Obama to press Asia to open markets and buy more U.S. imports

The president will urge leaders to do more to 'rebalance' the global economy by increasing domestic consumption and focusing less on exporting to American consumers.

By Don Lee and David Pierson

November 13, 2009

Reporting from Washington and Beijing

On the eve of his first Pacific trip since entering the White House, President Obama signaled Thursday that he would press Asian leaders to open up their markets and boost purchases of U.S. goods instead of relentlessly focusing on exporting more and more to American consumers.

In remarks made before leaving Washington on the seven-day, four-nation trip, the president suggested that Asia must do more to "rebalance" the global economy by accepting more U.S. imports, increasing its own domestic consumption and relying less on Americans as buyers of last resort.

In part, Obama's remarks were aimed at reassuring a domestic audience that is struggling with double-digit unemployment. But they come as China, Japan and other countries on his itinerary are emerging from downturns of their own, and where the prospect of throttling back their economies to help the U.S. won't be popular.

"I think he's going to face a very, very tough reception on this" part of the mission, said Drew Thompson, director of China Studies at the Nixon Center, a think tank in Washington.

In China, which is at the center of his journey, policymakers have for years acknowledged that a shift toward more domestic consumption will help reduce the nation's reliance on foreign markets and give other countries a greater share of trade.

The problem is such reform requires lifting financial and political controls that China's rulers are in no rush to surrender.

Among them is a chief sticking point, the Chinese currency, which has long been seen as undervalued. Beijing has pegged the yuan to the dollar since the financial crisis began and it has recently sunk with the declining greenback, making China's exports even more attractive. This has given China a larger share of exports even though exports as a whole worldwide have shrunk.

Not surprisingly, American manufacturers aren't happy. They scored a major victory when Obama imposed tariffs on cheap Chinese tires in September. And last week, the U.S. imposed duties on Chinese steel pipes. China has responded by launching probes of U.S. auto parts and chicken.

The significance of the spats may be more symbolic, however, amounting to only a fraction of the $212 billion in trade the two countries shared this year. Obama has said he will discuss the Chinese currency, but he also will need to assure the Chinese that there is no protectionist strategy emanating from Washington.

"There has been real disappointment about the Obama administration on trade," said Liu Baocheng, a professor at the University of International Business and Economics in Beijing. "We expected more positive proposals to strengthen the economic relationship."

Beijing will also want assurances that the president will control inflation, and thus not jeopardize its $797-billion investment in U.S. treasuries.

Obama was careful not to label China a manipulator of its currency last month, and there are signals that the yuan may appreciate. A Chinese central bank report released Wednesday hinted that it might consider other financial trends in determining the value of the currency. Analysts are expecting a modest hike sometime next year.

"I think this colors everything" said Oded Shenkar, a management professor at Ohio State University and author of "The Chinese Century," referring to U.S. foreign debt.

"We don't want the Chinese to stop buying our bonds," Shenkar said. "This is where the domestic agenda and printing a lot of money and taking on enormous debt meets with the foreign agenda. Historically, countries that are struggling with financial debt had problems projecting global power."

Senior White House aides have downplayed expectations of breakthroughs or tangible "deliverables" from the trip, which will begin with a speech in Tokyo on Saturday and include the 21-member Asia-Pacific Economic Cooperation summit.

Sen. Dianne Feinstein (D-Calif.) sees Obama's trip as a vital part of securing U.S. interests. "China is a dynamic country on the rise . . . and it needs to be understood," she said. "I think President Obama can have an enormously beneficial impact on this relationship."

Although some analysts say Sino-U.S. relations are as strong as they've ever been, deep mistrust lingers, especially over military and economic interests. That uneasiness may be all the greater since Obama, as analysts expect, will deliver a strong message that the U.S. intends to keep playing a major role in the region.

China's neighbors, however haltingly and uneasily, are responding to the gravitational pull of the Middle Kingdom, which is moving toward levels of economic and military strength not enjoyed by Beijing in more than a century.

"The perception in Asia is the U.S. is on a decline, that the era of Pax Americana may be over," said Minxin Pei, a China specialist who directs the Keck Center for International and Strategic Studies at Claremont McKenna College. "The U.S. wants to reassure its allies and friends, 'Don't think we're ceding the region to China.' "

No place may be as sensitive to such a message as Japan, America's strongest Asian ally since its rebirth after World War II and the world's second-largest economy. In Tokyo's Suntory Hall on Saturday, Obama is expected to deliver a major speech on U.S. engagement in Asia and the U.S.-Japan alliance.

Japan's new government, led by the Democratic Party of Japan, has indicated that it wants a more equal partnership with Washington, which Obama administration officials say the U.S. is prepared to move toward.

Obama will have at least one thing going for him: Like much of the rest of the world, many Japanese and other Asians are intrigued by the youthful president, all the more so because he spent four years of his childhood in Indonesia. Obama's first stop in China will be in Shanghai, where he's expected to hold a town-hall style session with Chinese students.

What remains to be seen is how that event and, more broadly, how Obama's communication skills will translate to an Asian audience and culture. Will the president capture the moment as he did in tours of Europe, where he won praise for rejecting the unilateralism of his predecessor, or Cairo, where he eloquently extended the hand of openness to the Muslim world?

"I'm not sure the Obama spell will have the same effect," said Jean-Pierre Lehmann, a frequent visitor to China and a founder of the Evian Group, a free-trade advocacy group in Switzerland. He points out that in China, Obama is dealing with thorny issues such as global warming and trade imbalances that won't be solved by soaring rhetoric.

Although Obama and Chinese President Hu Jintao may announce joint efforts on efficient energy programs and modest progress toward a hoped-for international climate agreement in Copenhagen next month, nobody is expecting a signing of major agreements in China or in South Korea, Obama's final stop.

In Beijing, Obama is likely to discuss sensitive issues of security in the Taiwan straits as well as human rights, Tibet and Beijing's role in places such as Sudan, where China has strong economic interests.

On trade, Obama's visit comes as China appears to be leaping toward economic recovery. Industrial production is up, exports are rebounding, and stocks and real estate are soaring.

China's growing global influence and financial power -- its economy is now about 33% of America's compared with 12% at the start of the decade -- prompted Obama and other world leaders in September to replace the clubby Group of 8 with the more inclusive Group of 20 as the permanent body of international economic cooperation.

Picking up where that meeting left off, Obama will ask China to balance its economy and not rely so much on the exports that over-leveraged Americans so dutifully consumed before the crisis.

don.lee@latimes.com

david.pierson@latimes.com

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