The United States' exit from the Trans-Pacific Partnership (TPP)
The United States' exit from the Trans-Pacific Partnership (TPP) might have far-reaching consequences for America's standing as an economic leader. The agreement was one of President Barack Obama's measures to enhance US involvement in Asia and provide balance to China's economic and military power. TPP was negotiated with 11 Pacific Rim nations, providing American traders easy access to Japan and reduced tariffs on Vietnamese textiles. With the election of Donald Trump, the United States withdrew from TPP. Questions about the implications of withdrawal revolve around Washington's relationship with Asia Pacific and US commitment to promoting America virtues in Asia.
Leaving TPP and its impact on the US economy
Leaving TPP will badly hurt the economy of the US. Washington will lose the gains from the free trade agreement and remain helpless to write 21st-century rules of trade. The US will have to seek new members for economic partnership over time. The withdrawal means Washington has less strength and capabilities to empower its Asian allies, who desire a foreign relationship with the US and seek internal reforms that would have been achieved through TPP. Given that the deal ensured US presence in the Pacific Rim was felt, Washington economic policy in Asia will seem unbalanced. Member countries of TPP, such as Vietnam, will be left handcuffed economically because they signed the agreement due to benefits the US offered as the leader of the deal.
Opportunity for China in the absence of the US from TPP
The absence of the US from TPP presents a political and economic opportunity for China to fulfill. With countries warming up for globalization efforts and free trade, China will seek to negotiate regional trade agreements and replace the US as the world leader in the region. Already, China is promoting a 16-nation member pact by the name RCEP (Regional Comprehensive Economic Partnership) that does not include the US. The agreement also fails to include labor and environmental protections that President Obama had negotiated with TPP. RCEP will include Japan, South Korea, Australia, India, New Zealand, and countries in Southeast Asia.
Implications on Japan, Vietnam, Singapore, and Malaysia
Recent development in the TPP agreement is a major blow not only to US political and economic might but also to Japan, Vietnam, Singapore, and Malaysia. The US will be prone to increased competition as China takes center stage in international affairs. Another member of TPP will suffer economically without the US to back them up. Japan will experience a blow given that it had invested a lot of political capital on the deal.
China's Asian Infrastructure Investment Bank (AIIB)
5. Why has China started the Asian Infrastructure Investment Bank (AIIB)? What is the position of the US Government? Do you think that the US should join the AIIB – give reasons?
When China spearheaded the establishment of Asia Infrastructure Investment Bank (AIIB), countries such as the USA feared the institution would be used to advance China's national interests. These concerns were conceived out of US efforts to maintain its role in Asia development and keep the dollar as the global currency. Given that AIIB is a threat to these aims, the US is mounting pressure over Asia through the World Bank, IMF, and ADB. China, on the other hand, started AIIB with the aim of lending money to erect mobile phone towers, built roads, and other types of infrastructure in parts of underdeveloped Asia. The bank has attracted critics and invoked controversy because Asia already has the Asia Development as a multilateral lender.
China's reason to start the bank was that Asia has a huge infrastructure funding gap which the existing institutions cannot fulfill. Loans from ADB and World Bank are meant to support all aspects of development ranging from gender equality and environmental conservation efforts. Loan from AIIB, on the other hand, will strictly be used for infrastructural development in Asia. Hsu notes that the establishment of AIIB was a move by China to acquire greater input in globally established institutions such as World Bank (1). The Chinese government expressed frustration with the pace of reforms and governance of these establishments, which it claimed are dominated by European, American, and Japanese interests. As of March 2015, China had only 5.47 percent voting right in ADB, while the US and Japan each had 26 percent. The decision by China to start a new multilateral bank, instead of giving more money to the existing institutions, points to its ambitious plan to replace the US as the global leader.
The current position of the US towards AIIB is based on stopping China from taking its place as the leader in Asia development. The US is worried that China will determine which parts of Asia receive funding for development, and Asian nations will stop looking to the US for funding. A possible trend will emerge where countries in Asia will constantly seek China's help and leadership, an eventuality that can negatively affect US position as a world power. The US should therefore not join the AIIB. If it enters the bank, China will be the chief decision maker, and funding will be designed in a way that increases China's position at the expense of the US.
Efforts to allow China more influence at IMF have been delayed and, therefore, China started the AIIB out of the motivation to increase its influence in Asia. Given that the bank has already garnered significant membership from all over the world, the US should increase its funding for the World Bank and ADB, improve the management of these institutions, and make it easy for Asian countries to access funds. This way, the US will maintain its leadership position and render AIIB less attractive to Asian nations.
Advantages of a gold standard
7. Describe the advantages offered by a gold standard. Do you believe that there is a place for a gold standard in a modern business environment?
There are several benefits a country may get by placing its money value to the amount of gold it possesses. Known as the gold standard, this method allows anyone holding that particular country's money to present it to the financial institutions and receive an agreed amount regarding gold. The amount received in gold is known as par value and makes it hard for the government to inflate debts away, create mechanisms to enforce financial discipline, and increase confidence in the currency. Since the health of a country's economy will depend on gold supply, nations without gold are at a loss regarding competition. Advocates of the gold standard see the benefits of a stable money supply, given that the quantity of money should remain static as gold also remains relatively static.
The gold standard ensures stability in the rate of exchange between nations. For the development of international and free trade, the stability of exchange is necessary to allow free movement of capital. According to Amadeo (1), the gold standard does not adversely affect foreign trade. Supporters of the gold standard argue there is no other efficient way of ensuring the stability of the price within a nation other than using the gold standard. Gold becomes the base for currency and the price of gold rarely fluctuate a lot due to the monetary stability of the gold stock of the world. This stability is also given by the small action of annual gold production of the world's total existing stock of the monetary gold.
With the gold standard, the monetary system works automatically and involves less interference from the government. The interplay between gold and money is such that changes in gold reserves result in automatic corresponding variations in the money supply. This means that the conditions of a favorable or unfavorable balance of payment on a global scale, and the inflation and deflation on the domestic level are corrected automatically.
Although the gold standard has no place in the modern business environment, its application can greatly lead to price stability and an efficient monetary system that works automatically. Governments use monetary policy as a tool to control the economy. This way, they can stimulate economic growth by increasing the money supply or reduce it to control inflation. In cases where the government raises monetary supply, the rest of the country suffers. However, the value of gold remains fixed to a certain amount of gold available in reserves. The government can therefore not increase or lower the value of money when under the gold standard.
Works cited
Amadeo, Kimberly. "What Is Gold Standard?" How Would a Return Affect the U.S. Economy? (2017). Available at: https://www. thebalance.com/what-is-the-gold-standard-3306137
Hsu, Sara. "How China's Asian Infrastructure Investment Bank Fared Its First Year." Forbes. Available at: https://www.forbes.com/sites/sarahsu/2017/01/14/how-chinas-asian-infrastructure-investment-bank-fared-its-first-year/#6ade265b5a7f
Works Cited
