U.S.-Asia Economic Ties Under Trump

DEVIN STEWART: Hi, I'm Devin Stewart here at Carnegie Council in New York City, and today I'm talking with Ziad Haider. He was the special representative for commercial and business affairs at the U.S. State Department, and he is currently a senior advisor at the Center for Strategic and International Studies (CSIS) in Washington, DC.

Ziad, thank you very much for speaking with us today.

ZIAD HAIDER: Thank you very much, Devin.

DEVIN STEWART: Ziad, can you give us a sense based on your expertise of U.S.-Asia affairs and trade policy, what do you make of the U.S.'s general strategy in Asia given China's rising influence?

ZIAD HAIDER: The way I often think about this is that Asia is a region that is of central importance to U.S. strategic and economic interests. If you just look at the size of the markets from a commercial point of view, if you look at the range of treaty allies we have over there from a security point of view, if you look at some of the challenges that we're facing in the region, for example, from the Democratic People's Republic of Korea (DPRK/North Korea), and also if you look at the opportunities in terms of real opportunities for U.S. companies and the fact that nearly seven of our top 10-to-15 trade partners are in the region, it's a region that is going to be, and must remain, at the fore of our minds in the 21st century.

Having said that, as someone who has spent his time at the State Department in the economics part of the building, I think there is oftentimes a very heavy focus on the security side of the equation, and there is a lot of thoughtful work and analysis that goes on in the interagency about our security posture, be it DPRK or South China Sea, you name it. What oftentimes seems to be missing is a similar weaving together of what is the U.S. economic strategy in Asia.

I think that is something that we need to really think hard about because what you have right now in the region is China as a rising power that is articulating just such a broad geoeconomic vision. The most concrete manifestation of that right now is China's One Belt, One Road initiative (BRI), which is a sweeping infrastructure and connectivity initiative that has land routes cutting across Central Asia into Europe, maritime routes extending to Southeast Asia, Africa, up to Europe. The Chinese have said they are going to pour a trillion dollars of financing into this. They are clearly getting high-level support around the world. For example,in May in Beijing, President Xi hosted a summit attended by 29 heads of state, 1,200 delegates, 100 governments represented. The Trump administration did send the senior director for Asia, Matt Pottinger, to the summit.

So fundamentally, in this post-Trans-Pacific Partnership (TPP) world where the United States has taken a step back and removed its most impactful economic initiative in the region, there is this vacuum which is being filled by China's initiatives and China's activities, and that has further reinforced this question you raised at the beginning of "what is U.S. economic strategy in Asia?" and we can certainly discuss that further in this conversation.

DEVIN STEWART: Is there a coherent strategy for the United States in East Asia on the economics front?

ZIAD HAIDER: You would be hard pressed to find a single policy document that outlines those elements. What I would say is that during the Obama administration what we tried to do was present a narrative through a series of high-level speeches. Notably, Secretary Kerry, while in Singapore in 2015, I believe, outlined this vision of U.S. and Asia partners in prosperity. The four elements that he highlighted in that speech I think very much remain core ones that we need to focus on in fleshing out the strategy in the new administration, and those four elements were trade, of course, investment, connectivity, and development.

Just to speak briefly to each of those, and also to give some texture to how we should be thinking about them now, on the trade front during the Obama years obviously the focus was on TPP, but as we also know, TPP was 12 countries in total, and there was always going to be this question of "When do we let other countries in? At what point have they met the standard?" So TPP was a big tent that we were constructing in the region. It had this magnetic pole. Even as we were talking about concluding the agreement, other countries were lining up outside.

So clearly we have removed that tent; we have diminished that magnetic effect by withdrawing from TPP. Instead, what the Trump administration is talking about is a series of bilateral deals, but that clearly doesn't have that same strategic heft and network effect that TPP would have had. So fundamentally on that element that was outlined I think we have taken a big step backward, and we need to find ourselves back into the multilateral trade game in the region, not just bilateral deals one-off.

The second element that Secretary Kerry talked about was investment. This is actually a very important story. We oftentimes think of the commercial investment side as something that our private sector is off doing and that the government shouldn't need to focus on as much, but that really is an essential part of our success and staying power in the region. Take, for example, the fact that U.S. investment in Southeast Asia, our cumulative direct investment in that region, is greater than in any other part of Asia and outstrips that of our competitors, China, Japan, and others as well.

So we have a very big footprint in terms of U.S. companies in the region, but importantly it's not just about the quantity of their investment, it's also about the quality. U.S. companies will hire local labor; they will provide local skills, they're not going to just bring their own workers from overseas, as is the case with others. So I think that narrative about U.S. investment and how do we continue to promote U.S. investment in the region needs to be an essential part of U.S. strategy. As someone who was heading up the Office of Commercial and Business Affairs at the State Department, this was a big focus of mine. In fact, we led a series of road shows consisting of U.S. tech companies in particular, to Burma, Vietnam, Indonesia, the Philippines, and four cities in India, to promote U.S. commercial ties and to promote our comparative brand, which is not so much necessarily hard infrastructure but technology and innovation.

A second element that we tried to focus on and I think merits continued focus is investment and how to promote that, and deal-making, so to speak, which is something that this administration often talks about.

The third area that Secretary Kerry talked about was connectivity, and this is a very important theme in the region because of the fact that: (1) you have major infrastructure gaps and financing gaps that run into the trillions; (2) you have, again, a country such as China that has made infrastructure in particular a top priority, and it is frankly a comparative advantage that it has globally in terms of building hard infrastructure; and then (3) for example, in Southeast Asia specifically, an affirmative goal of that region is the formation of an Association of Southeast Asian Nations (ASEAN) economic community and regional integration.

What we tried to offer to speak to that goal of the region itself was an initiative that President Obamaannounced at Sunnylands when he hosted all the ASEAN leaders called U.S.-ASEAN Connect. This is an initiative focused on, once again, building business-to-business ties with countries, governments, and companies in the region, building ties between entrepreneurs, focusing in particular on the digital economy as a source of connectivity that is, again, our comparative strength. We did a lot of work to flesh out that initiative, and I was happy to hear Commerce Secretary Wilbur Ross recently at an event talk about the need to continue U.S.-ASEAN Connect. So that to me is a bright spot in terms of positive continuity, but again, the question of resourcing and personnel remains there.

The last point that Secretary Kerry outlined was development, and I think we shouldn't forget the kind of development assistance component and the kind of returns that we get in terms of goodwill—be it responding to the tsunami in Indonesia or an earthquake in Pakistan—and continuing to think of ways in which we can plan the development space in the region is important. There is an area where there actually may well be synergies with China, and I say that because last year we actually launched the U.S.-China Strategic and Economic Dialogue (S&ED), recognizing the important role China is playing globally in development.

The point is that as part of this economic strategy of trade, investment, connectivity, and development, I think these are very standard pillars of what the strategy should be. There are obviously big divergences that have happened on trade. There are other areas I think that have been positive and hopefully will continue. But I think equally important in articulating the strategies is to understand that it isn't all about containing or blocking China, but in fact within the strategies there is scope to work with China and achieve mutually positive outcomes in the region.

DEVIN STEWART: Do you get a sense that the Trump administration will address those four areas that you listed?

ZIAD HAIDER: Again, if you take them one by one, I think it's a very mixed picture and frankly not trending very positively. On trade, as I mentioned, in a post-TPP world and in an effort to look at more bilateral deals, you are certainly undercutting that strategic leadership that the United States is providing in Asia from an economic perspective. That is not just something to take an ex-Obama administration guy's word for; if you look at the statements that were issued during the push for TPP by, for example, the prime minister of Singapore, he made it a point to say, "If the United States does not see this through, it will dent its credibility and reputation in the region." So there were affirmative statements made by our very close allies.

Then there are the facts of where you have TPP take a back step. You have the Regional Comprehensive Economic Partnership (RCEP), which is another trade agreement in the region led by China and others, hitting a more accelerated track. So on trade I think we have taken a step back.

On investment, I think it remains to be seen. Certainly what gets the news are the big deals that are signed, for example, with Vietnam or with India. But it's not so much just the big deals, it's the kind of day-to-day work that happens behind the scenes by the U.S. embassies on the ground supporting companies, by the Commerce Department's Advocacy Center, by the State Department's Commercial and Business Affairs Offices. Having the leadership of those offices in place is critically important because it's their mandate to execute, and we don't have those people in place. For example, there's no assistant secretary confirmed for global markets at Commerce or for economic affairs at State. So you need those people.

There is also the question of resources. As far as the State budget cuts, the economics sphere is also taking a big hit, and that's a shame because it will undercut this kind of deal making that needs to be supported.

On the connectivity piece, I mentioned specifically U.S.-ASEAN Connect, and there we've heard some positive sounds by the commerce secretary of the interest in continuing that initiative. But again, I think the proof is going to really be in terms of the resources committed and new initiatives coming out of that framework that was released.

On development, I think the picture is very mixed, given what we're hearing about cuts to the U.S. budget.

Fundamentally I think under the Obama administration it was not a perfect strategy, but TPP consumed a lot of attention and kind of really boosted our geoeconomic standing in the region. Under the Trump administration, the main issue of economic talk is trade with China and getting a grip on that deficit imbalance. That is an important issue, but that shouldn't be the sum total of our economic narrative in the region. It feels defensive at a time when we also need to be putting out there an affirmative positive vision for the region.

DEVIN STEWART: As you know, TPP is sailing along without us. You mentioned the necessity of having some type of broader multilateral trade vision for U.S. economic policy in Asia. What do you think the likelihood is of America coming back to TPP or something like TPP?

ZIAD HAIDER: One can never say never. There is always a way in which administrations find a way back into things that they previously kept at arm's length. It's not a clean comparison, but obviously President Obama took issue with the North American Free Trade Agreement (NAFTA) on the campaign trail, but he then came into office and ended up pushing through TPP, which even elevated some of NAFTA's standards.

I don't know if that is going to be the type of evolution that we see. What I do know is that, as you mentioned, the other 11 countries are proceeding. In fact, they're meeting today in Japan to continue those discussions at the sort of negotiator level. I think they are keen to have the United States come back into the fold for the strategic reasons that I mentioned, but also for market access reasons.

Let's not forget that some countries have really made some very difficult policy adjustments—which are very good ones from our point of view—to be a part of this deal. For example, Vietnam agreed to the formation of independent labor unions as part of TPP, and that is a very positive thing. So there are good things that will be lost if we don't hold countries to account, and there is a larger leadership role that is lost.

As part of their effort to keep this thing going, my sense is that they would continue to welcome the United States reengaging. I think it's just a question of what is the kind of face-saving reentry point for the administration. Are there particular policy issues which, if resolved, they'd want to go back in? Is it rebranding, renaming it? Fine. We can call it TPP, we can call it something else.

But the key point is that bilateral trade deals do not add up to the strategic engagement you need in the region. I think that is an imperative, to find a way back into some sort of a multilateral umbrella in the region. I would imagine that it's not going to be dramatically different from the chapters of TPP, but there may be some changes that are made to kind of provide a way back in for the administration. But time will tell. We'll see.

DEVIN STEWART: Do you have any idea what's the rationale for going bilateral rather than multilateral?

ZIAD HAIDER: I don't have a clear sense of that, and frankly I don't agree with that. First, I don't think those things are mutually exclusive. But the way in which the administration has framed it has sort of made this very sharp distinction, and that is not just coming at the expense of our engagement in Asia, it's also in the European Union (EU) context where we were negotiating the Transatlantic Trade and Investment Partnership (TTIP) treaty.

I think they probably find multilateral deals to be sort of these unwieldy things, and generally there has been this narrative against multilateralism, period, and the kind of value of these clunky groupings versus going straight and making a deal directly. But that's precisely the point. If you look at TPP, a number of the countries within TPP already have trade agreements with each other. Yes, they're getting better terms and deals, but what many of them are really looking for is the value of that cluster and the value of a meeting of minds and higher principles which forces others in the region to play by those rules.

I can certainly say in my time at State, traveling to China during the TPP negotiation period and the push on the Hill, there was a lot of interest in understanding "Well, what is in this?" Initially what was kind of a cool response by the Chinese, or even a response of "This is geared toward us," became interest and wanting to understand the standards. So we're losing all of that by just limiting ourselves to a very narrow, bilateral, "Let's make a deal with Country X" versus "Let's step up and take a leadership role and bring together multiple parties."

DEVIN STEWART: You mentioned China's One Belt, One Road plan, which is a trillion-dollar investment in Eurasia. You also mentioned RCEP as sort of counter-initiatives to TPP in some way or another. Taking One Belt, One Road and RCEP together, what's the net effect of the broad political environment in East Asia?

ZIAD HAIDER: That's a good question. I think people readily lump One Belt, One Road, RCEP, and the Asian Infrastructure Investment Bank (AIIB) into this kind of gargantuan narrative of China on the move and we're on the back foot. I generally agree with the idea that China is seizing the geoeconomic initiative. If you look at President Xi's statement at Davos just weeks before President Trump was inaugurated, he made this point about portraying China as the champion of globalization and open markets at a time when we all knew that the next team was going to step back.

Obviously that needs to be taken with a heavy grain of salt given the posture of Chinese government toward foreign companies operating in China. It is anything but open, and that is a major issue that is there. So there's a bit of a contradiction in those statements. But fundamentally between the statements at Davos and between hosting the One Belt, One Road summit, there is clearly this geoeconomic play being made by the Chinese.

I think One Belt, One Road is the cleanest example of that because it is a clearly China-led initiative. Just the visuals of President Xi hosting 30 heads of state and 100 governments—and we're not just talking about random autocratic governments in Central Asia; we're talking about the finance minister from the United Kingdom; we're talking about Jim Kim, the president of the World Bank; obviously we had representation from the White House. So this is not a sort of esoteric initiative on the sideline; it is something that has become very much mainstream, and it is occupying the space which we may have been leading in if we were putting forward an economic vision that wasn't just TPP. One Belt, One Road is something that is real, and we have to contend with it in a very nuanced manner.

Again, I would come back to the point that it isn't just about pushing back on it, which has to be a part of our strategy, but also finding ways for our companies to participate in this project because there are commercial benefits. Frankly, in certain countries where One Belt, One Road projects are underway, that could very much be to the U.S.'s advantage.

Take Pakistan, for example. China has a very extensive $46 billion project called the China-Pakistan Economic Corridor in Pakistan. The project is really meant to get a grip on Pakistan's very crippling energy deficit, which in turn has knock-on effects on economic stability and security over there. We have not been able to play—to the extent any country can play a stabilizing role in another—with all the money we've poured into Pakistan, we've not been able to really solve those core economic issues, and ultimately the responsibility is with Islamabad. But my point is that the initiatives that China is engaging in in trouble spots are ones that could actually have a stabilizing effect which could be to our advantage as well.

Again, even though the stop line is correct that China is on the kind of geoeconomic march, and One Belt, One Road is the first example, it does rub up against our interests, but it may also be in certain places in our interest, and for that nuance is required.

Coming to RCEP, the reason I don't immediately lump it with the Belt and Road Initiative is because RCEP can't be reduced to a China-led initiative, even though that's the way it is often depicted. The fact is that there are a number of TPP countries that are in RCEP. So as a result this isn't just something that the Chinese can single-handedly take credit for the way they could with BRI.

I also think the issue within RCEP which I think is going to stymie it is just policy differences between the negotiators. In particular, India has a very protectionist stance, and that has been really, I think, stymieing progress. So I think it's tempting to throw RCEP in as yet another data point of China on the march, but I think we just have to be a little bit more calibrated in assessing where that is going.

But fundamentally speaking, with TPP not being there right now and without those high standards being codified, we are now seeing in Asia discussions of a lower standard trade agreement, and that, I think, is frankly to everyone's detriment, and particularly to ours from a commercial and economic point of view.

And then AIIB, I would just again say that clearly President Xi talks about it as part of financing of One Belt, One Road, but again, I think we need to take a more nuanced lens. This is an entity that is providing, I think, a very needed service in the region, which is infrastructure financing. It is a drop in the bucket in terms of the amount of resources that it is putting forward, given the needs in the trillions. I think what we're seeing is the AIIB co-financing with the World Bank and with the Asian Development Bank (ADB) as a very positive thing, as well as the fact that the leadership of the AIIB has said that U.S. firms are able to bid. We'll see if that comes through.

The point is that it is very tempting to fall into that overarching narrative of "The United States and China are locked into competition." There is certainly a strategic competitive element to all of this, but I think we need to be very careful and also realize that there are certain benefits to some of the things that China in particular is doing from a development and a commercial point of view, and maybe even from a security point of view, and also just that I think as analysts we have to hold ourselves to a higher standard than locking ourselves into the kind of argument that this is relentless conflict. So you have to look for those ways in which you can constructively work together as well.

DEVIN STEWART: Absolutely. I certainly sympathize with your note of skepticism and also a vote for being more nuanced rather than seeing everything as black and white.

Also, I'm sympathetic with this idea of China being the champion of globalization and the new leader of Asia, but is there a milestone or Rubicon that can be crossed where we essentially have a new balance of power in East Asia? Is there something that we should be looking out for, whether it's with One Belt, One Road or other initiatives, that signals a new era in East Asian relations?

ZIAD HAIDER: To some extent I think the establishment of the AIIB was one such milestone. I don't want to overstate that, but the reason I say that is because this was China making a big conversion. What we had seen to date with China was bilateral economic assistance through bilateral channels. What we saw with AIIB was China taking its bilateral economic muscle and converting it into a multilateral institution with broad buy-in, not just in Asia but in Europe, including with our closest transatlantic allies. Now all of a sudden you have a new institution on the landscape that is China-led.

I think that is the world we need to find a way to get comfortable with and start engaging, which is one where it's not just about the existing institutions on the economic side, the Bretton Woods one of World Bank/International Monetary Fund (IMF). Obviously we've had a host of other regional banks for a long time.

But I think the fact that it is China setting up its institution and getting buy-in is something that was a milestone. And I don't think we necessarily handled it very well because I think we were so caught off guard by the idea of China leading a major international initiative with buy-in that our response was kind of cool detachment and wanting to talk about our own agenda, whereas what the world and the media was looking out for was cool detachment equals opposition.

So I think we have to find a way to get comfortable with engaging with a much more active China that is putting out these economic initiatives—be it AIIB or now One Belt, One Road—and we have to again combine that element of competition and cooperation. So with One Belt, One Road, I think it was very smart to send a delegation from the White House. I think that engagement signaled some degree of confidence on our part.

On the other hand, I worry about how thoroughly the administration has thought about this initiative and if they've thought about the competitive side of it in a holistic way as we've discussed. With AIIB, it's a new institution; yes, it's Chinese leadership, but as I mentioned, we have to also keep it in perspective, which is not a ton of financing in the scheme of things, and there may be opportunities for our companies.

I think we have crossed a milestone—China exerting multilateral economic force globally. And I think what we are going to have to continue to refine is our lens in how we both compete and cooperate on that front.

DEVIN STEWART: Ziad Haider, former U.S. State Department official and senior advisor at CSIS in Washington, DC, thank you very much for speaking with us today.

ZIAD HAIDER: Thank you, Devin. My pleasure.

The above is a transcript of a podcast interview conducted by the Carnegie Council: https://www.carnegiecouncil.org/studio/multimedia/20170713-ziad-haider-us-asia-economic-ties-under-trump