Lead, America, or Get Out of the World’s Way

While all eyes are on the Iran negotiations, on the other side of the world, Jack Lew’s visit to China shows how far U.S. prestige has fallen.



The United States is doing a poor job of leading the global economy. But apparently we won’t let anyone else lead it either. In a world increasingly defined by the global flow of goods and services, Washington finds not just curiously adrift but actively at odds with itself and a coherent approach.

That was particularly apparent this week as Treasury Secretary Jack Lew traveled to Beijing for meetings in preparation for the upcoming U.S-China Strategic and Economic Dialogue. High on Lew’s agenda was the attempt (largely unsuccessful) to dent a project dear to Beijing: the creation of an alternate international lending institution called the Asian Infrastructure Investment Bank. The bank has been championed by China as an alternative to the World Bank and other international development institutions, in no small part because the United States has resisted allowing China to have larger say in how the established institutions are run.

It may not be surprising that the United States has viewed China’s moves with suspicion. While official China’s rhetoric has been all about the needs for more financing of vital Asian projects than current institutions allow, the move to set up a new bank with at least $50 billion in capital led by China is not purely about projects; it’s also about prestige.

Washington has responded by trying to convince its allies not to join the bank, whose founding members had to declare by March 31. Americans have been cautioning against the new bank on the grounds that it will lack the protections embedded in the World Bank charter about corruption, transparency and environmental costs. Those may be fair issues, but they have not deterred more than 40 countries from joining the efforts, including notable U.S. allies such as Great Britain, Germany, South Korea and Australia.

What a difference from nearly two decades ago, when the United States—then standing at a much higher stature in the world economy—successfully squelched an effort to build such a regional bank during the Asian currency crisis. What a difference as well from the degree to which the United States was the guardian of the global economic system and viewed as both lender and consumer of last resort until the financial crisis of 2008-2009. Before then, the United States not only acted to stave off of meltdowns hither and yon (albeit not always giving the best advice) but was seen by many, China above all, as a model for how an economy should be managed. The financial crisis, because it began on Wall Street, severely dented international confidence in the United States. So did the dithering over the debt ceiling in the summer of 2011, which the rest of the world took as a sign that some American politicians would be willing to commit ritual economic suicide on points of principle regardless of how they imperiled the economic health of the world.

It isn’t only the formation of a China-led bank that exposes an America adrift. The inability of the United States to halt the launch of the bank is oddly juxtaposed to its inability to move forward on one of the most important negotiations in the world today: the formation of the Trans-Pacific Partnership. Unlike the bank, this trade deal has the enthusiastic support of the Obama administration. It is vast multilateral plan to open up the entire Pacific Ocean to free trade, stemming from Chile to Japan. It would in its way be the equivalent to the North American Free Trade agreement but on a much wider scale, and it has been in the works for some time.

Now, as the negotiations enter their latest phase, the plan has not surprisingly come under attack from both the left and the right in the United States. The Elizabeth Warren camp of the Democratic Party has warned that a new, vast free-trade agreement will further erode American jobs and wages, and have been actively seeking to halt it. In the House of Representatives, members of the Tea Party caucus and others so distrust the Obama administration that they oppose any extension of negotiating powers (known as “fast track authority”) that are almost certainly needed to get the deal done.

So here is where we stand: the Obama administration signals ambivalence about China’s efforts to take a more active role in international trade and development; many in Congress are trying to halt more free trade. The result is a worst of both possible worlds. The United States is effectively saying the rest of the globe, “We aren’t going to spend much more effort facilitating more commerce and greater flow of goods and services, but we don’t want anyone else to either.” That is the equivalent of saying that we don’t want to dance, and neither can you.

Many countries question free trade and wonder whether it harms domestic wages. It is true that the rise of free trade in the modern era has coincided with stagnant wages in the developed world. The formation of the World Trade Organization and NAFTA, as well as the European Union and others, all stem from the same late 1980s and early 1990s period when middle class incomes stopped growing in the United States. Multinational corporations, meanwhile, have seen no dearth of profit over the same period.

Yet the arguments against trade almost always leave out the cost side of the equation, and the degree to which most goods ranging from food to household necessities have plunged in price over the same period, care of both globalized supply chains and new technologies. The U.S. economy, in particular, has in aggregate thrived, even as the distribution of those rewards has been deeply uneven.

You can believe that the U.S. economic system is failing at fairness and still recognize that free trade generates massive benefits for both Americans and the world. That said, let’s say you truly, madly, deeply believe that any further extension such as the Trans-Pacific Partnership will harm America and that the best course is to halt and perhaps reverse course behind a Fortress America that satisfies its own economic needs with less recourse to the world at large. If so, then trying to halt China’s attempt to fill a leadership vacuum is both hypocritical and delusional.

It has to be one or the other. Either we actively engage a world that is more than ever committed to the freer flow of goods as a means to increase prosperity and enhance the lives of billions of emerging members of the middle class, or we do not and then allow others to lead the way. Choosing to focus on our domestic issues and withdraw is a coherent choice, even though it is likely to fail. But doing that and then attempting to thwart the rise of China as economic leader is not coherent and will do even more harm.

Only the White House can speak with one voice here, and that would require heartily embracing China’s new bank and then actively pursuing the authority to negotiate the trade pact, which many Republicans in Congress do support. A unified approach in this arena won’t magically restore America’s middle class or solve manifold domestic issues; it would at least turn what is now a muddle into a viable path. It wouldn’t take much, but it would mean a lot.

Source: http://www.politico.com/magazine/story/201...