The US Treasury’s Asia Rebalancing Recoil

The US Treasury again declined to brand China a currency manipulator under decades-old US law and instead directed criticism at Korea’s large won interventions, as President Obama headed to Asia after re-election to signal the region’s commercial and diplomatic importance under a second-term “rebalancing” strategy launched by the national security team. The visit featured an historic call on leaders in Myanmar and further negotiations on the Trans-Pacific free trade partnership yet to include Beijing and Tokyo as they engage in clashes over island ownership and geopolitical influence. Ten countries have signed on for the effort, which can inject momentum into the parallel Asia-Pacific Economic Cooperation forum and reviving the lapsed WTO round, according to officials. With the simultaneous government transition on the mainland, Washington think tanks and industry associations have prepared predictions and recommendations for the future relationship and output was incorporated into a recent task force report at the Center for Strategic and International Studies. It described the Chinese bilateral dialogue process as “routine and unwieldy” with the State and Treasury Departments spearheading exchanges of top-level representatives where “ceremony overwhelms substance.”  The biannual summit should be succeeded by more frequent informal sessions between executive-branch counterparts from the Vice-President to line agency heads, with financial sector reform as a priority issue, the panel suggested. It also called for more consultation within the G-20 group to revive the immediate post-crisis collaboration in 2008-09 which has since dissipated. In India comparable joint meetings have been launched, with the main result a “stalled” civilian nuclear accord as FDI retail liberalization is proposed into a cycle of state and national elections. Business executives aim to double trade to $500 billion by 2020, and the goal could be enshrined in a long-term “framework” pact that would include an investment treaty and infrastructure debt fund. Tax and small enterprise concerns should also be part of the agenda, especially as portfolio investors cited retroactive and offshore-center fiscal changes which were later diluted as early 2012 deterrents.

For Japan and Korea TPP entry should be promoted despite the opposition from agricultural interests in the former and the latter’s attention on implementation of the separate US trade deal which went into effect mid-year. The Korean opposition party has campaigned on a platform of renegotiating provisions which may extend to controversial auto industry opening. Exchange rate policy is a greater challenge with the Treasury report’s finding that operations exceed traditional “smoothing.” On the finance side Seoul is headquarters for the Green Climate fund and clean energy innovation and investment mobilization could benefit from cross-border initiatives. ASEAN comprises 10 countries with combined GDP over $2 trillion as a top five US trade partner, and OPIC and the Export-Import Bank could contribute to public and private sector integration plans that manipulate the odds for shared prosperity, the CSIS paper concludes.