Since the onset of the current financial crisis, there has been a significant drop in the volume of world trade. Marcus Hand, the Asia Editor of Lloyd’s List DCN, claims that the drop has reached a staggering 20 percent. While policy makers encourage the completion of the current WTO Doha Development Trade Round in 2010, evidence of actual prospects of accomplishing the task look grim. Consequently, to prevent the raise of protectionism and its respective side effects and to foster further trade liberalization, regional and bilateral arrangements have been pursued as the next best alternative.
The Asia-Pacific Economic Cooperation (APEC) members contribute more than 50 percent of the world GDP. Asia is also the most successful region in recovering from the current global financial crisis. Over the years, APEC has become an increasingly important regional arrangement for the United States—four out of its five largest trading partners are APEC member states and about 60% of US exports are destined for the APEC countries.
In the November 12-14, 2009 APEC Summit in Singapore, the Obama administration identified economic cooperation within APEC as a major foreign economic policy goal. Specifically, the US Trade Representative Ron Kirk, affirmed Obama administration’s definite stance on the issue of free trade and market liberalization and pointed out that US trade with APEC nations currently supports 3.7 million American jobs. Additionally, the US delegation unexpectedly announced that the US would engage in the Trans-Pacific Partnership (TPP), a region wide FTA with Asia-Pacific. On the other hand, the Congress is delaying the ratification of a landmark agreement between the US and South Korea and has recently erected trade barriers against selected Chinese imports, while still ignoring demands from Chinese neighbors to take a tougher stance towards the Chinese undervalued currency.
The question, thus arises, whether the US stance demonstrated in the Summit will be sufficient to prevent a further drop in trade volume both for the US and worldwide. Some experts and stake holders claim that the US needs to be more involved in the regional arrangements with Asia and the Pacific, and act like a leader promoting further integration in the APEC framework (the Australian prime minister Rudd, and the Prime Minister of Thailand Abhist among others), as well as act as a stabilizing power in the region. Others (for example Claude Barfield from the AEI) claim that the US might need to step in only after the major APEC economies have agreed on the preferred architecture (e.g., the Japanese proposal for an East Asia Community), as to not cause a backlash against policies that could be seen as intervention, or even intrusion by some APEC governments. As Amitav Acharya from the American University points out, the APEC members welcome US involvement, but not dominance.
Question: Can the US economy sustain a further drop in trade volume? Should the Obama administration take a more proactive stance and be more involved in the economic developments in Asia-Pacific and APEC?