A Pivot to Asia: Obama’s Renaissance & China’s Challenge

By the end of last week, the US Supreme Court had announced a whole raft of rulings on a number of controversial issues that have dominated US domestic politics for much of the Obama Presidency. In a period that political watch dogs so often characterise as ‘a lame duck’ presidency (in other words the theory that a US President half way through his second term has no control of Congress cannot get anything done), Obama is in fact somewhat on the resurgence in the face of overwhelming political opposition. As he enters his twilight years at the helm of the world’s biggest economy, the Supreme Court’s backing of healthcare reform, same-sex marriage and the Trans-Pacific Partnership (TPP), can certainly be viewed as a major coup for ‘no-drama Obama’. In terms of chemicals and the world of Specialised Products shipping, it is this final policy endorsement that could possibly shape the way the industry develops in the years to come.

For a policy position that has been so often criticised as a danger to US economic supremacy and that it goes against the protectionist measures of old, the fact that it is now law is clear signal that the US is placing a greater emphasis in Asia. Something much trumpeted by its champions as much as its detractors. Much like earlier free trade agreements such as the North American Free Trade Partnership (NAFTA) agreed in 1994, the TPP is equally as important as the US and its allies ‘Pivot to Asia’. In terms of the chemical industry, the American Chemistry Council (ACC) has estimated that the TPP could generate as much as $1.2 billion in additional chemical export growth from the US, which undoubtedly would mean a greater demand for shipping and could induce a change in trade dynamics. This is particularly poignant when one considers the level of investment of new shale gas projects in the US. TPP is an agreement between 12 countries including Japan, Canada and Mexico but noticeably it does not include the major economic powerhouse and largest chemical importer – China!

So why is this? Surely, an economy such as China’s which is so reliant on imports would welcome such a free trade agreement? Well, no. In the world of geopolitics, China views America’s Pivot to Asia as a threat to its influence in the region and the TPP is just one of many measures aimed at harming Chinese economic power. Instead, the Chinese government has embarked on its own trade initiatives in Asia most notably in the development of the Asian Infrastructure Investment Bank (AIIB) which counts over 50 countries as signatories and the UK, Germany, Australia and South Korea as founding members. The bank is a direct rival to the US based World Bank and will actively fund Asian energy, transport and infrastructure projects backed up with initial capital of $50 billion, eventually rising to $100 billion. This is a clear challenge to US policy and it has certainly unnerved officials in Washington. Drilling into this once again for the world of chemicals, new projects and ports will undoubtedly lead to another possible shift in trade dynamics which will make for an interesting trading picture in the years ahead.

For now, the US Pivot to Asia is in full swing as the country looks to challenge the rise of China but will this new initiative in the form the AIIB harm this new strategy? It is too early to say, but with another free trade deal in the works, this time between the US and EU – the Transatlantic Trade and Investment Partnership (TTIP) – then the US certainly may have several different avenues to try as it looks to maintain its position as the top global economic powerhouse. China’s challenge is nothing to be baulked at and the AIIB certainly has a lot of clout resting behind it but will it all come to fruition? All we can say is that there are certainly challenging yet exciting times ahead for the chemicals markets and the world of Specialised Products.

Specialised blog 03 July

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