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TPP Versus AIIB: Obama’s Uphill Battle

It was a party that the United States urged 57 countries not to attend… But they did.

These countries included close European allies of the United Sates, such as Germany and the United Kingdom, and Asian comrades like Australia and South Korea. Not to mention members of the Middle East, including Israel and the Saudis.

The party in question was held in Beijing for the late-June signing of the Articles of Agreement, putting in place the framework for the China-led Asian Infrastructure Investment Bank (AIIB).

Instead of joining the AIIB, the Obama Administration offered up another option to 11 countries in Asia: the Trans-Pacific Partnership (TPP).

This “next generation” trade agreement has one glaring omission, though: China – the region’s most important trading nation.

Of course, that’s only fair since China didn’t invite the United States to its version of the TPP – the Regional Comprehensive Economic Partnership (RCEP). This trade initiative links 16 nations in Asia.

But that transgression isn’t the most important part of this tiff.

The real sticking point is that the TPP isn’t popular among our Asian friends. Allies, such as Australia and Japan, say the TPP intrudes too much into their internal affairs.

That’s a valid point. The TPP requires more than tariff reductions. It gets into other areas, including intellectual property rights, data protection rules, corporate governance, labor and environmental standards, and financial regulations.

The perception in many parts of Asia is that the TPP will result in net costs to the region’s economies, while only benefiting the United States. A high hurdle indeed for a “partnership.”

China’s Approach

This is when the differences between the Chinese and American approaches to global economics and geopolitics become very stark.

China doesn’t bother with other countries’ internal processes. Its leadership realizes that, in today’s world, there’s one main obstacle to increase trade between nations: poor transportation, power, water, and communications infrastructure, which fouls up global supply chains.

This is the same conclusion reached in a 2013 study by the World Economic Forum. In fact, the study found that removal of these supply chain barriers could increase the world’s GDP by up to six times!

Somehow the Obama Administration missed the memo on that. But the Chinese did not.

China has the $50-billion AIIB, the $40-billion Silk Road Fund, and the $100-billion New Development Bank. The latter was founded in cooperation with India, Russia, Brazil, and South Africa.

And there are the individual Chinese development banks, too – the China Development Bank, which has $100 billion in capital, and the Export Import Bank of China.

These banks already give more loans to Asia and Latin America than U.S.-dominated institutions like the World Bank, the Asian Development Bank, and the Inter-American Development Bank.

Of course, this isn’t completely altruistic. China is hoping that a good chunk of the infrastructure work will be done by Chinese companies, as the country faces a serious excess capacity problem in heavy equipment manufacturing and construction.

21st Century “Marshall Plan”

Still, funds dedicated to infrastructure are sorely needed in the developing world.

Building Each Other Up: Infrastructure Spendin gas a Percentage of GOP

According to some estimates, the U.S.-led development banks fall short by $175 billion annually in aid for the poverty-stricken.

And the infrastructure needs are much more massive. The Asian Development Bank itself estimates that Asia faces an infrastructure funding shortfall of about $8 trillion for 2010 to 2020. McKinsey & Co. estimates the global infrastructure investment requirement through 2030 to be $57 billion and $67 billion.

And that’s exactly where China is focusing the AIIB and its other efforts – on infrastructure.

Meanwhile, the global perception is that the Obama Administration is more concerned on imposing its vision of what’s “right” on other nations, instead of actually getting the help where it’s needed. For example, the Administration believes any infrastructure project should pass the strictest environmental standards before proceeding.

Tell that to the people without power and roads. That type of environmental permitting may take a decade or more. Just ask any U.S. company involved in an infrastructure project.

And with the involvement of Europe and developed Asian countries in the AIIB, it’s likely that environmental standards won’t be ignored.

President Obama seems to be left at the station after the train has left, and the United States’ global influence is sure to diminish

Meanwhile, China is proceeding full steam ahead with its version of a 21st century Marshall Plan, making friends around the world as it goes.

And the chase continues,

Tim Maverick

Tim Maverick

, Senior Correspondent

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