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Obama Eyes $108 Billion Annual Asia Prize Vying With China Trade

December 27, 2012

Obama Eyes $108 Billion Annual Asia Prize Vying With China Trade

A woman walks past a mural by by Burmese artist Arker Kyaw welcoming U.S. President Barack Obama to Myanmar in Yangon, Myanmar, on Nov. 18, 2012. Photographer: Dario Pignatelli/Bloomberg

More than a century and a half after Millard Fillmore dispatched an emissary to Asia to transform commerce across the Pacific, a U.S. president again sees an historic opportunity to strengthen America’s role in the region.

Barack Obama sent his secretary of state, Hillary Clinton, to Asia for a record 86 days in his first term, including -- for the first time -- stops in all 10 members of the Association of Southeast Asian Nations. Obama himself became the first sitting commander-in-chief to visit Myanmar, a nation the International Monetary Fund says may be the next economic frontier in Asia.

As in the wake of U.S. Commodore Matthew Perry’s 1850s voyages to Japan, American companies are seeking greater opportunities, with General Electric Co. (GE:US) and Ford Motor Co. backing Obama’s plan for an 11-country Pacific trade deal that could bring in $108 billion a year. Instead of Perry’s gunships, what may propel Asian nations toward Obama’s vision is concern from Japan to Vietnam that China’s ascendance may pose a threat.

“The U.S. is serious about its commitment to Asia and sees Asia as the future in terms of economic growth in the 21st century,” said Simon Kahn, chairman of the American Chamber of Commerce in Singapore and Google Inc. (GOOG:US)’s chief Asia-Pacific marketing officer. “That has a very real impact in discussions with business counterparts in terms of thinking about long-term investments.”

Personal History

The connection is part personal for Obama, 51, who lived in Jakarta from 1967 to 1971. In his second year in office, the president returned to Indonesia’s capital, addressing an audience of about 6,000 at the University of Indonesia highlighting prospects for deeper economic ties, “because a rising middle class here means new markets for our goods, just as America is a market for yours.”

Less than two years after Obama’s visit, Boeing Co. (BA:US) confirmed a record 230-plane order valued at $22.4 billion at list prices from PT Lion Mentari Airlines, a budget carrier in Indonesia, the world’s fourth most-populous nation.

“If you look at global growth, obviously this region is where the action is,” Bill Ford, executive chairman of the second-biggest U.S. automaker, said in a response to questions while on a visit to Thailand, where he toured a $450 million plant that the Dearborn, Michigan-based company opened this year. The administration’s support for U.S. manufacturers has helped Ford expand its exports of the Explorer sport-utility vehicle to more than 90 nations, he said.

Growth Prospects

The IMF forecasts developing countries in Asia to grow 7.7 percent in 2017, almost triple the pace of advanced economies, increasing demand for everything from toothpaste and automobiles to missile systems as nations protect their newfound wealth.

Asian stocks also demonstrate the region’s lure, with the MSCI Asia Pacific Excluding Japan Index climbing 100 percent since Obama took office, a period when the MSCI World Index rose 56 percent. Price-to-earnings ratios present “no obstacle” to more gains, according to Nomura Holdings Inc. equity strategists led by Michael Kurtz in Hong Kong. Kurtz’s team targeted 530 for the MSCI Asia Pacific Excluding Japan Index in 2013 in a note dated Dec. 3, marking a 14 percent gain from current levels.

Obama’s trade strategy is built around the Trans-Pacific Partnership. Negotiators from 11 countries -- Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam -- will meet in Singapore in early March for the 16th round of talks aimed at bringing down tariffs, strengthening patent protection and allowing greater access to government contracts.

Stepping Up

“There are significant risks to the U.S. of being marginalized in Asia if they do not step up to the trade plate,” said Deborah K. Elms, head of the Temasek Foundation Centre for Trade & Negotiations in Singapore. “They have to be able to push the TPP past the finish line.”

Japan, South Korea, Thailand and the Philippines are all considering joining the TPP talks -- a move that, along with an entry by Indonesia and 11 mostly smaller nations, could bring the U.S. annual income of $108 billion a year, according to Asia-Pacific Trade, a website whose contributors include Peter A. Petri, a Brandeis University professor.

The U.S. aims to complete the TPP talks by the end of next year and have it take effect by 2015, Michael Froman, deputy national security adviser for international economic affairs, said in an interview.

TPP ‘Magnet’

“It is intended to serve as a magnet,” Froman said, referring to the TPP. “It’s an open platform so over time other countries can join.”

Froman, who served at the Treasury Department under Robert Rubin during the Clinton administration, said that “what the rebalancing strategy is about is the recognition of the critical importance of the Asia-Pacific region to the United States” in security and economic terms.

National security matters dominated U.S. ties with Asia since Japanese carrier planes bombed Pearl Harbor in 1941, with World War II leaving a legacy of American bases in Japan and South Korea, and routine naval patrols of Asia’s waterways. In the 1960s and 1970s, four U.S. presidents sent half a million soldiers to counter the spread of Communism in Southeast Asia.

After a deepening in cross-Pacific economic ties in the 1980s and early 1990s, the U.S. under Bill Clinton and Rubin spearheaded financial bailouts during the Asian financial crisis. The ensuing Bush administration shifted focus to the Middle East and Afghanistan in the wake of the 2001 World Trade Center attacks, before Obama in his first term embarked on a “pivot” in attention back to Asia.

Asia First

Hillary Clinton became the first secretary of state to visit Asia on an inaugural overseas trip since the 1960s. Her 86 days touring 21 Asia-Pacific nations are the most in a four-year period for a secretary, according to records posted on the State Department’s website, which don’t include the travels of Dean Acheson or most top diplomats who served in the 19th century.

Clinton, who will be succeeded by Democratic Senator John Kerry of Massachusetts in Obama’s second term pending U.S. Senate confirmation, began to articulate the policy shift in 2010. She outlined a plan of “forward-deployed” diplomacy in Asia to advance American economic and security interests. A year later, Clinton unveiled the pivot in a speech titled “America’s Pacific Century.” The administration now uses the term “rebalancing” rather than pivot.

Even before her speech, Obama on his first trip to Asia met leaders from Asean as a bloc, an unprecedented move for an U.S. leader. In another first, the president now attends the East Asia Summit -- a forum of 18 nations that includes Asean, China and South Korea and that Obama wants to become the “premier” structure to address regional security issues.

Military Ties

Beyond the response to the TPP initiative, several East Asian nations have welcomed the pivot from a security perspective. Indonesia in 2010 saw ties between its special forces and the Pentagon restored 12 years after they were cut due to human rights abuses. This year, the U.S. announced plans to sell Indonesia weapons valued at $1.5 billion, including eight of Boeing’s Apache attack helicopters, an amount exceeding total arms sales to the country from 1950 to 2011, according to Pentagon statistics.

The Philippines received a used U.S. Coast Guard ship last year, and anticipates more naval vessels and maritime radar. In June, Defense Secretary Leon Panetta became the highest-ranking official to visit Vietnam’s Cam Ranh Bay, a former U.S. military hub, since the Vietnam War.

Vietnam Reset

“We have been talking with the Americans and we will agree to further raising our relationship to a higher level,” Vietnam Deputy Foreign Minister Pham Quang Vinh said in a Nov. 28 interview in Hanoi. “It is for our interests, but also for the interests of the region and the interests of the world.”

Japan agreed in September to host a second American anti- ballistic missile radar facility, a move that would free up U.S. Navy ships to be moved around the Pacific. The U.S. has more than doubled spending on military education and training programs for Cambodia, Laos and Vietnam.

“A shared concern is that if the U.S. doesn’t do anything to further consolidate its strategic position in East Asia, China will fill in that gap,” Li Mingjiang, an associate professor at the Singapore-based S. Rajaratnam School of International Studies, said by phone. “This is something that almost no regional country wants to see.”

China superseded the U.S. as Asean’s top trade partner the year before Obama took office, and is championing a separate set of trade talks to the TPP, known as the Regional Comprehensive Economic Partnership. If implemented without the TPP, that deal would reduce U.S. exports by $3.7 billion per year, according to Petri’s calculations.

China’s Muscle

China also has shown willingness to use its wealth for foreign-policy purposes, with Japanese carmakers suffering a boycott of their products earlier this year as frictions with China deepened over a disputed island chain. Toyota Motor Corp.’s China sales slid the most in a decade during September and October, and Honda Motor Co. and Nissan Motor Co. cut their full-year profit forecasts by a fifth.

One risk is that fallout from territorial disputes between China and its east Asian neighbors undermines prospects for economic expansion. IMF Deputy Managing Director Naoyuki Shinohara said in October that an escalation of the China-Japan conflict could ultimately have global economic ramifications.

Another danger is that a deeper Chinese slowdown sparks unrest and prompts leaders to redirect domestic anger, triggering a more aggressive diplomatic stance. That leaves the potential “for a new stage of international disputes,” said Ding Xueliang, a professor at Hong Kong University of Science and Technology who teaches contemporary Chinese politics.

Maritime Claims

Last year, Chinese ships chased away a boat doing oil and gas exploration work for the Philippines and cut the cables of a Vietnamese survey vessel. China, citing historical evidence, claims a tongue-shaped swath of the sea delimited by nine dashes that extends hundreds of miles south from Hainan Island to the equatorial waters off the coast of Borneo.

“Right now Chinese misbehavior isn’t encountering consequences,” said Douglas H. Paal, a former Asia adviser to Presidents Ronald Reagan and George H.W. Bush and vice president for studies at the Carnegie Endowment for International Peace in Washington. “In China they are doing high-fives because they think they’ve found a way to get around our warnings and make us seem feckless.”

‘Uneven’ Policy

Other criticism comes from the administration focusing too much on security, with Richard Armitage, deputy secretary of state under former President George W. Bush, saying “it seems a little uneven.” Armitage highlighted that the only trade agreements enacted under Obama to date, including with South Korea, were those negotiated under Bush.

At the same time, Obama has employed other levers to deepen economic relations. The Export-Import Bank authorized $6.9 billion in loans, guarantees and insurance to 18 Asia-Pacific economies in 2012, up from about $4 billion in 2009, according to its annual reports. The Overseas Private Investment Corp., an agency that provides financing, guarantees and insurance, committed about $986 million to projects in Asia in 2011, up from $22 million in 2008, according to data on its website.

The U.S. last month said Exim Bank and OPIC would provide $6 billion over the next four years to finance energy projects in Asia.

Myanmar Ties

Meantime, the administration has restructured the U.S. relationship with Myanmar, a nation of 64 million people whose economy’s tightest ties are to neighbor China. Obama’s summit with Asean leaders, including Thein Sein of Myanmar, laid the groundwork to revive links with the former military dictatorship.

“It certainly helped the leaders of Myanmar feel like they were less of a pariah,” Alexander Feldman, president of the U.S.-Asean Business Council, said of Obama’s meeting. “There is a huge case in point in terms of the pivot and what it’s done and the opportunities it’s opened.”

Obama this year allowed U.S. companies to invest in Myanmar for the first time since 1997. Coca-Cola Co. in September made its first delivery to Myanmar in more than 60 years. MasterCard Inc. in September became the first payments network to issue a license to a Myanmar bank and Fairfield, Connecticut-based General Electric this month announced it would provide gas turbines to a power plant, one of the first major deals since the U.S. eased sanctions.

Obama and Clinton’s Asia visits, coupled with the TPP talks, will help American businesses take advantage of Asia’s opportunities, said Martin Apfel, head of Southeast Asia at General Motors Co.

“We’re very appreciative of the government’s attention to this region,” he said in an interview last month. “All of these things bode well for the future.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net


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