The private sector won’t save America’s Indo-Pacific policy (economist.com)
The private sector won’t save America’s Indo-Pacific policy
More needs to be done to repair the economic relationship with South-East Asia
Sep 19th 2024
America wants South-East Asians to know that it is the region’s best friend. In summits, white papers, speeches and private asides since coming to office in 2021, officials of the Biden administration have told them that America, not China, is the top source of foreign direct investment into the region. It is Uncle Sam who is going to make them rich.
Their audience could be forgiven for feeling gaslit. The most visible investments in these countries in recent years have come from China, not America. It is China that is building new high-speed trains, ports and public buildings, in a bid to win favour in the region. So why the empty boast?
America’s pitch to South-East Asia is part of a creative effort by President Joe Biden’s administration to compete for economic influence without offering Asian countries new access to American markets. To do this, it has sought to emphasise investment rather than trade, and to highlight the American private sector’s part in the region’s economic growth since the second world war.
There is some truth in what American officials say. America has built up at least twice as large a stock of investment as China has in South-East Asia, the heart of geopolitical competition in the continent. But the bulk of these investments arrived decades ago. A new report from the Lowy Institute, a think-tank in Sydney, shows that over the past decade China invested $218bn in the region. America invested only $156bn.
It is the marginal dollar that matters to local business leaders, and to politicians keeping an eye out for their next ribbon-cutting opportunity. The goodwill and influence that investment confers must fade as decades pass. The prospect of future returns is more potent—and here China has the advantage.
In an earlier era, America might have hoped to compete on quality, if not quantity. America invested in projects that moved Asian industries up the value chain, such as advanced manufacturing and semiconductors. Mr Biden often talks about America as a provider of high-quality investment. The contrast with China, whose investments once focused on things like garments, is implicit.
But China now competes on quality, too. Firms from both countries are investing in data centres to power the boom in artificial intelligence. Of the two, only China is bringing South-East Asian firms into its electric-vehicle supply chain. Only China is investing in processing critical minerals in South-East Asia which will go into batteries to power those vehicles.
That is not to say that American firms cannot still play a helpful role in reducing Chinese influence. Where an investment makes sense, they can provide an alternative to Chinese financing. Competition between the two can lead to better terms for borrowers. The problem is that American firms are rarely interested in investing in these projects, which they regard as riskier.
Nor can America simply tell its firms to invest in unprofitable projects in South-East Asia, as China can. Asian countries know that private-sector investment is not directed by bureaucrats in Washington, so they don’t worry that they will get less if they fall out of favour.
Chinese investment, however, can be won or lost over geopolitics. Aides to Joko Widodo, Indonesia’s president, say that he has been reluctant to criticise China over its actions in the South China Sea or Xinjiang for fear of losing its backing for his infrastructure splurge.
In sum, private-sector investment will not preserve declining American economic influence in Asia. America has no clear advantage on quantity or quality. And it cannot convert capital into political capital in the way that China can.
What would work better? Mr Biden, like Donald Trump before him, has said no to the Trans-Pacific Partnership, a trade deal signed by Barack Obama. Mr Trump attacked it in 2016 as a bad deal, and Democrats fear that it sank Hillary Clinton’s bid for the presidency. Kamala Harris, too, has long been sceptical of such deals. But only its offer of greater access to the world’s largest market offers any prospect of reversing the ebb of American influence in the region.
In the meantime, American officials will keep trying to benefit from nostalgia for investments past. This is no great offence; they are working with what they have. The only real harm would be if they began to believe it themselves. That would delay their own much-needed reckoning of America’s declining economic influence in Asia.■