By Matt Spetalnick and David Brunnstorm

In his State of the Union address in January, President Barack Obama left little doubt that his pursuit of a landmark Asia–Pacific trade pact was aimed at countering Beijing’s rising influence in the region. “China wants to write the rules … Why would we let that happen?” he asked.

Obama now has the response he did not want: A congressional rebuff to his legacy-defining trade agenda has dealt a humiliating blow — at least for now — to his effort to reassure Asian allies of U.S. engagement, and could allow China to expand its clout at Washington’s expense.

The vote on Friday to sidetrack a bill vital to Obama’s proposed 12-nation Trans-Pacific Partnership (TPP) threatens to derail the economic centerpiece of Obama's vaunted “Asia pivot,” widely seen as intended to face down the growing competitive threat from China.

At a time of heightened tensions over Beijing’s increased assertiveness in the South China Sea and its expanding economic influence across the Pacific Rim, the setback has already added to regional allies' doubts over U.S. leadership.

"The history of East Asia and Asia–Pacific is being rewritten," Singapore's Foreign Minister K. Shanmugam told an American audience in Washington on Tuesday. "You are not in the driver's seat right now."

Shanmugam met National Security Advisor Susan Rice on Tuesday, a U.S. official said, signaling that the White House was looking to ease allies’ concerns while it scrambles to salvage its signature trade initiative.

It may be a hard sell as Obama faces an uphill fight to convince dozens of Democratic lawmakers to change their minds.

Bates Gill, chief executive officer of the United States Studies Centre at the University of Sydney, said the failure of TPP would “negatively impact views in this part of the world about America’s role here."

The threatened collapse of TPP, which would cover 40 percent of the global economy, could also breathe new life into China’s alternative proposal called the Free Trade Area of the Asia Pacific.

U.S. officials have been at pains to insist that TPP is not intended to isolate China, America's top economic rival. But the drive for the far-ranging trade pact is widely seen as a move to reassert U.S. influence and that of key allies like Japan as China cuts deals and make investment inroads across Asia.

"The rest of the world is not standing still, they are moving ahead,” U.S. Trade Representative Michael Froman told Reuters, pointing to negotiations on trade deals between China and Australia as well as between China, Japan and South Korea.

The latest dysfunction in Washington could be seen by Beijing as a sign of U.S. weakness that will make it harder to get the Chinese to give much ground on issues that divide the world’s two biggest economic powers, one U.S. official said.

U.S. concerns about suspected Chinese links to massive cyber attacks on federal computer systems are expected to cloud annual high-level talks between the two sides in Washington. The June 22–24 Strategic and Economic Dialogue will lay the groundwork for a visit by Chinese President Xi Jinping in September.

“Certainly, the United States looks weak in terms of playing a leadership role in promoting a higher level of free trade,” said Jia Qingguo, dean of the School of International Studies at Peking University and an adviser to China’s Communist government.

"Not in the driver's seat"

No one is suggesting that Obama — who has repeatedly insisted on U.S. resolve to remain a Pacific power — is ready to abandon the economically dynamic region.

Despite its military focus on the volatile Middle East, the Obama administration seems to be making good on its promise to gradually increase troops and equipment in Asia-Pacific.

But some allies want more action, not just words, as China flexes its muscle in maritime disputes with its neighbors.

Beijing this year has accelerated large-scale land reclamation on tiny islands and reefs in contested waters of the South China Sea, leaving Washington struggling to craft a response without triggering a military confrontation.

Many in the region worry that Obama’s waning legislative power at home could mean a diminished U.S. commitment during his final 19 months in office, leaving China to fill the void.

Obama’s slap-down by fellow Democrats in the House of Representatives last week has shown the shortcomings of the White House’s strategy of trying to convince them that they should fear China’s rise more than the domestic union-led coalition seeking to block the trade deal.

Lawmakers on Tuesday extended the deadline for a second vote on a key part of so-called fast-track authority legislation, buying more time for supporters to rescue the bill.

Though U.S. officials say that for now the trade deal is too important to Asian partners to turn their backs on Washington, experts believe momentum could shift in Beijing's favor.

Nervous Asian countries could move closer to China, giving further impetus to projects like the new Beijing-led Asian Infrastructure Investment Bank, which many American allies, including the Europeans, have decided to join despite U.S. objections.

In another display of checkbook diplomacy, China is expected to pledge a multi-billion dollar investment in Europe's new infrastructure fund at a summit on June 29 in Brussels, according to a draft communique seen by Reuters. Beijing aims to create a $40 billion “Silk Road” of modern infrastructure linking Asia and Europe.

“The Chinese are delighted because Obama’s problems highlight that America is unpredictable," said Dean Cheng, a China specialist at the conservative Heritage Foundation in Washington. “And they have large sums of money to throw around.”

This article was originally published at Reuters