio Hatoyama aims to forge a trade group with China and South Korea. Rising exports to China have helped Japan's economy survive a plunge in trade with America. "There's a consensus among policymakers that Japan can't only rely on relations with the U.S., because Washington's global influence has diminished," says Keio University economist Masaru Kaneko.

It's a similar story with Korea: In 2002 the U.S. took 20% of Korean exports. In the first 10 months of 2009 the American share dropped to 10.5%, while China accounted for nearly 24%. No breakthroughs in U.S. trade talks with Korea are expected. "I'm sure we will hear lip service about moving the Free Trade Agreement forward," says Lee Si Wook, a trade expert at the Korea Development Institute, a government think tank. "But actions will be lacking."

With Moon Ihlwan in Seoul, Frederik Balfour in Hong Kong, Kenji Hall in Tokyo, and Jane Sasseen and Steve LeVine in Washington

Roberts is BusinessWeek's Asia News Editor and China bureau chief. Engardio is an international senior writer for BusinessWeek.

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