[Overseas view]U.S. still secure in Asia
It is increasingly looking like the current financial crisis will be the gravest our economies have faced since the Great Depression.
The Great Depression ripped apart the underpinnings of international stability and accelerated the geopolitics that led to World War II. Today, international institutions are better prepared to prevent interstate chaos and there are no major powers with the dangerous ambitions shown by Japan and Germany in the last century.
Nevertheless, it is hard to imagine that the financial crisis will not have some ripple effect on security in Asia. How much will depend on the depth of the crisis, and we do not know how quickly financial markets will stabilize and economic recovery will begin.
For now there are four areas to watch.
Will the crisis accelerate China’s domination of Asia? Fareed Zakaria and others have said the financial crisis will accelerate China’s challenge to U.S. power in Asia and have argued that the United States is too dependent on China’s $2 trillion in reserves to pursue policies that keep China in check. Indeed, participants in the recent U.S.?China Strategic Economic Dialogue in Beijing report pronounced Chinese hubris about the impact of the crisis on China’s strategic position internationally.
But is the United States now really more dependent on China than China is on the United States and the world?
China has no choice but to recycle its $2 trillion in reserves into foreign assets like U.S. Treasury bonds because of its fixed exchange rates. China also needs to sustain 8 percent growth in order to avoid social instability caused by mass unemployment, and the financial crisis has already led to a downgrading of 2009 growth forecasts to 9 percent with the respected RAND Corporation predicting that growth is actually only 5 percent.
The American political system will easily survive the current recession, but Chinese leaders have to worry about the legitimacy and survival of the Communist Party if the economy slows too much.
Will the crisis accelerate the decoupling of Asia from the United States?
Asian regionalism was accelerated by frustration with the so-called Washington consensus after the 1997?98 financial crisis at a time of maximum U.S. economic power. The current crisis began because of failures in the U.S. financial system, prompting many observers to predict a rise of Asian leadership in the financial system and decoupling of Asia from the United States.
However, these predictions are overblown. To begin with, the main response to the crisis has taken shape in the G-20 process, which adds Korea, China, Australia, India and Indonesia to the original G-7, obviating the need for a separate Asian financial architecture. Indeed, why would the Asian economies want to take on the burden of managing the crisis within a narrower regional context with fewer resources?
Pakistan, for example, was unable to raise economic stabilization funds from individual countries like China. Meanwhile, Japan has clearly chosen to inject funds into the IMF this time and not a separate Asian fund as Tokyo considered in 1998 with the proposed Asian Monetary Fund.
Nor is China demonstrating any regional economic leadership. Rather than carrying the regional economic burden, Beijing has allowed the renminbi to depreciate against the yen and the dollar and has been dumping steel and other products in foreign markets.
Finally, there is little reason to expect that Shanghai, Tokyo or Seoul will replace New York as the center of finance in the coming decade. Wall Street has problems, but the rest of Asian financial firms continue to look to New York to revitalize global financial markets.
Will North Korea take advantage of the financial crisis? In general, weakness in the international system benefits rogue nations. The United States will be distracted by demands from Iraq, Afghanistan, Iran, Pakistan and the economic challenge.
Beijing will be more risk-averse in pressing North Korea, given fears about economic stability at home. On the other hand, China may show less largesse to North Korea with respect to food and energy assistance, particularly given the spike in world food prices. This could put Pyongyang in a much more difficult position.
Can the United States sustain its military commitments in Asia? China’s double-digit annual defense spending increases over the past decade may slow, but the PLA’s military capabilities continue to grow relative to other powers in the region who are not increasing their defense spending anywhere near the same rate (or actually decreasing procurement budgets, like Japan).
Moreover, the United States will continue to face huge spending obligations in Iraq and Afghanistan. But the conflicts in Iraq and Afghanistan are primarily ground engagements and the United States has significant air and naval assets around the world to sustain capabilities in Asia.
The F-35 fighter, Virginia-class submarines and other major air and naval programs will survive the financial crisis and continue to give the United States the military capabilities it needs in the Asia theater.
If the financial crisis does not turn around in the next few years, however, the United States will have to make more difficult choices about its defense spending priorities.
The bottom line is that the financial crisis probably does not change the fundamental distribution of power and influence quite as much as many pundits argue, but it does open the possibility of more significant change if there is not a turnaround in the coming two years. President-elect Obama has put in place a strong economic team, and there is reason for optimism on that front.
*The writer is a former senior director for Asian affairs at the United States Naional Security Council.
by Michael J. Green