December 7, 2016
The outcome of the US election has created considerable uncertainty at the country’s future policy directions towards the Asia-Pacific. While it is difficult to predict how US economic diplomacy in the region will change, the rule-based order it has led remains crucial to regional security and stability.
As a general rule, the United States has had more care for the development of the international system of global trade and investment than many other countries. Rather than acting unilaterally, the United States often deliberately constrains itself by acting through the IMF, WTO, the World Bank and other multilateral bodies. While it has used explicit economic levers at times — such as infrastructure spending, concessional finance or highly preferential trade deals — the United States has done so to a noticeably lesser extent than other powers for at least two reasons.
First, the great and successful US experiment with constitutionalism has led to clearly defined and separate roles for the public and the private sector. The constitution constrains what various US administrations may do in the short run. But in the long run this increases certainty and enables businesses to prosper through hard work and ingenuity. Separation of powers also limits the US government in its discretion on how to achieve economic ends internationally. The United States simply doesn’t have large state-owned enterprises or development banks that can be directed to international ends.
The second reason why the United States has been exceptionalist in economic diplomacy is pure realpolitik. As the dominant global power, the US benefited from economic activity almost irrespective of where it occurred around the globe. Immediately after World War II, the institutions set up with the support of the United States to regulate businesses around the globe to a significant extent set rules for its own businesses. But as we transition to a more multipolar world there is a risk that the link between US interests and the interests of the global economy is becoming less clear-cut.
History shows that increased trade and investment delivers job opportunities and rising living standards. We have all benefited from the US inclination for international rules over the exercise of arbitrary power. Global rules and norms have allowed businesses, and even countries, to specialise in production and for investment to flow where it is most valued. As I have said elsewhere, the rules-based order effectively underwrote the massive explosion of regional incomes – from Japan, to the Asian Tigers of South Korea, Taiwan, Hong Kong and Singapore, and now China, India, Indonesia and others.
Despite some shortcomings, the US model of economic diplomacy is still the right bet for our region. First, it’s flexible. The rules-based order creates the conditions for markets to flourish — and markets pivot faster than governments. Second, it’s voluntary. Relying on markets fits neatly with the ‘ASEAN way’ of doing economic diplomacy which emphasises non-interference and relationship building.
It is a strength of the system that the rising emerging countries now want to participate in setting the global rules. These aspirations are legitimate and the alternative scenario of competing trade and investment blocs is deeply unappealing.
The rules-based order encourages countries to implement best practice policy settings. For example, in recent decades we have seen US multinationals bring expectations around the rule of law and transparent regulations to markets around the world.
Perhaps most importantly, the US model of engaging internationally — with soft power and economic dynamism — is a success. Economic success is the foundation of economic diplomacy. Failing to pursue policies that foster dynamism, help manage shocks, and deliver citizens what they desire and value, risks the capacity to project power and sustain influence. Economic success makes US society attractive around the world, and it is US businesses abroad which help sell the American dream. US soft power remains unsurpassed.
Without a doubt, developments during President-elect Trump’s term will have a lasting impact on how the United States does business in this region. Yet if the United States retreats, whether in terms of economic, trade or military engagement, there is really only one other single player that could attempt to fill the vacuum. China’s economy is as big as the next 13 largest emerging countries combined, though its GDP growth is obviously slowing as it approaches the technological frontier, and with its ageing and shrinking working population.
It is clear that the United States needs help in maintaining support for global rule setting.
The United States needs the support of its friends and allies to maintain its focus on this region and on far-sighted and open regionalism. This is in our interest — indeed, in the interest of all countries in the region. With the slump in trade growth, the world has lost a key engine of economic growth that benefits all in the world. This requires other countries to step up and do more of the heavy lifting to advocate for the promotion of open markets, the importance of foreign investment and trade, and the benefits of immigration.
While we all need to get used to US dominance being replaced by pre-eminence, continuing to develop the rules-based order could be the most important legacy bequeathed to our region from the US primacy of the 20th century. US president Calvin Coolidge famously said that, ‘After all, the chief business of the American people is business. They are profoundly concerned with buying, selling, investing and prospering in the world’. Since business is certainly something the new US President-elect knows a lot about, we should all aim to ensure that this legacy will continue.
Martin Parkinson is the Secretary of Australia’s Department of the Prime Minister and Cabinet. This is an edited version of an address originally delivered at the American Chamber of Commerce in Australia in Sydney on 16 November 2016