On June 23, The Heritage Foundation welcomed a delegation from the Asia Pacific Council of Chambers of Commerce (APCAC), a forum of 29 American Chambers of Commerce spanning the Asia–Pacific. APCAC members manage trade volumes in excess of U.S. $400 billion, and direct investments of more than U.S. $200 billion.
This year’s group included business representatives from Australia, Bangladesh, China, Japan, Malaysia, Mongolia, the Philippines, Singapore, and Vietnam. The discussion with Heritage scholars centered on China’s role in global security, economics, and politics, as well as U.S.–Asia trade policy.
Considering China
Heritage China expert Dean Cheng opened the conversation with the topic of next year’s 19th National Congress of the Communist Party of China, noting that the effects of any Politburo changes to China’s “command economy mindset” are difficult to predict. Putting the regional security situation in context, he noted China’s relations with India, Japan, the Korean peninsula, Taiwan, and the potentially destabilizing situation in the South China Sea.
Heritage economist Bill Wilson pointed out that growth in Asia has peaked, especially demographically. While the U.S. fertility rate is increasing, that of other industrialized nations in Asia is decreasing. By the year 2100, higher rates of fertility and immigration could result in an American population larger than China’s.
Wilson is also skeptical of Chinese economic growth, noting, “This engine is slowing appreciably.” In addition to its unsustainable fixed-asset investment and exports, China sees shortages in labor, which lead to wage increases. Some manufacturers who went “offshore” to China have now gone “offshore” from China.
Protectionist Sentiments at Home
Despite the visible slackening in the Chinese economy, the group observed the current anti-free-trade, protectionist sentiment in the U.S.
Heritage trade policy analysts Bryan Riley and Anthony Kim noted that, when dealing with major trade legislation, such as the Trans-Pacific Partnership (TPP), the reality of local benefits and growth due to free trade is often submerged in a contentious political narrative. Also, while the TPP was introduced as part of a portfolio of responses to China, explained Kim, the “pivot to Asia” in general seems to have lost momentum, with both political and economic repercussions.
Although Heritage scholars expressed skepticism about Congress’s ability to pass the TPP in its current form this year or next, the APCAC made clear that the TPP is a top priority for U.S. businesses in the region, and that it will be pushing hard for its passage.
Wilson indicated that, contrary to public perception, most U.S. job losses are currently not due to trade or to increased automation of jobs. It is true that the consequences of the technological “brave new world” of job automation are difficult to predict; however, policymakers and business leaders should focus on creating a good education system, a reasonable tax code, and a favorable regulatory environment in order to expand trade and create jobs in a technologically changing world.
U.S. Business in Asia—Challenges Ahead
The APCAC delegates expressed concern over the current U.S. system of international taxation as well as the 2014 Foreign Account Tax Compliance Act, both of which create undue financial and legal burdens for American businesses located abroad and U.S. citizens living overseas.
Trade policy has undoubtedly become a scapegoat for other economic issues, admitted Kim. “Our corporate tax rate is way higher than other countries’. Maybe it is time to push for bigger, comprehensive reform” as part of a legislative package. However, as with the TPP, prospects for reform in the near term are slim.
Looking toward 2017 and beyond, all participants agreed that the complex domestic and global factors involved are likely to create a challenging business environment in Asia.
