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posted on 24 November 2017

Trump's Asia Tour: From Old Conflicts To New Prospects, Part 1

Written by , Difference Group

Trump’s grueling 12-day Asia tour was a quest for mega deals. US policies in Asia are shifting. The stress on competitive strategic visions is being redefined by historic bilateral economic opportunities with China, Vietnam, South Korea, the Philippines and other ASEAN and APEC nations.

5.asian.leaders

Diplomatic history has its ironies. In the Obama era, US President initiated a pivot to Asia that he had little time to visit. In the Trump era, US President has been so busy fortressing America against the world that he has had to spend more time in Asia to tame rumors about US disengagement.


Trump ... has had to spend more time in Asia to tame rumors about US disengagement.


This time President Trump’s strategic objective was in lucrative deal-making, which proved historical. In the future "America First" issues are likely to return with gusto, especially as the White House’s future is overshadowed by the Mueller investigation at home.

Golf, trade and arms in Japan

Besides golf with Prime Minister Shinzo Abe, Trump had a good reason to start his Asian tour in Japan. Outside of North America, Japan is America’s third-largest export market and second-largest source of imports. Japanese firms are the second-largest source of foreign direct investment (FDI) in the US, and Japanese investors are the largest foreign holders of US treasuries.


Outside of North America, Japan is America’s third-largest export market and second-largest source of imports.


The aging Japan has a critical role in a containment scenario, which Washington would seize against Beijing, should the US-China bilateral relations fall apart.

Ever since Trump withdrew from the Trans-Pacific Partnership (TPP), the White House’s focus has been on a redefined bilateral trade deal with Japan that would also include significant arms deals. Strategically, the alliance rests on the forward deployment of 50,000 US troops and other US military assets in Japan, including the controversial Okinawa base.

After decades of secular stagnation, Japanese politics has been more stable after the victories of Abe’s Liberal Democratic Party in the 2012, 2016 and 2017 elections. But instead of seizing the historic opportunity to use political consolidation to reignite the Japanese economy, Abe has pursued controversial strategic initiatives, including re-militarization, the US-style 2015 security legislation, and renuclearization.

Ménage à trois in the Korean Peninsula

Since the early 1950s, the Mutual Defense Treaty has allowed the US to dominate South Korea’s military defense. Today, some 29,000 U.S. troops are based in the country, which is included under the U.S. “nuclear umbrella."


South Korea remains the US’s seventh-largest trading partner and the US is South Korea’s second-largest trading partner.


However, after the Park impeachment, South Korea opted for a strategic U-turn in economy and strategic relations. Elected in May 2017, President Moon Jae-in is no friend of the US anti-missile system (THAAD); he supports sanctions against North Korea, but only as long as it is aimed at bringing Pyongyang to the negotiating table. Moon does not accept the past Park-Obama “sanctions-only" approach toward North Korea, which the Trump administration has escalated with its “maximum pressure" principle.

South Korea remains the US’s seventh-largest trading partner and the US is South Korea’s second-largest trading partner. The two economies are joined by the Korea-US Free Trade Agreement (KORUS FTA). While the Trump administration has stated its intent to review and renegotiate the deal, it has not specified what it would like to amend.

Realistically, the harder Trump will push Seoul economically, the more he will stand to lose strategically - and vice versa.

Historic deals to avoid a clash with China

In 2016, US-China trade amounted to $579 billion, while Trump’s singular focus is on the $368 billion trade deficit. Yet, merchandise trade is only one aspect of the broad bilateral economic relationship. Today, China is US’s second-largest merchandise trading partner, third-largest export market, and biggest source of imports.

During his tour, Trump was accompanied by CEOs of 30 companies. Hungry for huge deals, the last thing they wanted was Trump to undermine access to the $400 billion Chinese market, based on US exports to China, sales by US foreign affiliates in China, and re-exports of US products through Hong Kong to China.


China is US’s second-largest merchandise trading partner, third-largest export market, and biggest source of imports.


The same goes for services, foreign direct investment (FDI) and US Treasury securities. China is America’s fourth largest services trading partner (at $70 billion), third-largest services export market, and US has a major services trade surplus with China. The combined annual US-China investment passed $60 billion in 2016, but there is room for far more as China has become the world’s third-largest source of global FDI. Finally, China remains the second-largest foreign holder of US Treasury securities ($1.2 billion as of August 2017), which help keep US interest rates low.

In Beijing, the Trump Administration more moderate approach toward China paid off - as evidenced by the historic $254 billion deals.

Nurturing Vietnam as ASEAN’s ‘mini-China’

Trump’s tour featured two major Association of Southeast Asian Nations (ASEAN) nations, Vietnam and the Philippines. Since Obama’s military pivot to Asia, Washington has morphed its relationship with Vietnam into a “strategic partnership."

Vietnam’s rapid growth in bilateral trade can be attributed to the post-1986 domestic economic reforms and US extension of normal trade relations (NTR) status in 2001.

Based on US data, bilateral trade soared from $220 million in 1994 to $45 billion in 2015, which has turned Vietnam into the 13th-largest source for US imports (but only 37th-largest destination for US exports). To Washington, Vietnam is a ‘mini-China’: the second-largest source of US clothing imports, a major source for electrical machinery, footwear, and furniture. While Washington seeks to protect US agricultural interests against Vietnam, the latter sees the regulation of its catfish-like basa imports in the US as protectionism.

Vietnam is hedging its trade bets. While it was a willing participant in the TPP, it is a party to negotiations to the Regional Comprehensive Economic Partnership (RCEP), a pan-Asian regional trade association that currently does not include the US but promotes the interests of emerging nations in Asia Pacific.


This article was adapted from a commentary published by China-US Focus 15 November 2017.


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