November 10, 2011

As President Obama travels to Honolulu for this weekend’s Asia-Pacific Economic Cooperation summit, he will confront a changing game in Asia. During a recent visit to the region, a senior Asian policymaker told me, “We used to ask what we could get from the Americans in return for their military personnel and basing rights. The new question is, what will we have to give them to get them to stay. And it’s all because of China.”

Meetings with Japanese, Australian and Southeast Asian policymakers and business executives have made clear to me that China is misplaying its hand in Asia. Beijing has miscalculated its ability to cater to nationalist sentiment at home without alarming its neighbors and is inadvertently driving Asian states to build closer economic and strategic ties with the United States and each other. This misstep gives Washington an enormous opportunity.

For the past decade, Beijing wagered that its neighbors’ reliance on its economy for trade and investment would buy goodwill, closer ties and space for occasional strategic posturing. In other words, China sought to provide the economic engine for the region while espousing a “peaceful rise” principle that eased suspicion over its geopolitical intentions. And for its neighbors, an economically vibrant and diplomatically modest China provided the perfect partner.

Over the past 18 months, however, China has taken a more aggressive tone toward territorial disputes in the South China Sea and elsewhere. This is partially driven by the leadership transition in Beijing, as factions in the Communist Party seek to curry favor with hawks, hard-liners, the nationalistic press and business. Though a few Chinese policymakers have begun to walk back some of the aggression, their hands are tied by the jockeying for power in Beijing.

Wariness of China is pervasive and increasing among the elites and general populations in Vietnam, the Philippines, Korea, Japan and elsewhere. Meanwhile, economic sentiment regarding China is shifting from bullishness to caution. Even without an economic “hard landing,” China may be facing years of slower growth and higher inflation, coupled with rising fears about bad debt. Its neighbors increasingly worry that a weakening in China’s economic trajectory could have drastic effects on their economies. And a more assertive but less economically dynamic China is the region’s worst nightmare.

In response, China’s neighbors are seeking a balance to Beijing. When Chinese Foreign Minister Yang Jiechi last year warned members of the Association of Southeast Asian Nations to “remember how much of your economic prosperity depends on us,” he motivated not a strategic kowtow but increased efforts by regional nations to reduce their economic and strategic dependence on China.

These dynamics are not yet fully appreciated in Washington, but they present a strategic opportunity. We have already taken advantage in the military sphere, strengthening cooperation beyond defense agreements with Australia, Singapore, Taiwan and Vietnam since 2010. In Japan and South Korea, long-standing alliances with the United States remain extremely popular.

Washington has an even greater opportunity in the economic realm: to shape the emergent Asia-Pacific financial and commercial architecture, enabling the United States to take advantage of the shifting momentum in the world economy and to provide what will probably be necessary economic underpinnings for long-term U.S. military and security commitments to the region.

But Washington has been slow to pursue this opening, even with a path readily available. The ­Trans-Pacific Partnership (TPP) is a free-trade agreement that includes Australia, New Zealand, four Southeast Asian nations, Chile and Peru. Japan is expected to announce this week its intention to join negotiations. Secretary of State Hillary Rodham Clinton emphasized the TPP when speaking about economic diplomacy last month, but negotiations have proceeded slowly. While Washington cannot drive TPP on its own, the Obama administration’s approach to Asian trade and commercial issues has been tepid. This week’s summit is likely to bring only a skeletal outline of the pact’s terms, rather than the full agreement as originally planned.

As Clinton said last month, “America’s economic strength and our global leadership are a package deal.” A vibrant TPP, complete with rules and reciprocity on investment, will ensconce the United States firmly in the emerging economic and political architecture in East Asia. Though the United States is still a leading trade partner for many Pacific Rim countries, its share of regional trade is declining. TPP, especially if it includes Japan, would provide a strategic counterpoint to last year’s China-ASEAN pact. It presents an alternative to Chinese economic and strategic domination that nations in the region are actively seeking, and offers economic and strategic benefits for the United States in a region that has begun to define the international scene.

This opportunity won’t last. After China’s leadership transition is complete, there could be a more decisive shift in Beijing toward a more effective Asian policy. For now, though, driving TPP to a successful conclusion would be an important step to ensuring that the United States has a secure place in the region’s new dynamics.

The writer is head of research and director of global macro analysis at Eurasia Group, a global political risk consultancy. He was director of policy planning at the State Department from 2007 to 2009.