As President Barack Obama and Treasury Secretary Timothy Geithner head to Honolulu later this week to host the Asia-Pacific Economic Cooperation summit, their first priority is to enlist the 21 APEC member economies to help heal an ailing global economy. In a closely interconnected world, the fate of America’s economy—jobs, exports, and growth—depends as much on what happens around the globe as it does on what happens within the United States’ own borders.
That means the Asia-Pacific economies need to be on board to fix a broken world economic system that is in sore need of more demand, a level competitive playing field with aligned exchange rates, and a coherent approach to strengthening financial regulation. Collectively, APEC’s members excluding the United States account for well more than a third of the world’s population, approximately 32 percent of the world’s gross domestic product—the largest measure of global economic growth—34 percent of world trade, and two-thirds of global balance-of-payment surpluses.
As the European Union grapples with its sovereign debt crisis, and the United States struggles with its own anemic growth and fiscal challenges, painful cuts in government spending could force consumers to tighten their belts, further depressing demand at a time when the global economy needs it most. But many economies in the Asia-Pacific including China, Indonesia, and South Korea boast current account surpluses and have relatively strong public finances to undertake countercyclical measures that can spur more global demand at a time when it is weak.
Recognizing one of the few bright spots in an otherwise bleak economic landscape, the Obama administration is looking to negotiate a Trans-Pacific Partnership trade deal with eight APEC economies with the possibility of adding a ninth—Japan. U.S. trade with the eight economies of Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam constitutes 5.5 percent of total U.S. trade; with Japan this doubles to 11 percent.
Exports are one part of the otherwise struggling U.S. economy that have been doing well throughout the recovery. Exports grew by 11.3 percent in inflation-adjusted terms in 2010. This was the fastest growth rate since 1997. Data for 2011 show that exports have remained strong so far, overcoming weaknesses elsewhere, such as in consumer spending. This reinforces the fact that U.S. producers can be competitive in world markets when there is sufficient demand. The Obama administration’s goal to enhance economic ties with APEC countries is therefore encouraging for U.S. exports, job creation, and growth in the medium to long term as APEC countries continue to have solid growth and rising demand for U.S. goods and services.
As Secretary of State Hillary Clinton recently noted:
Harnessing Asia’s growth and dynamism is central to American economic and strategic interests and a key priority for President Obama. Open markets in Asia provide the United States with unprecedented opportunities for investment, trade, and access to cutting-edge technology. Our economic recovery at home will depend on exports and the ability of American firms to tap into the vast and growing consumer base of Asia.
But equally important to this effort is ensuring countries such as China adjust their exchange rates so their currencies align with the global currency market. Exchange rate policies are partially responsible for America’s growing trade deficit, the erosion of jobs in certain sectors, and global financial imbalances.
This reinforces the important role that Asia-Pacific nations must play in stabilizing the global economy. The APEC summit meeting (following on the heels of the Group of 20 leaders summit earlier this month in Cannes, France) is an opportunity to nudge APEC member economies such as China to adhere to the commitments agreed to in Cannes "to increase domestic demand, coupled with greater exchange rate flexibility."
Adhering to these commitments is also fundamental to international financial stability. And as APEC economies continue to gain importance in an increasingly integrated global economy, the United States must work closely with them to ensure coherence in finacial regulations, quality accounting standards, and stronger oversight of the global financial system.
Global economic growth is shifting rapidly from advanced economies to emerging ones, especially those in Asia. This year’s APEC summit is an opportunity for the Obama administration to strengthen its economic profile, connections, and influence in the Asia-Pacific region with countries beyond China.
At the APEC summit meetings, President Obama and Secretary Geithner must convince key Asia-Pacific leaders to share the burden of encouraging a global economic recovery by cultivating domestic demand, agreeing to greater exchange rate alignment and greater coordination in finacial regulation. President Obama will also present the broad contours of the Trans-Pacific Partnership that will be more about reinforcing commitments to the fruitful conclusion of the negotiations at some later date rather than presenting any details of the agreement itself. But equally important to these public announcements is the administration’s foresight and effort to engage with economies on the other side of the Pacific to create opportunities for American growth, exports, and jobs for years to come.
Sabina Dewan is the Director of Globalization and International Development at the Center for American Progress.