Economic Protectionism Hurts US Trade Relations With Asian Nations

September 3, 2014 - 1:53 PM

US-Asia economic relations are one of the keys to a prosperous 21st century. In that light, yesterday did not bring good news.

As part of its recent spate of nasty economic behavior, China has been harassing foreign car-makers for “monopolizing” their own parts supply. This is something akin to buying an item from a store and then accusing them of monopolizing service for it, when there are a dozen other stores to buy and receive service from.

India has now rushed to copy China. The new Indian government is supposed to improve the business environment. Not so far.

India is not just a follower in dubious economic behavior, it is also a leader. Prime Minister Modi’s Independence Day speech two weeks ago was impressive in several ways. But its main economic theme was not prosperity through competition and private ownership, it was “make it in India.”

The nationalist overtones in that approach play well politically but are dangerous economically, unless accompanied by an equal commitment to openness. India has not shown that commitment to date.

Asia’s third most populous country could join the top two in heading off the rails. Indonesia previously decided to halt metal ore exports, now it may be looking to discourage agriculture imports and perhaps others. Self-reliance sounds far better in principle than it works in practice.

If US-Asia economic relations are to be positive, strained accusations of monopoly and anti-trade policies cannot go unchallenged. Happily, the US has a response that goes well beyond complaining about individual issues: the Trans-Pacific Partnership (TPP), which includes Australia, Chile, Vietnam, and others.

A sound TPP is an agreement to counter protectionism, offering companies and workers alternative markets where predatory government policies have been forsworn. It undercuts economic nationalism by showing that competition and respect for private ownership rights is what will bring prosperity.

China and India are also contemplating superficial state sector reform, where neither has shown the nerve or vision to take meaningful action. The TPP has a chapter on “competitive neutrality,” which should require participants to sharply limit the advantages they give to state-owned enterprises. This will strike a blow against state-led development and its endemic corruption.

All of this, and more, can be accomplished, but requires a sound TPP that includes a number of important economies.

First, is the US, which is not making progress on considering the TPP and may not be fully committed to a high-quality agreement. The US is, correctly, asking much of its partners on intellectual property, among other issues. Remaining American barriers from sugar to maritime services need to be lowered.

The second-most important TPP economy should be Japan. US-Japan talks are now the primary obstacle to an agreement. While the US is hardly blameless, Japanese Prime Minister Abe came into office promising a different economic course and has not delivered. Japan is long overdue to have opened its agriculture sector.

A genuinely pro-market TPP is politically difficult in Japan, the US, and most of the participating countries. But a glance at yesterday’s news serves as a reminder of how badly it is needed.