international trade

America defeats itself

There will be fewer takers for US promises in Asia now

As promised, Donald Trump has pulled the United States out of the Trans-Pacific Partnership (TPP), a regional preferential trade agreement that his predecessor put together to secure American primacy in East Asia against a rising China. It does not matter that the TPP had not yet been tabled for Congressional approval. It does not matter that the TPP might not have yielded the outcomes its proponents claimed it would.

What matters is that in one stroke of a pen, President Trump has confirmed the lingering fears among East Asian countries that the United States is unreliable as a partner in their attempts to manage an aggressively rising China. Barack Obama’s ‘pivot’ to Asia–of which TPP was an important plank–was itself a response to similar fears during his first term. That pivot was at best a promise that the United States will remain engaged in the region, realists in East Asia tended to suspect that it was reassurance without adequate credibility.

The thinking within the Trump establishment appears to be that the United States can take on China on world trade and militarily in the waters of East Asia. Rex Tillerson, who will head the State Department, took a hawkish line on the latter, suggesting that the United States might deny China access to the islands it claims. Mr Trump and his colleagues seem to believe they can confront China in trade and in East Asian waters while eschewing economic engagement with the countries of the region. They will soon find out how mistaken they are.

Economics is the bloodstream of East Asian geopolitics. China is a major actor in the region not because it has gunboats and missiles, but because it has deep and growing economic relationships with almost all countries of the region. The economies of East Asia, South East Asia and Australia depend on China for their prosperity to various extents. Whatever disputes they might have with Beijing, if they do not see an alternative to China-driven growth, they are unlikely to support President Trump’s moves against China. The United States is likely to find itself isolated if it contemplates escalating conflict levels in the region.

It is likely that the powers in the region will seek protection by increasing their military capacity, and the bigger ones might even contemplate nuclearisation. Most will try to make their peace with China—to the extent possible, as long as it is possible. They will look towards India as a potential actor that can help balance China: to what extent this will work depends on how much and how fast New Delhi liberalises the Indian economy. Unfortunately, there is no indication that the Modi government is prepared to accelerate domestic liberalisation at a pace that can reassure its Asian neighbours.

India is in the geography, and over the long term will remain a potential hedge against China. The United States, though, has just about defeated itself.

“If at the end of it all you let [Abe] down, which next Japanese prime minister is going to count on you — not just on trade but on security?…If you are not prepared to deal when it comes to cars and services and agriculture, can we depend on you when it comes to security and military arrangements?”

— Lee Hsien Loong, Singapore’s prime minister, WSJ

Cameron comes with a different mindset

The new British prime minister is right to start with trade and right to start with Bangalore

Most commentators are putting it mildly, but the numbers show that India-UK trade atrophied in the last decade. From being India’s third largest trading partner at the beginning of this decade, the UK is now the thirteenth, and falling perhaps. Even as India’s overall trade volumes grew at around 26% on an average over the last four years, Britain’s share of the total trade has dropped—from 3.72% in 2004-05 to 2.56% in 2008-09. The growth in absolute numbers, from $7.2 billion to $12.5 billion during the same period masks the marginalisation of Britain as an economic partner.

Mr Cameron hopes to change that trend. The good news is that he has not only arrived in India with a large delegation but also with changed mindset. His government’s decision to remove dogmatic hurdles to trade in civilian nuclear technology and set up a framework for joint research & development in the field exemplifies this. As the British prime minister reminds us in his op-ed in The Hindu:

Beyond the cultural bonds, Britain has practical attractions for India. We speak the world’s language. We are still the world’s sixth largest manufacturer and the best base for companies wanting to do business in Europe. We have some of the best universities in the world and we are a great hub for science and innovation. Britain still has the strengths of its history, not least our democracy, rule of law and strong institutions, but there is also the modern dynamism of the nation that helped pioneer the internet, unravel the DNA code and whose music, films and television are admired the world over. All of these things can mean opportunity for Indian investors and entrepreneurs. [The Hindu]

If Mr Cameron follows through it is likely that he’ll succeed in turning the trade game around. But there’s a deeper, more fundamental reason why there is promise in economic relations between the two countries. Britain is grappling with rising costs of public services and tightening public finances. It will find that India provides the way out of the jam if the “outsourcing” partnerships can be managed well. That is the reason why Mr Cameron did well to start in Bangalore (okay, the beer and Amrut Fusion Single Malt are equally good reasons).

Geopolitics, though, can be a spoiler. The abominable David Miliband has not been forgotten. The Cameron government would do well to steer clear of that kind of gratuitous sanctimony.

Update: In Bangalore, Mr Cameron’s speech in Bangalore will do much to undo the damage Miliband did.

Pax Indica: Playing the energy game with China

Why India must promote democracy abroad & private enterprise at home

An interesting conversation with Rajeev Mantri & Yogesh Mokashi last week led to the writing of this piece: how might India compete against China in the global quest for energy (and other) resources:

Moreover, the “game” is not one-off. It is a continuous ongoing game that will be played for generations. Nor is it entirely “zero-sum”. It is possible to envision a world where both China and India have access to the energy resources they need. Such a world is possible even when, perhaps only when, the two countries are competing (in a free market) for those resources. Such a world, however, will cer-tainly not come into being merely by wishing for it. It has to evolve, under the tender loving care of nuclear weapons.

The Indian government is trying to improve its score. It has set overseas acquisition targets for state-owned corporations and permitted them to spend $1.1 billion ‘without government approval’. This might yet produce some results—especially if it is backed by political support. It is unlikely, though, that bidding wars with companies that have parents with the world’s deepest pockets are winnable. That’s not all. As India found out in Kazakhstan in August 2005, the kid whose dad drives a Merc can get the goalposts shifted after the game begins.

Clearly, India’s strategy must be different. It must be one that plays to India’s strong points. It must also be one that undermines China’s advantages. The greatest asymmetries that are in India’s favour are democracy and private enterprise.

Consider. It would be much harder for China to move goalposts by coddling the dictator if there were no dictator to coddle. It would be much easier for Indian companies to compete against Chinese ones if the former didn’t have the Government of India as the single largest shareholder. In other words, in the long term, it is in India’s interests for resource-rich countries to be democracies. It is also in India’s interests to facilitate its private sector to expand globally. [Yahoo! India]

Read the whole thing at Yahoo!