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Stephen Olson at Chinese Development Institute Conference

 

 Clyde Prestowitz giving presentation to CDI...

 

Steve Olson teaching trade negotiations at the Mekong Institute...

 

Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

Stephen Olson on Trade, Economics, and Geo-politics in Asia

US Influence in Asia Begins at Home

10 October 2013

President Obama's decision to cancel his scheduled trip to Asia to attend the APEC meetings in Indonesia, along with side trips to Brunei, Malaysia and the Philippines has caused tremendous consternation and hand-wringing on both sides of the Pacific amongst those who value strong US "influence" and "commitment" in the region.

Indeed, President Obama's absence does represent to at least some extent a missed opportunity to advance the US economic and strategic agenda in the region, and is certainly a disaster in terms of the bumbling image it projects of a dysfunctional US Government, unable to keep its own house in order -- let alone exercise any meaningful degree of influence abroad.

But all of this hubbub misses the essential point: The greatest threat to US influence in Asia is not a missed meeting in Bali. The real threat is a lackluster US economy, losing its competitive and innovative edge.

US "influence" – in whatever particular sense or meaning that word is bandied about – always has and always will be a function of the strength and innovative vitality of the US economy, and the concomitant credibility of its underlying economic philosophies – NOT the travel schedule of the US President.

Attendance at summit meetings is not the reason the US became the lynch pin of the world trade system, the global leader in most cutting edge technologies, the issuer of the world's reserve currency, or the foremost military power in the world. These achievements – and the influence which accompanies them – were obtained by dint of the strength of the domestic US economy.

And it was the unrivaled US economic leadership in the aftermath of the Second World War that allowed the US to fashion a set of global economic and strategic institutions which largely reflected its liberal political and economic philosophies. For the past six decades, this economic success has provided the US with sufficient influence to effectively inspire, coax, and cajole most of the rest of the world to "play the game" by US rules. In one form or another, the basic tenants of the "Washington Consensus" – free markets, free trade, and minimal government meddling – have been ascendant.

The ability of the US to continue to succeed in exercising such preponderant influence, however, has never been more tenuous. The Asian Financial Crisis of 1997, in which countries that toed the Washington Consensus most faithfully seemed to suffer the worst, while those who flouted the "rules" faired considerably better, caused many to begin to question the wisdom of these principles. The ongoing economic ascent of China, pursuing a much more state-directed form of capitalism, provided an alternative model which seemed more suitable for many developing countries from South America to Southeast Asia.

But it was the Global Financial Crisis which delivered perhaps the sharpest body-blow to both the credibility of the US model and the vitality of its economy. This "made in America" global crisis seemed to lay bare the inherent flaws in the US system, while simultaneously saddling the US with a nearly doubled national debt, sluggish growth, and stubbornly high unemployment. Decades of a trade policy pursued for geo-strategic reasons as much as economic considerations has left the US with a massive and deeply damaging trade deficit. The country's manufacturing base, along with significant accompanying spin-off benefits in R&D and related employment, has been hollowed out.

For anyone concerned about US "influence" in Asia, the real issue is not a canceled trip to Bali and a foregone group photo in batik shirts. The real issue is the underlying strength of the US economy. Although perhaps less exciting than media-friendly global summitry, US influence will rise or fall based on considerably more mundane issues: can and will the US reform its tax code so as to encourage innovation and entrepreneurship, rather than to reward big money interests? Will the US develop and implement an industrial policy which recognizes the importance of a manufacturing base? Will the US stop subordinating economic interests to strategic interests in the conduct of its trade policy? Will the US political system prove itself capable of addressing long-term challenges over the cost of entitlement programs and inadequate government revenues?

The failure or success of the US in addressing fundamental points such as these will go much further in determining the level of US "influence" in Asia, then will any number of world-wind presidential visits. If the US economic house is in order, US influence in the region will be formidable – full stop. If the US economic house continues to dilapidate, however, one hundred Presidential visits to the region will not be enough to maintain or enhance influence.

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