The United States is in the midst of approving a 12-nation Asian trade deal. Called the Trans-Pacific Partnership Agreement (TPPA), this deal is about trade and currency regulation. China is also putting the final touches on an Asian trade partnership. The two programs are about promoting free trade using two different banking systems. In the United States it’s not clear if the Senate will allow the Trans-Pacific Partnership to pass confirmation hearings, but even if it doesn’t U.S. trade and banking will continue in Asia.
China is at the center of the Asia Infrastructure Investment Bank. Over the last five years these two trade and investment networks have quietly competed for support from other countries. Countries from around the world have lined up to join one or the other but generally not both. For example, Australia, Germany, Italy and France are members, along with China, of the Asia Infrastructure Investment Bank. Of these countries only Australia is a member of both networks.
Fundamentally China and the United States are asserting their control over the same territory. The United States has, for the last seventy years, been the dominant trade and banking center in Asia. The dollar and the U.S. Navy guarantee that. But, with the rise of China as an international trade center, the Chinese are eager to assert themselves in their home region.
The China Problem
For centuries China was the dominant trading and financial center of Asia and Southeast Asia. There are mixed feelings among Asian countries about China’s new significance. Previously China was an imperial master, demanding unequal trade terms and tribute. The Asian and Southeast Asian countries who experienced China’s imperial dominance do not want to return to a trade and finance arrangement that castes them as inferiors.
The United States is in a new situation. As the world’s leading naval and financial power, the U.S. seeks to sustain its position. Free trade, however, as it is projected by the “Washington Consensus” has not been a good experience for many Asian countries and sometimes they respond by manipulating their currencies.
The number of financial collapses in Asia over the last thirty years has put many of the Asian countries that were called Asian Tigers in an awkward position. While some of these countries, South Korea, Japan, Singapore, Hong Kong and Taiwan have grown prosperous they have also suffered big financial reverses.
The U.S. Problem
The U.S. financial system with its big commercial banks now operating as independent investment brokers as well as lenders has become unstable. Asian countries are left between a rock and a hard spot. If they continue with United States leadership they also continue to live in jeopardy of yet another major financial collapse. Where and how this will happen is unknown, but the way the system is structured leaves little doubt that more problems are imminent.
On the other hand if these Asian countries change alliances and join China they are subject to Chinese leadership which continues to be domineering. It’s not a great choice, but for the most part China has not made a convincing case. The Chinese financial system is in disarray, the Chinese legal system is not dependable and the Chinese navy is pushing many Asian countries around in the South China Sea.
The U.S. banking system has its own problems and U.S. protection in global markets only happens through the World Trade Organization, which has its own agenda. For now Asian countries are forced to estimate which country has the stronger overall global presence and that remains the United States. But, thus far it isn’t clear that the U.S. will approve the Trans-Pacific Partnership, which leaves unilateral trade arrangements as the alternative. And, unilateral trade arrangements tend to be skewed in favor of the larger partner, which in this case is the United States and it’s unregulated big banks. That is not encouraging for the eleven Asian countries that are part of the Trans-Pacific Partnership.