December 3, 2013
On December 3, 2013, the Atlantic Council’s Brent Scowcroft Center on International Security held a panel discussion as part of its Cross-Straits Seminar Series on the Trans-Pacific Partnership and Asia.

Welcome and Moderator
Barry Pavel
Director
Brent Scowcroft Center on International Security
Atlantic Council

James Politi
US Economics and Trade Correspondent
Financial Times

Speakers
Richard Bush
Director, Center for East Asia Policy Studies
Brookings Institution

Clyde Prestowitz
President
Economic Strategy Institute

Transcript by
Federal News Service
Washington, DC
BARRY PAVEL: Welcome, everyone. Thanks for coming to this event on Trans-Pacific Partnership and Asia. This is part of our Cross-Straits Series sponsored by the Taipei Economic and Cultural Representative Office.

I'm Barry Pavel, I'm a member of the Brent Scowcroft Center on International Security here.

And we at the council, as you might expect, are paying increasing attention to Asia. Scowcroft Center has held several events on the region's dynamics. We had an event on what we called the coming Asian arms race, which is already here, so we were prescient, China and cybersecurity, and we're currently working on an extended report sponsored by the MacArthur Foundation on U.S. extended deterrence in Asia and rethinking sort of some of the tools because of some of the changing circumstances. And that report will be released sometime next year.

Certainly, Asia is becoming more important in terms of defense issues, in terms of security and certainly in terms of economics which we'll discuss today. We think TPP could be a game changer for both Asian and North American markets.

And we also think these kinds of efforts have potential geostrategic impacts as well. We think it's so important that we assigned a Twitter hashtag for this discussion, as you can see on your program, TPP. And all of our participants today have their Twitter accounts mentioned in the program, so please don't hesitate to tweet, as we say.

At the Atlantic Council, we're spending a lot of time on global trends and we often say that we're currently at an inflection point in history. There are so many changes, there is so much uncertainty in light of what's going on in the world. And this is especially true with economic trends.

I'll just quote one statistic. Asia's share of global GDP is projected to double to 52 percent by 2050. In terms of defense spending, by 2021 Asia collectively will outspend the United States in defense. So there's a lot of changes going on.

We had a report published here a year ago called "U.S. Strategy for a Post-Western World" reflecting some of these shifts. And that's certainly available – still available online if you'd like to take a look at it.

Vice President Biden today is in Asia. First, he's meeting with Prime Minister Abe in Japan, then he moves on to China and meetings with President Xi Jinping, and then on to the Republic of Korea where he's meeting with the Korean president and prime minister as well.

The White House said this trip is meant to reaffirm the U.S.'s enduring presence as a Pacific power, promote U.S. economic and trade interests and underscore the U.S. commitment to rebalancing U.S. foreign policy towards the Asia Pacific region.

And so we heard from the White House that economic and trade interests are central. That's what we're here to discuss. So I won't introduce too much longer on the substance; let me introduce our panelists and then we can get to it.

We have Mr. Clyde Prestowitz here who is president and founder of the Economic Strategy Institute. Prior to that, he served as a councilor to the secretary of commerce during the Reagan administration where he led many trade and investment negotiations with Japan, with China, with Latin America, with Europe. He also served as vice chairman of the President's Committee on Trade and Investment in the Pacific.

We also have Dr. Richard Bush who is the director of the Center for East Asia Policy Studies, the Chen-Fu and Cecilia Yen Koo Chair in Taiwan Studies, and the Michael H. Armacost Chair at the Brookings Institution. He joined Brookings in 2002 after serving almost five years as the chairman and managing director of the American Institute in Taiwan.

So we're thrilled to have these two illustrious panelists.

Our moderator is Mr. James Politi. He is a U.S. economics and trade correspondent for the Financial Times where he covers U.S. economic policy and trade policy. He was previously based in New York as the FT's U.S. deals reporter covering mergers and acquisitions in private equity, which I'm sure was a quiet portfolio for that time period.

But thank you so much also, James, for coming here.

And with that, I'd like to turn it over to James and begin the discussion.

JAMES POLITI: Hi there. Thank you so much. Thanks for having all of us, and it's going to be an amazing panel.

Clearly, we're in the heat of the moment when it comes to TPP talks. The next round is going to be in Singapore – (inaudible) – but this time around it looks like we're close to a deal, unclear whether they can seal it, whether they can partially seal it, whether they can set maybe a framework to then finalize the details.

But clearly, the goal set by the Obama administration and everybody else is to finalize a deal by the end of the year. There are obvious economic sticking points, issues. There's – (inaudible ) – economic promise to go along with the deal, but also the strategic imperative.

And so I think the past sort of year, I think we want to stay focused today, also tying it into the political discussion that we're seeing here around TPP. Given that this is a deal that it is, you know, wrapped and sold to Congress, it's rather unclear at this point how much political appetite there is for it. But I clearly, one of the big selling points is going to be the strategic imperative.

So with that, I'd like to turn the discussion over to Clyde for opening remarks and then we'll move on to Richard, but for now – (inaudible).

CLYDE PRESTOWITZ: Thank you very much and a pleasure to be here, although – (inaudible) – late, but let's launch into it.

I have to say that when I initially heard of TPP going back, I guess, three or four years, I was invited with some others to the White House to meet with some of the officials there about their idea of pushing this TPP. And I remember my first question was, what's the point? We already had, at that point and still do, free trade agreements with Mexico and Canada – they were NTPP at that point – but with Chile, with Peru, New Zealand, Australia, Singapore. And Japan was not in the mix at that time, so it seemed like we already had free trade agreements that covered about 80 percent of the trade that would be discussed in the TPP.

And the answer I got to my question was that it – that doing a TPP will demonstrate to people in Asia that America is back and will reassure friends and allies – (inaudible) – this commitment in Asia.

And I was a little surprised at that response because I had not been aware that we had gone. (Laughter.) And I knew that some of our presidents and secretaries of state had missed a couple of the top Asia meetings. But on the other hand, I knew that the 7th Fleet was still out there, we were still basically patrolling the skies over the East China Sea. I knew that we had 30,000 troops in Korea and that we were – we had arrangements to take care of ships in Singapore and elsewhere around the region.

So I just, you know, it was kind of surprise to me that we had gone.

And then it made me wonder, well, who thinks we're gone, and why do they think we're gone, and how is it that a free trade agreement would somehow resolve this feeling of loneliness that people might be suffering from – (inaudible).

And the answer I found, it was not surprising, was that it's Singapore. Singapore is, I think, the original instigator of what has become the TPP. Initially, it was Singapore and New Zealand and then somehow Peru and Chile got into it, then I guess Malaysia, it became the P5. And Singapore kept promoting this idea in the U.S.

And I want to emphasize I'm not in any way criticizing Singapore. I admire the Singaporeans. They punch way above their weight in international affairs. The guys are good.

And one of the things that they really do well are free trade agreements. They are always promoting a new free trade agreement, and if you're Singapore that's a really smart thing to do because, obviously, a city of 4 million people, a city/state of 4 million people, cannot be one of the richest countries in the world just based on economic activity within its own domestic market. It's simply not big enough, so it has to have a world market in order to be what it is. And free trade agreements for Singapore therefore make a lot of sense.

But the U.S. didn't jump into this right away. It was only after these expressions of loneliness and feelings of being left that the U.S. kind of glommed onto it and turned it from a minor negotiation into a major negotiation. And the U.S. jumping into it also then brought pressures for others to join, namely, Japan, but also Canada and Mexico.

And so if you now look at the countries that are involved, so Mexico, Canada, U.S., Peru, Chile, New Zealand, Australia, Brunei, Singapore, Vietnam, Malaysia and Japan, and ask yourself, what is it that these countries are looking for, well, I think we can pretty easily say that Canada and Mexico are primarily exercising damage control. They don't necessarily see a lot to gain, but their big market is the – their big partner is the U.S. And so whenever the U.S. is moving, I think they feel it's important to kind of watch the animal and prevent it from doing too much damage to them. And maybe there's some gain.

I still haven't quite figured out what it is that Chile and Peru see. But they historically do have some trade in Asia, and this may be a way for them to increase some trade in Asia and to develop stronger ties around the Pacific.

New Zealand and Australia, both of them have embraced free trade regimes, really free trade, I mean, pretty much laissez-faire free trade in both countries over the past 30 (years), 40 years. And so it's kind of a natural for them in terms of their philosophy and also, again, it's a way, particularly for those two, to strengthen ties with the U.S. and to – I think New Zealand and Australia have long suffered from the sense that they're not really Asian. They're in Asia, but they're not of Asia. And this is a way to try to become a bit more of Asia.

Singapore we've discussed.

Malaysia and Vietnam, I think, saw some benefits clearly in potentially increasing access in the U.S. market.

And Brunei is Brunei.

And then we get to Japan. And I think Japan's main motivation actually is domestic reform. Two motivations: domestic reform and defense.

Interestingly, Japan is beginning to sound – and I speak as someone who has been watching Japan now for, I hate to say this, 50 years. And I've been, you know, hearing about reform, agricultural reform in Japan for all those 50 years. And I really hesitate to say this, but maybe there will be some agricultural reform in Japan.

In any case, a big element of Japan's interest in TPP is to help drive agricultural – domestic agricultural reform.

But also, Japan clearly is facing a challenge from China and being part of TPP can be seen as a way of reaffirming and strengthening the U.S.-Japan mutual security arrangements.

But having said that, again I say the 7th Fleet has been there for more than 50 years. Troops have been in Okinawa and Korea for a very long time. And so the notion that the U.S. had left or was leaving, it seems to me, was a kind of an overblown concept to begin with.

And I think that for the countries involved in TPP, the economic benefits vary, but are really relatively potentially – the potential benefits, I think, are relatively small. Some model projections have been made on this by various institutes and universities, and they show some modest gains for most of the participants, but nothing fantastic.

And so I think it's a combination of economics might get a little bit better and this somehow strengthens our ties to the U.S.

But as someone said – Jim said in his introductory remarks, this deal, if it is a deal – and I must say, I have a bigger question mark about whether there will be a deal than perhaps some others because there's some very difficult issues that, I think, have not been resolved.

A problem, from my perspective, with this whole negotiation has been that none of us really knows what's going on because it has been a more secret, confidential negotiation than any trade negotiation I can remember in my time. But I do think that there are significant problems and I'm wondering if they'll get it done in time.

But let's suppose that things are moving along. It has to be sold to the Congress. Now, the history of deals like this in the U.S. is that free trade agreements are conceived of in the U.S. for a variety of reasons, but the national security element or the geopolitical element is always an important one of those reasons.

And so what we often have is a situation in which the White House, the State Department want – and the Defense Department want to do a free trade deal for geopolitical reasons. But when they do the deal, they've got to sell it to the Congress and they have to sell it to the Congress on an economic basis. They have to sell it by saying that this deal is going to create jobs, it's going to reduce the American trade deficit and it's going to create jobs, and that's why you, the Congress, should do the deal.

And I ask myself, is that going to be an easy sell? And I think the answer is no. And I think it's no because it's hard to see how the deal would do much for the U.S. economy. I think the most positive, optimistic projections have been done by the Peterson Institute which ran a model projection showing that the U.S. would gain a half a percent of GDP, oh, by 2025, so within 22 years. As all of you who know about how these – the nature of these numbers, you know that that's a rounding error. You know that that's not very robust and that the number could easily be much less than that, might be a little bit more.

But my point is that it doesn't look like it's going to be a big deal economically, and the reason for that is because in fact much of the content, so far as we know it, is not so much about trade as it is about regulation and about actually monopoly and restraint of trade.

The chapter on intellectual property was leaked recently. And I'm sure many of you read through the WikiLeak leak And what's it talking about? It's talking about expanding the length of copyrights to 70 years beyond the death of the author. Now, mind you, I'm an author so, you know, that has a certain attraction for me personally, but it's not about free trade – (chuckles) – and that's a monopoly.

A lot of it is about changing the way drugs are priced and formulated and copyrighted.

Apparently there's an attempt in there – apparently, the U.S. government is proposing this that if you take ibuprofen as a pill that's one patent, and if you take it as a liquid that's another patent, and as a gel that's another patent. And that certainly is not about free trade.

And one reason it's not about free trade is because these negotiations, particularly in the United States, tend to be captured by large global corporate interests. The large global corporations have 600 cleared advisers who have access to the text and to the negotiators; you and I don't have that, U.S. Congress doesn't have that. And so it's not surprising that the direction of the negotiations might be in a direction that you wouldn't essentially think of as free trade.

So I think that the outcome of this in terms of jobs or economic growth that can be sold to the U.S. Congress is questionable. But let me try to end on a positive note; a little bit negative, but then I will be positive. It's hard for me not to be negative, you know that.

One of the flaws of this agreement, in my view, is that it doesn't deal with the two most important driving forces of trade and globalization, and those two important driving forces of trade and globalization are currency values and investment incentives.

Currency values, currency manipulation, management of currency, strategic management of currency is – has been discussed a lot. I'm sure many of you are familiar with it. Virtually all the countries that we're negotiating with engage in those practices as part of their economic development programs.

Again, let me emphasize, I'm not criticizing anybody. I'm not saying one policy is wrong or bad or good or anything. I'm just saying as a fact that a number of the countries we're negotiating with systematically engage in currency management.

The second point is less well known, but in a way may be more important, and that is that many countries offer – and our own states do this as well – they offer incentives to invest. So if you're a company like Intel or HP or General Electric, countries will come to you and say, why don't you put a factory in my country? Oh, if you do, the land could be free and we could train the workers and we could give you a tax holiday for 25 years and make it very attractive.

The world champion at this kind of policy is Singapore. Singapore has gotten very, very rich by attracting investment using these kinds of incentives which, if you think about it, are essentially indirect export subsidies. They make it – they make what's not economically competitive via a financial subsidy, and that competitiveness then contributes to an export-led economic development scheme.

Now, to be positive, I would have – would think that the issue of loneliness could be, in a way, better dealt with and the economic issues better dealt with in terms of thinking of a true, let's say, Pacific economic union so that if we – let's take NAFTA as a basis. And if we expanded the content of NAFTA so that the existing members of NAFTA, Canada, U.S., Mexico, undertook greater integration of their own regulatory and financial underpinning and structures, but then bring into NAFTA Japan, Korea, Singapore, other countries in the Pacific, and in that kind of regime deal with, make part of the negotiation this question, included along with many of the other issues that are being discussed, currency and investment rules.

And I think in that way there's something to offer. It's not being anti, it's being positive, but it's being positive in a real way rather than in a rather superficial way.

Thank you.

MR. POLITI: Thank you.

Pass it on to Dr. Bush.

RICHARD BUSH: Thank you very much. It's a great pleasure to be with you today.

Is the mic on?

(Off mic.)

OK, well, I hope it will come on. And I'll try to speak loudly.

It's a great pleasure to be with you today. I think Clyde has set the broad trade policy context very well. I'm going to talk specifically about Taiwan and its potential participation in TPP. Whereas Clyde is sort of more negative in his general outlook, I may be more positive or even naive – (laughter) – but that's the way I am sometimes.

On the loneliness point, I think the loneliness was mainly in Southeast Asia. So Singapore's activism here is not surprising. It may be that there's also a concern about loneliness not now, but in the future, that the United States may be moving towards a position where it might abandon the region or cut back.

Two weeks ago, specifically on November 20th, there were two events in Washington at the same time, more or less, that were germane to our discussion today. One was Susan Rice, the national security adviser and a former Brookings colleague of mine, speaking at Georgetown. She reaffirmed rebalancing. She spoke specifically about TPP, saying the U.S. goal was to get an agreement and to get congressional approval.

In the key sentence or key two sentences in her remarks on TPP, she said we welcome any nation that is willing to live up to the high standards of this agreement to join and share in the benefits of TPP, and that includes China. The TPP can be the core of a far-broader agreement expanding to countries across the Asia Pacific.

So we have here a hint of a free trade area of the Pacific, which has been discussed before. I think the key words in Susan's presentation were China and then this latter point about a broader agreement.

Susan, by the way, also spoke to ASEAN countries that are not currently part of the negotiating circle and said that the United States is working on more-specific agreements with them to sort of bring them up gradually to a TPP standard.

The other event on November 20th was a symposium at Brookings specifically on Taiwan and TPP. Former Vice President Vincent Siew spoke there. We had a couple of panels; there was a detailed discussion.

Going back to Susan's presentation, she didn't mention Taiwan by name, and her not citing Taiwan raises the question of where it might fit in this ambitious program of architecture-building. Now, Taiwan has said for a long time that it wants to be part of TPP. The U.S. has sent positive signals about that. But the assumption, I think, has been that China would use political leverage to block it. And that's what I want to speak to.

I have sort of run through a series of metaphors or analogies in how to think about this. My current one is a really difficult bridge hand where you probably bid far beyond what the cards in your hand tell you. And in that case, you need to sequence your play of the tricks very precisely because going out of order you're never going to have a chance, all of your finesses have to break, the distribution of the cards has to be perfect. And when the defenders get the lead, they need to make plays that fit into your strategy.

This is sort of the situation that Taiwan faces. Not all of the steps that it has to – that need to be taken for Taiwan to get into the TPP are steps that Taiwan itself will take. Even those steps that Taiwan does take are not going to be easy, and the sequencing has to be just right.

So what are these steps? I think I have six.

The first step is simple, that we need to reach a TPP agreement and it does have to be approved by the legislatures of the governments concerned. If an agreement doesn't happen for some of the reasons that Clyde has mentioned, then it's game over, at least for a while.

Step two is that Taiwan society must reach a broad political consensus on why TPP membership is vital to Taiwan's general interests and its long-term economic competitiveness. Now, I think on Taiwan there is a consensus that, of course, being in TPP would be a good thing. It would give us dignity, it would give our exports a higher level of preferential treatment than they now get.

There is no consensus, I think, on why this is a good idea from an economic standpoint, where the concessions would have to be made. Vincent Siew, when he spoke at Brookings, did speak to this and I think he reflects a lead opinion on this. He said that Taiwan faces a serious risk of marginalization as economic integration is moving across the region. And this discourages domestic and foreign investment in Taiwan at a time when Taiwan needs those investments.

HE also said that TPP membership will provide Taiwan with a strong external stimulus and vehicle to carry out structural reforms and rebuild people's confidence in Taiwan's economic prospects. And I think that this is a key element of any trade liberalization. It's not so much the preferences you get, although those are important, but the structural adjustment is induces.

I said that this seems to be understood at the elite level, senior officials, heads of big corporations, scholars, but it does not extend to the public at large, it does not extend to politicians, it does not extend to the media. So there's work that has to be done in Taiwan to get that consensus.

Step three is that Taiwan can and should restore its credibility with key trading partners. The problem here is that its negotiators have made commitments in the past that they have not always been able to sell to the legislative end. And so the response from trade negotiators is what you would expect when looking at a future negotiation: Why should we waste our time to secure commitments that cannot be ratified?

This is not just a Taiwan problem. The absence of trade promotion authority in the United States might leave some of the TPP countries at least a question in their mind whether U.S. commitments are credible.

With respect specifically to Taiwan, the United States was scarred by the beef issue. And I think we all know that history. In the end, the Ma administration was able to use political capital to get that reversed, and that's a good sign.

It would, I think, help Taiwan's reputation if the Ma administration could get the agreement with the mainland on trade and services through the legislative end. That would strengthen its credibility. And there are other ways.

There's the FTA with New Zealand, which has already passed. The one with Singapore presumably will pass.

It could do the hard work of negotiating a trade in goods agreement with the mainland and then getting it ratified.

And there is the opportunity to do a good bilateral investment agreement with the United States. And this is something of – this has multiple values. There's the economic value that would come from liberalization of investment. It helps build Taiwan's credibility with U.S. negotiators, and it is preparatory work for TPP because investment is an important element.

Step four, Taiwan should develop a negotiating position and strategy for TPP. It should assume that this is coming and sort of work to get ready. And in fact, there are signs that it has been getting ready because the FTAs it has done with Singapore and New Zealand are – look something like TPP. So that's good.

Finally, step five – and this is another one that's not under Taiwan's control at all, and it has to do with China. And the question is, do China's leaders want fundamental economic reform. I think most objective observers would say that China needs reform. Many – and it happens that a number of the problems that exist with China's current economic system are ones that TPP addresses, like intellectual property, role of state-owned enterprises, supply chain management, investment.

And even if TPP didn't exist, these are things for China to address.

I think the best situation here for Taiwan is that China's leaders decide that reform is important, they push to try to get it done, but meet resistance from domestic interests, as they surely will. And so then it becomes useful to bring in or to have some external incentives for that reform.

And here we come to my final step, and that involves leveraging China's accommodation to Taiwan coming in, and this is what I refer to as the WTO finesse, going back to my bridge-hand analogy.

In late 1997, the Clinton administration made a decision to accelerate Taiwan's accession to the WTO, partly because it was a good thing to do, but more importantly because it would put pressure on China to start negotiating seriously on China's accession.

The thinking was that if China saw Taiwan moving forward and if it assumed that the United States was going to treat Taiwan's application on its merit, that would create China – that would present China with a political problem. And so this was very deliberate.

We did move forward with Taiwan, and it did create pressure on China. Now, there were other pressures on China. First of all, China realized it couldn't be – couldn't afford to be outside of the circle of liberalization that the WTO represented. And second, Premier Zhu Rongji saw the opportunity to use WTO and its disciplines to stimulate reform within China. And he used WTO very deliberately to do that.

In the end, the Taiwan factor was not the most important one, but it helped. And the outcome was that China joined first and Taiwan came in right behind it, and everybody won.

Now, obviously, WTO and TPP are not precise analogies with each other. There are obviously differences, but one can see the emergence of a similar kind of situation. Assuming that there is a WTO – a TPP agreement, you have the largest economy in the world, the United States, the third-largest economy, Japan, I suspect that Korea would find it advantageous to come in and it's already done the homework on that through its bilateral FTA with the United States.

And I've suggested, China needs a new round of economic reform. The elements of TPP are – touch on the kinds of reforms that have to be made. So a new group of Chinese economic reformers could use TPP as their own leverage.

And then there's the Taiwan issue. You know, is China going to put itself in a position where it has to be a political bully to keep Taiwan out?

Now, for that to work, the United States and other major TPP members have to be very firm that they are going to treat Taiwan's entry into TPP on its economic merits. I hope that's the case. Taiwan, of course, has to make the concessions that allow the United States and others to do that. But then the ball is in China's court.

The good news here is that China is already moderating its views of TPP. Originally, it was just another instrument of U.S. containment, and now they want to hear more, they want transparency.

Second, mainland folks, in talking to Taiwan scholars, have suggested that, well, the WTO model isn't so bad, that maybe we could use that for TPP.

So to sum up, Taiwan's path to membership is certainly not easy, but it seems to me that a path exists. Taiwan can't travel that path on its own. The TPP countries themselves and China can impose significant obstacles, but that's always been true.

The key conclusion of my analysis is that, assuming that a TPP agreement is reached in the first place, there are feasible means for Taiwan's increasing the odds of removing or circumventing those obstacles.

Another key conclusion is that the sequence is extremely important. There is much that Taiwan can do or must do to clear the path on its own, forging an economic domestic consensus, enhancing the credibility of its economic commitments and developing its own negotiating strategy.

Having done those things, it will be much easier for TPP members, particularly the United States, to support Taiwan's entry on economic grounds, and resist Beijing's political opposition.

Thank you.

MR. POLITI: Thanks so much, Richard.

Richard has also described, aside from the bridge reference, he also described Taiwan's potential accession to the TPP talks or the TPP, as a very complicated lock that you have to spin around a few times and you have to get the numbers exactly right and you also have to spin it in the right direction before you can unlock the locker. And I think with the six points he seems to have done just that.

MR. BUSH: I'm still in the search for the perfect metaphor.

MR. POLITI: (Chuckles.) The perfect metaphor is yet to come.

But before going back to Taiwan, I wanted to ask Clyde a few things on the talks themselves.

Do you think that the – given that the economic interests may not be as big as one would think, do you think the strategic imperative will kind of overwhelm the discussion in the final stages and make it easier or push the 12 countries to actually conclude a deal, if not this month then in the first quarter of next year?

And will – are they so important that they can overcome the sticking points, whether on intellectual property or the role of state-owned enterprises or currency? I mean, these are very difficult subjects, but do you think that the need to get this done and the message that it will send sort of strategically is going to be able to paper over the sticking points and the lack of a very strong economic imperative?

MR. PRESTOWITZ: Yeah, probably. I mean, for one thing, currency is not in the talks –

MR. POLITI: Right.

MR. PRESTOWITZ: – so that won't have to be dealt with. I mean, in view of the new Chinese air identification zone and the tension around the Senkaku Diaoyu Islands, I think that heightens the pressure to get this deal done.

So I think the likely scenario is that some of the economic demands, particularly of the U.S., I think the U.S. is the strongest demandeur in the game, I think the U.S. will just reduce some of what it's asking in order to get a deal, because not to get a deal would be seen to be a sign of weakness vis-a-vis the challenge.

I think that the difficulty is – so I expect a deal will be done probably not by the end of this year, that's coming up pretty fast, but let's say early next year.

But I think then the difficulty is selling it to the legislatures, particularly to the U.S. Congress where it will be scrutinized more from an economic perspective, but maybe not. I mean, the – again, the tension in the region also influences the Congress. And so maybe that would actually facilitate passage through the Congress.

MR. POLITI: So it's actually the tensions that were seen in recent days could kind of bolster the case for the –

MR. PRESTOWITZ: Yeah.

MR. POLITI: – the strategic case for TPP and help Congress.

MR. PRESTOWITZ: Yeah, yeah. Yeah.

MR. BUSH: I would also broaden how we think of the word "strategic" and what it means. That at stake here ultimately are the terms of economic engagement with China over the long term. And is China going to be able to persist in its mercantilist mode, or can a set of circumstances be created that force it in sort of a more liberal direction? I mean, this is sort of a tall order, but that's part of what's at stake here.

MR. POLITI: And that seems to be, you know, the objective of the Obama administration when it comes to the EU trade deal as well. They're trying to set global standards for trade that then China will be – you know, rules that China will then be forced to play by in the long haul.

MR. PRESTOWITZ: You know, there's a certain potential irony here, which is that in probably commentary the president and others have described this as a 21st century agreement, a high-standard agreement. But in order to get an agreement, the likelihood is to lower the standard and maybe would be just a 20th – a good 20th century agreement. I don't know. (Laughter.)

MR. POLITI: Well, I mean, that's very interesting because just today there was a letter from Orrin Hatch, who's the ranking Republican on the Finance Committee, to Mike Froman saying, you know, we're talking about expansion of TPP potentially down the road, but he was saying, actually, well, maybe the U.S. should start considering forcing other countries out of the TPP if they do not meet the standards that we're looking for. And in his case, it's 12 years of patent protection for biologic drugs, you know, no restrictions on cross-border data flows.

And there is a nervousness within the business community and their allies on the Hill that actually, you know, in a way, you know, maybe the strategic comparative will kind of overwhelm the talks and end up diluting, you know, the economic benefit that they see in this, in the agreement.

You know, so very –

MR. PRESTOWITZ: Yeah, but strategically, you need an agreement. You just need an agreement.

MR. POLITI: Right.

MR. PRESTOWITZ: Economically, then that becomes harder.

MR. POLITI: Does that weaken the U.S. position, though, in the final rounds if everybody knows that they actually, you know, can't afford to not do a deal.

MR. PRESTOWITZ: It weakens the U.S. position in terms of achieving the maximum of the U.S. demand. But on the other hand, let's remember that these guys are feeling lonely and they want to be loved. And so this is a way to demonstrate love. (Chuckles.) And so should be able to get, you know, something that both sides can live with.

MR. BUSH: In addition, the absence of TPA strengthens the administration's hand, you know, to say you've got to give us a little bit more –

MR. PRESTOWITZ: Yeah.

MR. BUSH: – if we're going to make the economic argument to the Congress.

MR. PRESTOWITZ: Yeah, yeah.

MR. POLITI: Right, yeah. I mean, and speaking of the, you know, economic argument for Congress, you know, both of you have been around enough to see, you know, various trade agreements move through Capitol Hill. What's the environment and the political appetite for trade liberalization in the U.S. at the moment, coming out of the recession? President Obama had promised if we're going to do trade deals we're going to do them in a different, fundamentally different way with tougher standards, you know, deals that will encourage investment in the U.S. I mean, is he going to be able to pull that, you know, off? Is he going to be able to sell it to kind of the traditional sort of pro-trade-deal coalition which is moderate Democrats and most business-friendly Republicans? Is that – you know, how do you see the appetite?

MR. PRESTOWITZ: Well, I think there's a lot of – two things. The economic conditions of the U.S. are not – they're not terrible. In fact, they're reasonably good and getting better. But they're not so booming that they make everybody really feel good about their economic future.

I think that there has been for a long time increasing skepticism in the Congress and among the general public about the real benefits of the trade agreements. Go back to whenever you want, go back to the Tokyo round, you know, then the Uruguay round, and then bringing China into the WTO, and every one of those deals, NAFTA and others, every one of those deals is sold, has been sold on the basis that this is going to reduce our trade deficit, it's going to increase exports, it's going to create good American jobs.

And the public and the Congress has looked at that and increasingly said no, that actually it didn't happen that way. I mean, the China case is the most glaring, but all of us here can remember our leading officials going up to the Congress and saying, hey, you know. At that time, around 2001, the U.S. trade deficit with China was about $40 billion.

And the administration's argument was that their market's more closed than ours. We have to make few concessions, they'll make a lot of concessions, so their market will open more and, therefore, our exports will actually be more fostered than theirs so the trade deficit will come down.

Well, what's it now? It's – we're – what's our trade deficit with China, 2(00 billion dollars), $300 billion dollars? You know, it didn't go that way.

So I think that that's going to be a major problem. But as we said earlier, given the tenseness of the situation, it may be that the geopolitics works to overcome that economic skepticism.

If you had to sell this deal just on economics, I think it would be a very hard sell.

MR. BUSH: Well, and there are some other problems. I think that this vital center that you were referring to is not as large as it once was. I was part of the effort to block economic sanctions on China in the summer of 1994 after the MFN debate. And that center was pretty large and it was led by some really effective people. And we won that vote. But there's less to work with now.

Also, you don't get the impression that this is a Congress that pays too much attention to substance. And TPP is a really substantive agreement. And so you need more than about 15 seconds to explain why it might be good to the United States, but that's the attention span.

I mean, I think the question that animates people on the Hill now is, is this good for Barack Obama or not?

MR. POLITI: That's right. And you know, there are doubts about whether Republicans at least are willing to give him any sort of victory at the moment.

I guess the other issue is that once the text comes out, there are going to be winners and there are going to be losers.

MR. BUSH: Yeah, sure.

MR. POLITI: And they will, you know, certainly – the losers will certainly speak out, I guess, as happens always with trade agreements, whereas the benefits are often more long term and more diffuse, which I guess is always the –

MR. PRESTOWITZ: But another element to that – let me just mention this because I think it's going to be important. The agreement would not just affect the U.S., but it's going to affect Mexico and Central America. An important part of the agreement is with Vietnam which has a large, growing textile industry which already has made, is making major inroads into the U.S. market.

The conclusion of an agreement with Vietnam in it would likely lead to the loss of about 200,000 jobs in the U.S. and something like 1.3 (million), 1.4 million jobs in Mexico and Central America.

You know, people forget, but we have a NAFTA agreement, we have a CAFTA agreement. A big piece of CAFTA is textiles; the industry of Honduras, Guatemala is textiles. And that would be damaged substantially by a TPP with Vietnam in with its textile industry.

So I could imagine that, you know, there would be concern about that in the Congress, and obviously, the leaders of those countries will be here in Washington also.

MR. POLITI: Seems like the main trade-off with Vietnam is, you know, more access on the textile side and, you know, into the U.S. market in exchange for stricter disciplines on state-owned enterprises and items like that –

MR. PRESTOWITZ: Uh-huh, yeah. Yeah.

MR. POLITI: – and more market access in Vietnam.

But just going back to Taiwan before we open it up to questions, you mentioned, you know, that the Taiwanese need to sort of come to terms with the benefits of TPP. What is the current sort of public debate around – the nature of the current public and political debate around TPP at the moment? Is it sort of front of mind or is it in the background? Is it seen as very important?

MR. BUSH: Well, politics in Taiwan is, in some ways, reminiscent of politics in the United States. It's not terribly substantive. There are some serious substantive discussions going on within parties, but the sort of public debate tends to be more on sort of scandals of the moment and about President Ma's reputation and whether China is good for Taiwan or not. And so there is a lot of work that would have to be done to explain why this is actually good for Taiwan, whey the sacrifices that structural adjustment would impose in the long term actually yield benefits and sort of upgrading the economy. So it's not an easy sell.

MR. POLITI: And what are kind of some of the steps that Taiwan could start taking unilaterally towards reform to kind of start just sort of executing on the TPP deal, even if it's not part of it? Or is that just impossible?

MR. BUSH: Well, the first one, I think, is doing a bilateral investment agreement with the United States and deregulating some aspects of its own economy, doing similar things with the countries that are already in TPP negotiations. They've actually already done one with Japan. So that's – that would be time well spent.

It's likely, I think, that if negotiations bilaterally with the United States began on TPP, there would be some upfront down payments that USTR would ask for probably in the area of agriculture and pharmaceuticals and other things like that.

So you know, there is an agenda there and work can begin.

MR. POLITI: And just on the U.S. position on this, you mentioned that they've sent positive signals. How positive are these positive signals? And do you think they are really committed to getting this process going once a deal is reached, if a deal is reached? Or is it just talk at this point?

MR. BUSH: Well, I wouldn't say it's just talk. I mean, but it is rather general. And I think there's a good bit of realism about the various things that Taiwan would have to do to prepare and the issues at play, you know, if you ever got to negotiations. And there's realism about the China factor as well.

MR. POLITI: And a final question before we open it up, for Clyde. We had mentioned currency at the beginning. It's not in the talks at the moment, but a majority of members of Congress want strict currency disciplines to be in the talks.

If there's no currency in the TPP deal, does it die? Does it, you know, does it just die on the Hill? Or is there a way to have some language in the text of the agreement that satisfies Capitol Hill or at least a majority of Capitol Hill, doesn't cause Japan to walk away –

MR. PRESTOWITZ: Right.

MR. POLITI: – and –

MR. PRESTOWITZ: Right. Well, I could imagine that there would be some language in the agreement, say a reference to WTO. So I've forgotten what the clause is in the WTO, but there is a clause in the WTO, which talks about not using currency policy to offset WTO concessions. So I could imagine some reference to that in a TPP agreement under which the U.S. could say, well, look, see, we did something about currency, and Japan could say, yep, just like we did in the WTO, and finesse it, to use Dick's word – (chuckles) – finesse it that way.

You know, there are, what, 170 signatures in the Congress saying that they will not vote for this deal unless it deals with currency. But I guess that many of those signatures are not real signatures. So I think that probably can be handled.

MR. POLITI: And just in terms of congressional interest in Taiwanese accession, I noticed that Senator Menendez had called for Taiwan to join the TPP. Are there others? Is there kind of a coalition growing there?

MR. BUSH: I think those members of Congress who were quite friendly to Taiwan are probably very supportive of this. I'm – I think if you went to the trade committees in Congress, Finance and Ways and Means, you might find more caution and more concern about things like credibility of commitments in agriculture and so on.

MR. POLITI: Interesting. Great.

Well, I'd like to open it up for questions now. So if you have a question, please raise your hand and state your affiliation and direct it to anyone up here.

Q: Hi. (Inaudible) – from – (inaudible) – Media. I have a question about we know that China has indirectly mentioned about their interest of joining TPP. Do you have any discussion with Chinese government or expert about the possibility of joining TPP and the impact to the region?

And also, while we know that ADIZ make America more eager to get TPP done. That's my question. Thank you.

MR. PRESTOWITZ: Well, to answer your last question first, I think, yes, I think that the advent of the ADIZ does increase desire to get the TPP done.

As far as China's interest in TPP, I myself don't really know anything. I've seen a report in one of the newspapers that someone in China indicated or Chinese officials indicated to U.S. officials some interest.

I don't know what that means. Do you, Richard?

MR. BUSH: Well, I think the most authoritative source on this is the statement that Tom Donilon, who preceded Susan Rice as national security adviser, said after the Sunnylands meeting, and I'll just quote it for you, President Xi Jinping indicated that China was interested in having information on the process, the TPP process as it went forward and being briefed on the process and maybe setting up a more formal mechanism for the Chinese to get information on the process and the progress we're making.

So this is – China is very much in an information mode now, seeking more transparency. But I think it's premature to say that, you know, they're looking to joining the negotiations at some point.

MR. PRESTOWITZ: I think to put that in context, we have to remember that China is leading its own free trade negotiation, this CREP, Comprehensive Regional Economic Project, and that actually the countries participating in that include all the ones who are participating – all of the Asia Pacific countries that are participating in TPP plus some others like India.

And there's another free trade agreement being negotiated. I mean, theoretically, there's a Korea-Japan-China agreement. I guess that's kind of in the icebox right now.

MR. BUSH: Well, it's come out of the icebox.

MR. PRESTOWITZ: Has it come out of the icebox? OK.

MR. BUSH: Yeah, just barely.

MR. PRESTOWITZ: And I don't know, there are several. But I think we should – we need to put – we are acting as if TPP is the main game. I don't know if China actually sees it that way.

MR. BUSH: Well, it's our horse in the race.

MR. POLITI: Right here in front. Right here.

Q: Hi. My name is Nadia Chao, Washington correspondent for Liberty Times. I have a question for congressman. I mean, in general, the people's impressions is Republicans are more supportive for free trade and Democrats are more reserved for the free trade pact. But right now, you know, the government is running by Democratic government. So can you, you know, give us a sense in Capitol Hill what, you know, the parties in place, you know, as a factor in this negotiation? Thanks.

MR. PRESTOWITZ: Well, I think you're right. Historically, Republicans have been a little more friendly to free trade than Democrats, although, you know, all the big free trade agreements have been done by Democrats under Democratic presidents. So I actually think that the two parties are pretty consistently free trade, historically.

But at this moment, I think, on the one hand, you have a Democratic Party which, as I said earlier, is increasingly skeptical about these free trade deals. And you know, I think there's a feeling that we call them free trade deals, but somehow they're not really free trade, they're managed trade of some kind, or they're even protectionist or they help mercantilism. I think there's a lot of skepticism along those lines.

And then secondly, you have a Republican Party which – whose main objective – I mean, the Republican Party is not – has not demonstrated any interest in helping the Obama administration do anything. It has demonstrated no interest in supporting anything that the Obama administration has proposed. And there's no – on this TPP issue, the Republican Party has not been a champion of TPP in its commentary and activities in the Congress.

So in this case, I don't think that – it's why I say I think passing it through the Congress will be difficult because of Democratic skepticism and Republican lack of desire to cooperate with the administration.

MR. BUSH: Nadia, in these situations, what it often comes down to is a discussion between Republican and Democratic leaders where each party will say to the other, if you deliver over – if you deliver a majority of your caucus, we will work to deliver a majority of ours. Neither side wants the other to have a free vote on this.

And if you can get a majority of each caucus, you may be able to pass it. But that, for reasons that Clyde enunciated, that's not so easy in this context.

And you know, on the sequester, the feeling was that, you know, by putting defense cuts in there, that would make sure that the Republicans supported getting rid of the sequester. And we have seen how that turned out.

MR. POLITI: A question way in the back.

Q: Thank you. Guay Lu Fong (sp), University of Virginia. I actually have two questions relating to how fast Taiwan can be included into the next round of TPP negotiation. And first of all, I think like, especially to Dr. Bush, I think that you also mentioned that in your recent publication the major obstacle or first sequence for Taiwan is to get, you know, all the TPP members to come and to agree, conclude the TPP. And also I think for the United States position now is to finish the conclusion first and then extend to, you know, all the future members.

I guess from Taiwanese perspective, it seems like Taiwanese has no idea that how possible Taiwan can be included into next round, especially the U.S. and Japanese position. I think the Japanese position to conclude the TPP is very important.

So my question is that given that, you know, how fast, you know, the U.S. and Japan can actually do something and help Taiwan to be a part of a negotiation, because this is the first step that Taiwan has to face. And I believe that if Taiwan is significantly considered into this negotiation, maybe is it possible you would give, you know, alliance to more power in the sell of TPP to the public audience.

The second question is that I think China is trying to push Taiwan to strengthen (AFTA ?). And also, I think is it possible after (AFTA ?) China will encourage Taiwan to join RCEP, the Regional Comprehensive Economic Partnership?

So if TPP so far is not including Taiwan, what would be the positive impact for Taiwan to join to strengthen (AFTA ?) and also RCEP before TPP?

MR. BUSH: OK, these are good questions. In response to the first, I particularly agree with the point you made at the end that actually being brought into the negotiations and building the domestic consensus is an interactive process. And that's absolutely right.

I think it's very hard to say how fast the United States and others would come to a decision about whether Taiwan should be included in a second round or not. I just think that, you know, whatever steps Taiwan can take to make itself TPP worthy in advance of that it should.

With – the second question was?

(Off mic.)

Well, I think that the important thing for Taiwan, which I think it's leaders understand, is that it's a bad idea to do its liberalization with only one major trading partner, and that creates the danger of marginalization and diversion of trade and investment away from Taiwan. And Vincent Siew understands that, President Ma understands that.

So I think that RCEP is not a bad idea because it expands the circle of countries with which Taiwan has preferential agreements. It may not be a terribly high-quality circle, but that's OK. There is a value there, a broader value. I can't tell you, you know, how positive China would be. But if its fundamental goal is to win the hearts and minds of Taiwan people, which I think it actually is, then allowing Taiwan to participate in RCEP helps China towards that goal.

MR. POLITI: Any other questions? Right here in the front.

Q: My name is Eva, undergrad from Cornell University. My question is, do you think it's in China's interest to actually join the TPP? If yes, do you think China's reason for doing that is more like Mexico and Canada, which is damage control? Or it's more like using it like an external force to like push its domestic reform after the – (inaudible)? Thank you.

MR. BUSH: Well, my answer would be yes it is in China's interest because I think that the benefits from the existing economic model as it's evolved in the last five or 10 years are diminishing, and so reform is really necessary.

And so TPP, if China were willing to take that on, then becomes a vehicle for domestic reform of some sort. But that's just my own private, personal view. Chinese leaders have a much more complicated set of calculations.

MR. PRESTOWITZ: I think it would be a master stroke.

MR. POLITI: I know right there in the back.

Q: Bill Murray with Energy Intelligence. I was wondering, you talked a bit about how the economic argument is weaker than the strategic argument in the Congress. But I was wondering, in the last few years we've seen kind of a step change in energy issues in the U.S. and the ability to start to export. Obviously, Asia and the TPP area would be a big importer of, first, gas, but also what is currently illegal, exporting crude.

How big a deal is that down the road? And is that a – does that change the calculation for the Congress at all?

MR. PRESTOWITZ: Yeah, I think that's a good question. I mean, as you know, we have restrictions on those exports, which I think will be problematic in terms of getting them lifted. But certainly, there will be exports of oil and gas and they will be important.

On the other hand, I think you have to look at the balances in the following way. The U.S. already has a current account deficit, and let's just go back to the U.S.-Korea free trade agreement which, again, was passed through the Congress on the basis of the argument that it would increase U.S. exports to Korea, it would reduce the U.S. trade deficit with Korea and would create jobs. Well, the U.S. trade deficit with Korea has become larger, U.S. exports to Korea have declined and jobs have been lost in the U.S. in the wake of the Korean deal.

I think that the TPP will almost certainly result in some loss of employment in the U.S. just because it will open up some significant U.S. markets without the U.S. having any real comparable reciprocal opportunity within the TPP markets.

Let me just mention one case. Japan has currently capacity to build about 13 million vehicles a year; it currently sells about 9 million. It sells 4 million domestically and exports 5 million; and of the 5 million, it exports about 3 million to the U.S. So Japan has 4 million vehicles of excess capacity.

A TPP deal would get rid of the U.S. tariff on Japanese autos and trucks and would undoubtedly result in some increase of Japanese vehicle exports to the U.S. Japan has no tariffs on vehicles and trucks, and that should indicate an open market. But an interesting sidebar is that Hyundai, Korean manufacturer which is generally considered to be the current, low-cost, global auto manufacturer, has recently announced its abandoning the Japanese market because it's just had difficulty in getting real access.

So I guess that a TPP just in that one industry would result in a substantial increase in U.S. trade deficit. And that's why I think in the Congress – and I mentioned the textile situation, there are others. That's why I guess in the Congress there would be a lot of skepticism on economic grounds. But as we said earlier, the current geopolitical situation is militating the opposite way.

MR. POLITI: Right here in front.

Q: Barry Wood, RTHK in Hong Kong. What about the WTO and Bali? What does TPP, even TTIP mean for the future of the WTO?

MR. PRESTOWITZ: Oh, Barry, thank you. (Laughter.) You know, Jagdish Bhagwati and I – Jagdish is a professor at Columbia – have argued for years over trade and negotiations, but this is one point that I really agree with Jagdish on, and that is that we call all these deals free trade agreements. They're not, they're preferential trade agreements, you know, KORUS, U.S.-Korea free trade agreement, NAFTA, North American free trade agreement.

But wait a minute. The members of these agreements have special things with each other that they don't offer to other people. So why are you in it? You're in it to get that preference. So it's not free trade – (chuckles) – it's preferential trade.

And the irony is that in the 1930s during the Great Depression and the economic misery of that time, there was no WTO, there was no general agreement, there was nothing, so all trade was based on bilateral or multilateral agreements. The term "most-favored nation" arises from that time because countries had maybe one country that they gave the best deal to and then they would go to another country and they would say, oh, we'll give you the same deal we give our most-favored partner, we'll give you the same deal. That's where the term comes from.

Well, in the '30s, of course, and as the depression deepened, you had all these deals falling apart and countries competing against one another to depress their currencies, devalue their currencies and to raise tariffs, all in a chaotic race to the bottom.

So Bretton Woods 1944, the beginning of planning of the post-war economic regime, a main idea at Bretton Woods was to avoid currency competition and currency manipulation by having a fixed currency. And we came out, as you know, of Bretton Woods with the dollar as the main currency and all the other currencies fixed at a fixed rate to the dollar to get rid of currency manipulation.

And then secondly, we came up with this idea of the International Trade Organization, ITO, which was the original idea and it was rejected by the U.S. Congress, but one piece of the ITO, the general agreement on tariffs and trade, was able to be susceptible of being implemented by executive order and so the president went ahead with that, even though we didn't get the ITO.

But the idea of the GATT and then, finally, of the WTO is that you have a worldwide free trade agreement in which all of the participants in trade and in the system have the same deal, they all give most-favored-nation treatment, they all give national treatment, they all offer the same tariffs to all of their trading partners, the same investment conditions to all their trading partners.

So all of these preferential deals that we're doing under the name of free trade are undermining that system. And so I think the TPP is the enemy of the WTO. (Chuckles.)

MR. POLITI: I'd love to keep this going, but we have time for one more question way at the back behind Barry.

Q: Hi. Melissa Sim from The Straits Times Singapore. Just a quick question about the upcoming talks really quick. Is there any insight that you could give us on what the outcome might be? And also, is there any important concession that might be made during these talks?

Secondly, there is this push for the year-end completion. What is at stake if there isn't any agreement by the year end?

MR. PRESTOWITZ: Sir?

MR. BUSH: No idea. (Chuckles.)

MR. PRESTOWITZ: Your first question was – give it to me again?

Q: Any insight to the talks and what might come out of this round?

MR. PRESTOWITZ: Well, no. (Laughter.) I'm in the dark. I mean, I guess there are variations. But you know in the United States that we have – the talks have been kept very confidential. There are 600-odd cleared advisers who have access to all the part of the texts. We get what WikiLeaks to us. I mean, so I think we have some idea of, generally, what the demands and the obstacles are.

There are, I think, a lot of obstacles dealing with the intellectual property issues, dealing with the investor-state issue and dealing with the state-owned-enterprise issue. But there may well be many other problems that I'm not aware of.

Look, I think that the chance of getting the deal done before the end of the year is small. But I think that probably it will get done in the early part of next year.

MR. BUSH: They'll just say, oh, we meant the end of the lunar year, not the end of the solar year. (Laughter.)

MR. PRESTOWITZ: Right, right, right. Set the clock back. (Chuckles.)

MR. POLITI: Great. Well, on that note, thank you very –

MR. PRESTOWITZ: Well, I'm going to ask, if I can, if I can just take one minute I want to ask just a question to the audience actually.

MR. POLITI: Go ahead.

MR. PRESTOWITZ: Because this whole discussion and the debate generally has been in terms of is this – you know, what are the benefits for the various participants in the arrangement, and we've talked about the importance of the strategic element.

And an assumption of the strategic aspect of this is that it is in the interest of the United States to provide defense and protection and to make Asian countries feel less lonely. And it's in our interest to do that.

And I'd like to just pose the question to the audience whether or not you think that that basic premise is a correct premise.

Let me go on a little bit. I mean, for the United States, it costs something for the United States to provide the troops and the airplanes and the personnel who man them. It puts Americans in harm's way, it puts American boys and girls in situations where they might get shot.

And if you then look at the issue in terms of if there's no TPP, if the U.S. is not providing this defense, will Asian countries refuse to sell to America? Will they refuse to export to America? Will the U.S. energy supply be endangered? Does American oil or energy come through the Strait of Malacca? Is there a threat to America? Is China going to invade America or occupy the Hawaiian islands or even Guam? Is there a threat?

And if there's no threat to America, then what's the benefit to America of providing this broad defense and making people feel less lonely and paying for it by doing deals which reduce its employment rate?

Q: (Off mic.)

MR. PRESTOWITZ: I'm sorry?

Q: (Off mic.)

MR. PRESTOWITZ: OK, well –

Q: We have partners across the region who would be endangered by potential Chinese expansion, including my friends in Taiwan.

MR. PRESTOWITZ: Uh-huh.

Q: I mean, that's a value which we ought to be concerned about, I think. I mean, if we withdraw, what happens to Japan? Would Japan have to go to war over the Senkakus with the Chinese? What happens to Taiwan?

MR. PRESTOWITZ: I don't know. Japan and China would have to figure that out, wouldn't they? (Laughter.)

MR. BUSH: I mean, I think it's – I mean, if I could weigh in here, I think it's a legitimate question. The assumption of U.S. policy since around 1950 has been that we would protect our narrow national interests by being present in the Asian region.

MR. PRESTOWITZ: Right, right.

MR. BUSH: But there is a debate you could have about whether that is true anymore.

What bothers me is that we are actually conducting that debate, but not on the terms that you're talking about.

MR. PRESTOWITZ: Yeah.

MR. BUSH: We're just talking about, you know, how much you're going to cut from the defense budget, what percentage. We're making policy through arguing about numbers in a very heated political environment, and that's not good for us, not good for our friends, it's not good for our adversaries.

MR. PRESTOWITZ: Right. Yeah, that's true.

MR. POLITI: And there's probably also a question of, you know, if you want to maintain or preserve that security umbrella, that costly security umbrella, is a trade deal the way to do it?

MR. PRESTOWITZ: Yeah.

MR. POLITI: Or is it necessary to do a trade deal in order to –

(Cross talk.)

MR. PRESTOWITZ: It did occur to me that those two B-52s that went through the ADIZ probably were more assurance about the U.S. being there and being friendly than the TPP.

MR. POLITI: So on that note –

MR. PRESTOWITZ: You have a desperate question back there. (Chuckles.)

MR. POLITI: There's one question that we just can't resist taking here.

Q: I am so sorry. Thank you so much. Just as sort of an attempt to respond to that question to the audience – my name is Rita Gerona-Adkins, I'm a journalist, I write for Asian-Pacific-American audiences.

I think the question that you raised, sir, as to why is the United States bothering to do this if Asia would do this or do that, you know, that sort of thing, I think that as long as the United States is in the business of maintaining the so-called primacy for reasons – two reasons, for economic leadership and sustenance, as well as also for maybe the word "moral" such as democracy. And also, altogether, these two objectives ensure not only the power of America globally, but also the safety of America as well as the rest of the world.

So it has got to invest in whatever it could do and not being lonely – (chuckles) – because it all comes home to roost for American interest.

And one question, sir – I don't know because I was so late, sinus problems – but does TPP – what is your take regarding climate change and TPP considering that many countries, members of the TPP also in the beleaguered part of the world so far as the impact of this more atrocious kinds of weather changes such as what had happened in the Philippines also, et cetera, and all that?

What does – how does – what's your take so far as the climate change impact on TPP and vice-versa?

MR. PRESTOWITZ: Well, TPP hasn't discussed climate change much. However, the Sierra Club in the U.S., the conservation group, has been opposing TPP on the grounds that the TPP would lead to less regulation of oil discovery, fracking and gas discovery, and that that would contribute to global warming. So it has been discussed, but I don't think it's a major point.

MR. POLITI: And just to add one thing because I wrote a story about this a couple of weeks ago. But the environmental groups actually are very split on the TPP. They like the – they don't like the potential for more fracking, they don't like investor state, there are a few other things they don't like, but they like some of the conservation proposals that the White House is demanding. We don't know if they're going to get them on things like illegal logging and shark finning and things like that.

So – and they're actually split amongst themselves on what tactics to use.

But in any event, thank you very much to our great panelists.

Thanks to the audience for the great questions. We're, you know, 15 minutes over so that means it was a good panel.

And thanks to the Atlantic Council for hosting this. (Applause.)

(END)

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