Who lost China? The U.S. Congress.

Author:Hale, David

Recent events illustrate how the United States is failing to grapple with the re-emergence of China as a great economic power due to political gridlock between the White House and Congress.

The brouhaha over the membership of China's proposed Asian Infrastructure Investment Bank is a clear sign of failure in U.S. foreign policy. When China became the world's second-largest economy in 2010, there was a broad perception that China's economic ascendency justified reforming the International Monetary Fund and World Bank to give China a quota increase. The Obama Administration proposed increasing the quotas for a variety of emerging market countries, with the largest gain for China, whose share would rise to 6.1 percent from 3.8 percent, just behind Japan. The loser would be Europe, not the United States. The United States would continue to be the only country with an ability to veto policy changes unilaterally at the IMF. Although Washington has been discussing these reforms for over five years, Congress has always refused to enact them. The United States has also been unwilling to change the tradition that a European should lead the IMF and an American the World Bank.

This gridlock offended China and persuaded her that she should develop new multilateral institutions where she could play a leadership role. The Asian Infrastructure Investment Bank and a new BRICS development bank are two of those institutions. China is already playing a major lending role in the developing countries through two domestic institutions, the China Development Bank and the Export-Import Bank. They now provide more loans to Latin America than the World Bank and the Inter-American Development Bank combined--and more loans to Asia than the World Bank and Asian Development Bank. They are also major lenders to Africa.

The next major foreign policy challenge for the United States in Asia will be to enact the Trans-Pacific Partnership agreement. The Obama Administration announced a pivot toward Asia three years ago and the TPP would be the first step. This agreement will include several East Asian countries as well as Japan, Canada, and Mexico. The Democrats do not support FTAs because of opposition from the trade unions. The Republicans don't have this problem, but many could withhold support for TPP because of their opposition to Obama. The President needs trade promotion authority--fast track--from the Congress to complete the TPP negotiations. It is impossible for...

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