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Lugar on the U.S. in Southeast Asia

Why the U.S. Must Engage ASEAN on Trade
9 October 2009

by Daniel Michaeli

Dick Lugar, Republican U.S. senator from Indiana, announced today that he will introduce legislation next week to ask the Obama administration to pursue free trade negotiations with ASEAN. This is good news, though the chances of successfully changing administration policy on trade are dim.

In my view, opening up trade with ASEAN is important for at least three reasons:

  1. The United States needs to stay competitive. Some of the most dynamically growing economies in the world are in ASEAN, with a combined population of 560 million people. As ASEAN members cut free trade agreements with each other, and all over Asia (China, India, Australia, New Zealand and South Korea have already finalized FTAs with ASEAN), U.S. exporters will be left behind. The effects have not been very pronounced yet–but many of the FTAs have yet to come into effect. The ASEAN-China FTA will phase in beginning January 1, 2010.
  2. It would open up interesting opportunities for negotiations on exchange rates. As a concession for access to the American market, ASEAN countries could agree to allow their currencies to rise more against the dollar, which would help with the global imbalances I wrote about at length earlier this week.
  3. While the United States remains the military balancer in Asia, ceding economic influence to China (where we don’t have to) will have strategic implications for America’s ability to protect its interests in the region.

One of the main reasons ASEAN countries have pursued so many FTAs is because they are concerned about their overreliance on China. Indeed, fear of China and communism during the Cold War is what brought ASEAN together in the first place, in 1967. The U.S. market is thus enticing for both political and economic reasons. We cannot continue to sit still on this–even government officials in the U.S. Trade Representative’s office are complaining that the U.S. does not have a trade policy.

It will be interesting to see the reaction to Lugar’s legislation on the Hill. There are a lot of factors in play. Most significant will be the hesitance of Democrats to pursue anything that could antagonize the party’s base of union leaders, who are largely opposed to trade negotiations because their members’ jobs are on the line.

There is also the Burma human rights issue: with Myanmar as a member of ASEAN, freeing trade with ASEAN could mean tossing aside the sanctions that remain. But more optimistic Washington insiders are talking about a Burma exception to any free trade agreement.

With important national interests at stake, we cannot allow one country’s situation–however serious–to hijack the rest of our regional policy. And playing domestic politics with trade policy may win votes now, but it will only make things harder for the American worker in the long term.

Will the Senate agree?

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One Comment »

  • Kevin Slaten said:

    Your three reasons are apt. I would also add a fourth: given the relative strength of regional trade blocs when compared to the WTO regime, the US could be critical in preventing a solidification of economic blocs in which outsiders are shut out.

    In other words, the eventual strength of the WTO will probably derive from a bottom-up approach, where the regions liberalize first. And the US's membership in the Asian Pacific bloc would be a critical move in intertwining the N.America and Asian bloc.