President Obama in Asia


President Obama’s state visit November 13-19 to Asia is occurring at a time when economic conditions allow for a new focus on trade issues. The economic downturn is behind us when concerns were more about immediate problems rather than looking ahead. The future is still uncertain enough to make political leaders interested in strengthening long-term economic growth through trade. The President’s trip will start with two days in Japan followed by one day in Singapore for the Asia-Pacific Economic Cooperation (APEC) summit of 21 countries. Then three days in China are followed by one day in South Korea before returning home.

While Asia is referred to as a region, there are many different economic conditions in Asia. Japan is a developed country much like the U.S., while Singapore and South Korea are advanced developing countries that must depend on trade as an engine for growth. China is a country with 1.3 billion people in the midst of an economic boom. Countries like Vietnam are emerging developing countries. What binds these countries together more than regional proximity is that international trade as an integral part of their economies. According to estimates by the International Monetary Fund (IMF), value added in export-related activities in Asia’s larger economies exceeds one-third of GDP with a majority of the exported value-added from destinations outside Asia. The U.S. has had close ties over the past 50 years with Asian countries because of the benefits from increased trade.

Asia has 4.1 billion people, 60 percent of the world’s 6.8 billion, compared to 730 million people in Europe and 530 million people in North America. According to IMF estimates, in 2009 Asia will have 24 percent of the world’s GDP on a U.S. dollar basis and 32 percent on a purchasing-power-parity basis. GDP growth for Asia is estimated at 2.8 percent for 2009, down from 5.1 percent for 2008, with 5.8 percent for 2010. More internal market demand growth will occur in the years ahead, but Asian countries will still depend on trade to sustain economic growth.

With growing economies, food demand in Asia will continue to increase. Asia accounted for 38 percent of U.S. agricultural exports in calendar 2008, with 82 percent going to East Asia including Japan, China, South Korea and Taiwan. Another 16 percent went to Southeast Asia including Indonesia, Philippines, Malaysia and Thailand. The remaining two percent went to South Asia including India and Pakistan. Japan is a mature market; South Korea and Taiwan are shifting to more high value products; and the other markets have opportunities for growth across all agricultural products. Some countries are land limited and agricultural imports must increase as their economies grow and food demand increases.

Obama Administration officials have been in the region this week preparing for the President’s trip. U.S. Trade Representative Ron Kirk was in Singapore at APEC activities where trade ministers endorsed principles for trade in cross-border services and to simply documents certifying the origin of goods. Treasury Secretary Timothy Geithner was in Japan talking about the importance of a strong dollar before going to the APEC meeting and delivering the same message. He also talked about the need for Japan, China and other countries in Asia to rely less on exports to the U.S. and more on internal growth in demand. The APEC finance ministers called for flexible prices, including market-oriented exchange rates and interest rates, to play a key role in efficiently allocating resources to support balanced and sustained long-term economic growth.

President Obama goes to Asia in a defensive position. Trade policy appears to have played virtually no role in economic policy decisions in the first ten months of his Administration. The “buy American” provisions of the economic stimulus plan confirmed fears from the election campaign that the President did not place a high priority on trade. Allowing the U.S.-Korea free trade agreement to languish is just the opposite of the interests that many Asian countries have in expanding free trade agreements. Recent U.S. decisions on tariffs on tires and steel pipe from China confirmed concerns that the Administration’s focus on trade law enforcement is just another phrase for higher tariffs and shrinking markets.

President Obama can provide some support to existing trading relationships by focusing on a few messages. He has to convince Asian leaders that the U.S. recognizes its responsibility to maintain the value of the dollar relative to other currencies. Market participants should not have to fear erosion of margins by changes in the value of the exchange currency. Without that commitment, trading partners have no choice but to protect themselves against increased currency risk. This position would also give President Obama some leverage to encourage market-based monetary policies from our Asian trading partners, including China.

Second, the President must find a way to reverse the slide to protectionism that is already apparent under current U.S. policies. In trade policy, words are of little value; it requires positive actions that lead to more open trade.

Third, new bilateral trade agreements have to become part of the Obama Administration agenda, including ongoing background efforts on an APEC Free Trade Area of the Asia Pacific. New trade agreements continue to be signed in Asia. Last month the EU and South Korea signed an agreement, and Malaysia and New Zealand signed one last week. Japan and the Association of Southeast Asian Nations (ASEAN) signed a major trade agreement in 2008. In August of this year China completed a trade agreement with ASEAN. The longer the Doha Round of WTO talks remain stalled, which may be permanently, the more countries will look at regional and bilateral agreement as a viable alternative to doing nothing.

President Obama’s first trip to Asia is a good opportunity to begin a new direction in his trade policies. Economic growth is picking up and the U.S. is out of step on trade policy with the biggest trading region in the world. The message must be that the U.S. is engaged and will continue to be engaged in the trade issues of the Asia-Pacific region. A few significant trade policy adjustments now will pay big economic dividends for the U.S. in the years ahead.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

Leave a Reply