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Anatomy of a whole-of-government foreign policy failure

The Asian Infrastructure Development Bank is proceeding apace, despite U.S. efforts to stop it.

China’s President Xi Jinping (fourth right) meets with the guests at the Asian Infrastructure Investment Bank (AIIB) launch ceremony at the Great Hall of the People in Beijing in this October 24, 2014 file photograph. In the six months since, the United States has tried to stop the AIIB… and failed. REUTERS/Takaki Yajima
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Let’s be honest: this has not been a great week in the annals of American foreign policy. To be fair though, looking at American foreign policy through the lens of news cycles might be short-sighted. So at the end of this week, it’s time to step back and appreciate the whole-of-government policy clusterf*** that is the U.S. approach to the Asian Infrastructure Investment Bank (AIIB).

To recap: the AIIB is one of several new financial institutions that China has tried to midwife over the past year or so that many have viewed as direct competitors to the U.S.-created international financial institutions like the IMF, World Bank, and Asian Development Bank (ADB). The United States has articulated two concerns about the AIIB: that it was an organization designed to marginalize the ADB, and that in doing so, China would be applying rules and standards in project lending that would be far less friendly to the environment than the U.S.-led institutions.

Whether these concerns are overstated or not isn’t the point. The point is that in recent weeks the Obama administration’s year-long effort to delegitimize and marginalize the AIIB has failed and failed spectacularly. First Britain announced that it would be a founding member of the AIIB against U.S. wishes, surprising even Chinese officials. And then the other dominoes started to fall in rapid succession. Germany, France, and Italy quickly followed suit.

Now we’re seeing a cascade effect. South Korea announced that it would join. Both Australia and Japan now look set to join. Hell, even the IMF’s Christine Lagarde signaled that she was looking forward to working with the AIIB.

The Obama administration has been reduced to backbiting U.S. allies in the press — which, by the by, is a passive-aggressive habit that it really should stop. Newspapers articles, Economist leaders, and smart China analysts are all blasting the Obama administration on this issue. Indeed, most China-watchers advised the administration to join the AIIB six months ago on the logic that influencing it from within was a much smarter move than the course of action they actually pursued.

So, no contest, the executive branch screwed this up. But it would be selfish for the Obama administration to hog all of the credit on this policy failure. No, one of the main drivers behind China’s push for the AIIB has been frustration that Beijing’s clout at the IMF and World Bank has not matched its economic rise. The way to fix that has been quota reform to give China more power. As it turns out, the Obama administration negotiated that very thing five years ago.  All that was needed was for the U.S. Congress to pass it. And as I wrote two years ago:

If Congress stalls this quota reform measure that the executive branches from both parties have negotiated , they will be weakening a U.S.-friendly international institution and inviting potential rivals to set up or bolster alternatives. Which, if you think about, is a really stupid way to run U.S. foreign economic policy.

And hey, what do you know, Congress did that stalling thing. As the treasury secretary pointed out earlier this month in the Financial Times:

Jack Lew said that the US would lose some of its ability to mold international economic rules if Republicans in Congress did not drop their opposition to reforms of the IMF that would give China and other emerging economies a greater voice in the fund.
“Our international credibility and influence are being threatened,” he said. “To preserve our leadership role at the IMF, it is essential that these reforms be approved. The alternative will be a loss of US influence and our ability to shape international norms and practices.”

Partisan critics of the administration might respond that this sounds like sour grapes — particularly from Lew, who has fumbled this policy portfolio pretty badly. That would be a fair point, if it wasn’t for the fact that Republican members of Congress are admitting the same screw-up:

Republican Sen. Jeff Sessions of Alabama acknowledged irritation about IMF voting rights may have been a factor.
“I think this could be an unfortunate event and it might be bigger than we understand today,” he told the Brussels Forum, an annual trans-Atlantic dialogue organized by the German Marshall Fund of the United States.

So, to review: Congress hamstrung the Obama administration’s best weapon to halt the AIIB’s existence, and then the Obama administration compounded the error in its wrong-headed approach. This is, truly, a whole-of-government policy failure.

The AIIB and other institutions are still in their embryonic phase, and so panicking about it is the wrong move. It’s not even clear now if the AIIB will pan out, and if China experiences the downturn that some are predicting, the AIIB will be an afterthought. Still, this episode should be an object lesson in future years on how both branches of government, working independently, can really muck up U.S. foreign economic policy.