President Obama's Trip to APEC and Asia: The Impact on America's Trade and Economic Leadership

Q1: What is the importance of APEC in the global economy?

A1: The Asia Pacific Economic Cooperation (APEC) effort launched in 1989 brings together a range of dynamic economies across the Pacific—countries as diverse as Peru, Australia, and China. It plays a critical role in involving the United States and the Western Hemisphere in multilateral initiatives with Asia, a region expected to grow 7.8 percent and be a potential engine of global economic recovery. Some commentators credit APEC’s economic effort with providing momentum and competitive pressure that helped launch the World Trade Organization (WTO) in 1995. The statistic for the combination of APEC nations that will be brought together in Singapore are impressive—member economies account for more than 50 percent of world gross domestic product (GDP) and 60 percent of U.S. goods exports.

Q2: How effective has the APEC process been in meeting its goals and where does it fit with other international efforts?

A2: In contrast with APEC’s massive economic size and potential, the concrete results and track record of the recent APEC processes have been somewhat less impressive. A central goal of APEC has been to achieve “free and open trade and investment” among the developed nations in the region by 2010. Yet just weeks away from 2010, these nations are far from that goal. Indeed a range of alternative Asian regional economic efforts are challenging APEC’s role in its own backyard. These include trade negotiations between the Association of South East Asian Nations (ASEAN) with key nations and discussions about an East Asian Community, which may exclude or limit American involvement. In addition, APEC’s wider global influence and role are challenged by the rise of the G-20 (half of whom are APEC members), which represents more than 85 percent of world GDP, compared with APEC’s approximately 50 percent. Some question whether APEC’s diverse set of countries makes sense as a “region” and whether its expansion into security areas after 9/11 has muddled its message and focus. Governments, including the Obama administration, are also raising questions about how to streamline and rationalize the series of international leaders’ summits that consume much of their calendars. APEC has undeniably played an important role in building ties, spurring action in other fora like the WTO and launching some lower-profile, cooperative initiatives. Yet as President Obama and world leaders meet in Singapore, APEC will face a bit of an identity crisis and the challenge of turning its impressive combined economic might into concrete ways forward.

Q3: What is the status of U.S. trade strategy and efforts in Asia and globally?

A3: Few can question the Obama administration’s need for a strategic review of a U.S. trade policy that had hit a brick wall, failing to conclude bilateral and multilateral trade efforts over the last several years. Yet the recent void created by the lack of an effective U.S. trade policy has helped fuel a world where hundreds of bilateral or regional trade arrangements have created a “spaghetti bowl” of conflicting standards. Meanwhile, existing U.S. efforts such as our largest free trade effort since NAFTA—the U.S.-Korea Free Trade Agreement (FTA)—have been stalled. The U.S.-Korea agreement still awaits approval, despite being completed more than two years ago. Without the authority from Congress to engage in new trade negotiations, America has a limited ability to influence APEC or other Asian regional efforts, such as proposals for ASEAN FTAs or a Trans-Pacific Partnership. As a result, U.S. workers and companies may face an increasing competitive disadvantage as our negotiators sit on the sidelines.

The contrast on this issue will be vivid when President Obama travels to the world’s most vibrant economic region—Asia—whose leaders and negotiators have been working at a feverish pace advancing free trade agreements, with more than 60 already in force. This includes a recently signed FTA between the European Union (EU) and Korea that would form a bilateral trade relationship whose GDP is larger than the famous BRIC group of nations—Brazil, Russia, India, and China—combined. President Obama’s visits will be just a few of a staccato of events over the next year—including the 2010 APEC and G-20 meetings in Japan and Korea respectively—that will either give America the chance to advance a new strategy or risk a serious decline in U.S. leadership.

Q4: How do America’s trade efforts in Asia fit into a larger global strategy?

A4: A critical question beyond Asia is whether America will adopt a new global strategy as the multilateral WTO Doha Round effort continues to stall. Even if the United States makes tactical decisions to enter into various regional or bilateral proposals in Asia or elsewhere, it will raise questions as to whether these new agreements merely generate wider “noodles” in a more complicated spaghetti bowl of conflicting trade arrangements with no global strategy. It may be time for the United States and its partners to consider (as they did so successfully in the 1940s by creating what later became the WTO) uniting all nations committed to fully open markets regardless of region. This might fuel key progress on critical issues such as labor, environment, services, currency manipulation/global imbalances and intellectual property standards. Similar progress might be impossible to achieve through either a “spaghetti bowl” of disjointed trade deals or the WTO’s lowest common denominator approach involving more than 150 nations. Efforts such as the U.S.-Korea FTA or the TPP might serve as part of the foundation for advancing such a wider strategy.

Q5: What are the critical bilateral—China, Japan, and Korea—trade and economic issues to watch during APEC and the rest of the president’s trip?

A5: Three nations President Obama is visiting during his trip to APEC will be among the most important in shaping the next global economy and the future of U.S. and multilateral cooperation in Asia and beyond. Some have advanced the idea of China and the United States forming a “G-2” to shape the next global economy, as the fates of these two economies are deeply intertwined. Yet key differences in philosophy across critical issues, ranging from currency measures to intellectual property, could hamper joint proactive efforts in these areas. Instead, U.S. and Chinese efforts to avoid a damaging downward spiral of trade conflicts in the wake of the Obama administration’s decision to impose tariffs on Chinese tire and steel imports and China’s proposed trade investigation of the U.S. auto industry support are likely to take center stage.

The U.S.-Japan Alliance has traditionally played a central economic role in Asia and is closely watched. The recent Japanese election and its new policy proposals, ranging from developing an East Asian Community to questioning U.S. military basing arrangements, will put greater scrutiny on how these developments impact U.S.-Japanese economic cooperation. There has been some talk of launching free trade negotiations between the United States and Japan, and this could be a potential longer-term goal if key issues are resolved. Yet it may be difficult for such an initiative to gain traction until the United States determines its new trade policy and deals with outstanding trade issues.

Finally, Korea’s dramatic economic rise has placed it at the center of many of the new economic trade initiatives across Asia and globally, including its major FTA with the EU. A critical test for both Korea and its alliance with the United States will be how these nations work together to advance multilateral economic actions and promote global recovery through Korea’s chairmanship of the G-20 in 2010. Although there are now unprecedented opportunities for the alliance to lead, the elephant in the room for President Obama’s visit will undoubtedly be the U.S.-Korea Free Trade Agreement that sits on his desk awaiting action. How President Obama addresses these issues will send critical signals across both the region and the globe in terms of what America’s next trade strategy could look like, and whether and when America will be ready to lead a new approach.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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