This week’s note is excerpted from a longer
analysis piece RGE has just published examining U.S. President Barack Obama’s
current trip to East and Southeast Asia. The full piece, which includes analysis
of U.S.-North Korea relations, the U.S.-South Korea free trade deal, APEC’s
integration process and looming questions about Myanmar, is available to RGE’s
premium clientele here: “Obama Tours Asia with a Full Agenda” (login required).

President Obama embarked on his highly-anticipated maiden visit
to Asia last week, furthering his efforts at global outreach. The trip
comes as global leaders are reckoning with an unsynchronized exit from economic
policies that have helped end the worst
recession of the post-war era. Policy changes in Asia, particularly among
major U.S. creditors, will be essential to rebalance
global growth: APEC members (including those in the Americas) absorb 55% of
U.S. goods exports and provide a major market for U.S. service exports, while
Asia depends on U.S. consumers and foreign direct investment (FDI) to drive
economic growth. With the trip, Obama aims to renew U.S. political and economic
influence in a region that analysts claim was ignored by the previous
administration, addressing key issues like economic cooperation, climate
change, free trade and the regional balance of power. By spending nine days
abroad as domestic issues like health care and unemployment vie for his
attention, the president acknowledges the growing importance of the U.S.
relationship with a rising Asia.

Obama’s first stop was Japan, a key U.S. ally and the host of a large (and
increasingly contested) U.S. military concentration. Next, Obama stopped in
Singapore, where he attended the APEC meeting. Obama, whose cap-and-trade
legislation is stalled in Congress, was among the world leaders who accepted
that a binding carbon emissions deal was unrealistic, saying the best that
could be hoped for was a “politically binding” deal. On the sidelines of the
APEC meeting, Obama met Russian President Dmitry Medvedev to discuss U.S.-Russia
ties, the new arms control treaty and possible sanctions on Iran and North
Korea. While in Singapore, Obama attended the first U.S.-Association of
Southeast Asian Nations (ASEAN) summit, which was also attended by Myanmar’s
leader, before arriving in China. His final stop will be South Korea, where
talks of disarming North Korea may overshadow discussions on the U.S.-South
Korea trade agreement.

Tensions and Reassurance
in China

Ahead of Obama’s visit
to China, U.S. officials have focused on a new goal of “strategic reassurance”
that China will seek to maintain global stability as the country’s influence
grows. A bilateral deal on climate change would have sent a powerful signal on
this accord. Although U.S. and Chinese leaders signed several agreements on
clean energy initiatives, in part because of job creation goals, neither side
was ready to make any binding commitments on carbon reduction.

Similarly, the U.S. sought Chinese support on Afghanistan, Iran and North
Korea, but no meaningful cooperative agreements have been aired publically.
Over the past year, however, Chinese and U.S. leaders have been meeting more
often than they have during past U.S. administrations, and linkages at all
levels of governments have increased.

Trade and currency
issues dominated the U.S.-China meetings, as they have in past meetings,
though the relevant discussions were brief. The U.S. claimed a weak
renminbi (RMB) would prevent the correction of global imbalances that both
sides seek, but China put the blame on U.S. debt levels. This visit comes as
market actors are increasingly pricing in a renewed gradual appreciation of the
RMB over the next six months, as detailed in the recent RGE Analysis What
Is China’s Exit Strategy? by Adam Wolfe and Rachel Ziemba.

Just before Obama’s arrival, a senior Chinese official criticized the loose
U.S. monetary
policy for the first time. As in their trade meeting in Hangzhou last
month, China and the U.S. pledged to work together to avoid
a trade war as pressure builds in both countries’ export sectors. As the global
economy has begun to stabilize, the number of anti-dumping complaints has
grown. Calm heads may prevail in the end, but, again, no strong commitments
came from Obama’s visit or the meeting of trade leaders on October 29.

China sent a political message by skipping some of the goodwill gestures that
usually accompany a U.S. presidential visit. Ahead of the visit, Chinese
dissidents were reportedly rounded up, a striking contrast to the token
prisoner releases that tended to precede visits from Presidents Clinton and
Bush. Likewise, Obama’s “town hall” meeting in Shanghai was not televised live
across China as past U.S. presidential speeches were. In addition to asserting
China’s desire to level the political playing field, the moves may reflect
insecurity on the part of China’s leadership, stemming in part from concern
that the domestic economic recovery
remains “unstable, unbalanced and not yet solid.” Even if it is better
positioned to resist U.S. pressures, China still has a limited ability to alter
policy in Washington, in part because China’s pursuit of macroeconomic
stability from the dollar peg constrains other policies, including reserve
diversification. U.S. Secretary of Commerce Gary Locke has bluntly defended the
designation of China as a “nonmarket economy” for antidumping cases.