Low Expectations for Asia Trip

The Obama Administration has lowered its expectations for what the President may accomplish on his four-nation Asia trip, which begins today in Japan, and also includes visits to Singapore, China and South Korea. As reported in The Wall Street Journal:

Administration officials say the President isn’t likely to bring along tangible concessions on hot-button issues, nor will he return with concrete achievements. Unfinished business — from the shape of U.S. military bases in Okinawa, to a South Korean free-trade agreement, to climate change, trade and currency issues with China — will remain unfinished.

Given the current state of affairs, that is undoubtedly a realistic assessment. As we noted in A New World Order earlier this week, China has a somewhat different agenda in both North Korea and Iran than the United States, so substantive progress on the geopolitical front is unlikely.

Ditto on economic matters. A ballooning federal deficit and a declining dollar leave President Obama little leverage to negotiate with China on currency issues, and the recent imposition of a 35 percent tariff on imports of tires from China promises to put him on the defensive in discussions with President Hu Jintao on matters of trade and protectionism.

While the President did say that, “currency, along with a host of other issues, will come up” in meetings with Chinese leaders, previous calls for China to revalue its currency have gone unheeded. After all, there is little incentive for China to do anything other than continue to peg the yuan at approximately 6.8 to one to the U.S. dollar. As the largest creditor to the United States, holding at least $1 trillion worth of dollar-denominated assets, any revaluation of the yuan will reduce the value of China’s investments in the United States. In the meantime, the U.S. dollar continues to slide against other major currencies. The greenback has declined in value by 15 percent against the Euro since March, and by 9 percent against the Japanese yen over the same time period.

Although the United States is eager to avoid a trade war with its largest trading partner, China reacted strongly to the tariff on tires, imposing new tariffs on a similar amount of automotive components imported from the United States. China and the United States have traded a series of accusations of unfair trade practices since September when the tire tariffs were announced. Meanwhile, tensions between the two countries intensified late last week when the United States slapped anti-dumping tariffs of up to 99 percent on imports of some Chinese steel products used in the oil industry. China branded the decision an “abuse of protectionism” and retaliated by launching its own probe into U.S. car imports. Expect trade to be high on China’s list of agenda items to discuss with President Obama.

Administration officials say that what the trip lacks in achievements, Mr. Obama hopes to make up in appearances, news conferences in Tokyo, Beijing and Seoul, a speech on U.S. engagement with Asia in Tokyo and a speech and town hall-style session with young people in Shanghai. According to Jeffrey Bader, senior director for East Asian affairs for the National Security Council, the idea is to use the President’s “special communications gifts.”

It will be interesting to see how Asia and China react.

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