Foreign Policy: Asia after the liberal international order


July 20, 2018

Foreign Policy: Asia after the liberal international order

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by Amitav Acharya, American University, Washington DC

With the election of Donald Trump as President of the United States, the West suddenly woke up with an acute anxiety about the fate of the US-led liberal international order. Until then, the liberal establishment in the United States had assumed that Hillary Clinton would succeed Barack Obama as President and ensure continuity in the liberal order. They ignored or dismissed warnings about the order’s crisis and decline. The belief in the resilience of the liberal order changed dramatically on 6 November 2016.

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 What is the liberal order? It is an international system created and managed by the United States after World War II to promote capitalism and democracy through building alliances and multilateral institutions. Its supporters portray the liberal order as an open, rules-based and multilateral system that operates through consent rather than coercion.

This is a fundamentally self-serving and distorted view. In reality, the liberal order is a club of the West. To other countries, its benefits—such as market access, aid and investment, and the provision of a security umbrella—were offered selectively and conditionally. Leading nations of the developing world, including China and India, were either outside of the system or connected at the margins. Some developing countries were summarily excluded.

The order often operated more through coercion than consent. It was hardly ‘orderly’ for the Third World, where local conflicts were magnified by capricious great power intervention, including by the United States and its Western allies.

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China’s Xi Jinping’s is Asia’s Big Brother

Trump’s rise proves that the challenge to the liberal order is as much from within the United States as from outside. Trump is not the cause of the crisis of the liberal order, but rather its consequence. The liberal order had begun to fray and fragment well before the Trump presidency due to irreversible structural changes in the global economy, especially the rise of China and other non-Western powers. Growth in world trade had slowed and the World Trade Organization had been moribund for some time. A sizable section of the US electorate was already disillusioned with free markets and free trade. While Trump was able to stoke and exploit these sentiments, their origins predate his political rise.

Trump’s policies are pushing the liberal order closer to the precipice. He is severely weakening the US commitment to free trade and multilateralism, and his elevation to US Pesidency is encouraging populist and authoritarian rulers around the world. Trump shows more interest in engaging Putin and  North Korea’s Kim than Merkel and May.

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Trump is all over Moon

Asia was a grey zone of the liberal order for much of the post-World War II period. Some countries of the region, especially the so-called ‘East Asian tigers’, benefited from export-led growth strategies and access to the US market that the liberal order facilitated. But East Asian capitalism was mediated by the strong hand of the state. Democracy in the region was scarce and illiberal, marked by one-party rule, sham elections and scant provision of civil liberties.

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Trump grimaces through ASEAN handshake in Manila, Philippines, this may be the most awkward presidential handshake ever. The US President does not take ASEAN seriously. He has deliberately discouraged the development of regional multilateral institutions in Asia in favour of a hub-and-spoke system of bilateral alliances. 

The United States discouraged the development of regional multilateral institutions in Asia in favour of a hub-and-spoke system of bilateral alliances. ASEAN—the most successful regional multilateral institution in Asia—was established with no help from the US. It came about despite the liberal order, rather than because of it.

 Trump’s effect on the liberal order might not be known for some time. At this point, we do not know how long his Presidency might last, whether he will face impeachment or seek re-election—and if he does, whether he would win a second term.

His approach to foreign policy is so inconsistent (such as his reversals on the Trans-Pacific Partnership), that one must exercise extreme caution in making any predictions about how his Presidency might eventually affect the world order.

The vagaries of the Trump Presidency notwithstanding, the liberal order is facing an existential challenge. Elements of the liberal order will survive but it will not enjoy the dominance it once claimed for itself. The era of liberal hegemony is past. The rise of the rest is real.

Asia has come a long way since the Cold War. China and India, the region’s leading powers, have embraced economic openness. There is now a range of multilateral institutions in the region, centered around ASEAN. But the great powers of Asia will not be the saviors of the liberal order, as some hope.

While China has pledged to support the liberal order, this is likely only in reference to some of its economic and institutional aspects, especially the flow of trade and investment. China will not support the political foundations of the liberal order, such as democracy and human rights. Even in the economic arena, China’s policies—such as the Asian Infrastructure Investment Bank and the Belt and Road Initiative—will alter global trade, investment and development patterns even if they are only partially successful. In the longer term, they will create a Chinese-led international order over Eurasia and beyond.

Instead of helping the West to resurrect the liberal order, Asia will lead the transition to a different type of world order. The remnants of the liberal order will have to come to terms with a Chinese-led order and other regional orders around the world in what I call a decentered and post-hegemonic ‘multiplex world’.

Such a world will not be free of conflict. But conflict will be tempered by both older and newer forms of interdependence and institutions across regional orders, including those responding to shared transnational challenges such as climate change, pandemics and terrorism. This outlook is more plausible than the doomsday scenarios of disarray and collapse that many liberal pundits in the West have imagined as a result of the end of the US-led order. They were wrong before and are likely to be wrong again.

Amitav Acharya is Distinguished Professor of International Relations, American University, Washington, DC. This article is based on ideas from his book, The End of American World Order, 2nd edition, Polity Press, 2018. Follow him on Twitter: @AmitavAcharya.

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Trade wars and Asia’.

Will Trump’s Trade War Make America Great Again?


July  19, 2018

Will Trump’s Trade War Make America Great Again?

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The United States has had the world’s largest trade deficit for almost half a century. In 2017, the US trade deficit in goods and services was $566 billion; without services, the merchandise account deficit was $810 billion.

The largest US trade deficit is with China, amounting to $375 billion, rising dramatically from an average of $34 billion in the 1990s. In 2017, its trade deficit with Japan was $69 billion, and with Germany, $65 billion. The US also has trade deficits with both its NAFTA partners, including $71 billion with Mexico.

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Economist Professor Dr. Kwame Jomo Sundram

President Trump wants to reduce these deficits with protectionist measures. In March 2018, he imposed a 25% tariff on steel imports and a 10% tariff on aluminium, a month after imposing tariffs and quotas on imported solar panels and washing machines. On 10 July, the US listed Chinese imports worth $200 billion annually that will face 10% tariffs, probably from September, following 25% tariffs on $34 billion of such imports from 7 July.

Do US trade deficits reflect weakness?

The usual explanation for bilateral trade deficits is price differentials. However, the US accuses such countries of ‘unfair’ trade practices, such as currency manipulation, wage suppression and government subsidies to boost exports, besides blocking US imports.

Trump views most trade deals such as NAFTA as unfair. His team insists that renegotiating trade deals, ‘buying American’, a strong dollar and confronting China will shrink US trade deficits.

But the country’s overall trade deficit, offset by capital inflows, is related to the gap between its savings and investments. The US spends more than it produces, thus importing foreign goods and services. Cheap credit fuels debt-financed consumption, increasing the trade deficit.

Total US household debt rose to $13.2 trillion in the first quarter of 2018, the 15th consecutive quarter of growth in the mortgage, student, auto and credit card loan categories. American consumer debt was more than double GDP in 2017.

US government budget deficits have also been growing. From 67.7% of GDP in 2008, US government debt rose to 105.4% in 2017. The federal budget deficit was $665 billion in FY2017, rising 14% from $585 billion in FY2016.

The US budget deficit was 3.5% of GDP in 2017. According to the US Congressional Budget Office, it will surpass $1 trillion by 2020, two years sooner than previously projected, due to Trump tax cuts and spending increases.

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Dr. Anis Chowdhury, Adjunct Professor of Economics  at Western Sydney University (Australia)

The growing US economy may also increase the trade deficit, as consumers spend more on imported goods and services. The stronger dollar has made foreign products cheaper for American consumers while making US exports more expensive for foreigners.

These underlying economic forces have become more important than policies in raising the overall trade deficit, while bilateral deficits reflect specific commercial relations with particular countries. Thus, disrupting bilateral trade relations may only shift the trade deficit to others.

Have the cake and eat it?

So, why does the US have a structural trade deficit? As the de facto international ‘reserve currency’ after the Second World War, the US has provided the rest of the world with liquidity. Its perceived military strength means it is also seen as a safe place to keep financial assets. Of about $10 trillion in global reserves in 2016, for example, around three fifths (60 per cent) were held in US dollars.

US supply of international liquidity by issuing the global reserve currency offers several economic advantages. It also earns seigniorage from issuing the main currency used around the world, due to the difference between the face value of a currency note and the cost of issuing it.

With growing foreign demand for dollars, the US can run deficits almost indefinitely by creating more debt or selling assets. Demand for dollar-denominated assets, for example, US Treasury bonds, raises their prices, lowering interest rates, to finance both consumption and investment.

While foreign investors buy low-yielding, short-term US assets, Americans can invest abroad in higher-yielding, long-term assets. The US usually reaps higher returns on such investments than it pays for debt, labelled America’s ‘exorbitant privilege’.

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” As the US retreats from the global diplomatic stage, use of other reserve currencies, including China’s renminbi, has been growing, especially in Europe and Africa. Thus, ironically, as Trump wages trade wars on both foes and friends, China will probably gain, both geo-politically and economically.

The resulting global economic shift will not only hurt the US dollar and economy through the exchange rate and borrowing costs, but also its geopolitical dominance”.–Jomo and Anis

Thus, for the US to enjoy the ‘exorbitant privilege’ of the dollar’s role as the major reserve currency, it must run a chronic trade deficit. Therefore, giving up the dollar’s global reserve currency status will have major implications for the US economy, finances and living standards.

Can the US win Trump’s trade war?

Barry Eichengreen noted that countries in military alliances with reserve-currency issuing countries hold about 30% more of the partner’s currency in their foreign-exchange reserves than countries not in such alliances. Instead, Trump has prioritized reducing trade deficits to strengthen the US dollar and dominance while disrupting some old political alliances.

As the US retreats from the global diplomatic stage, use of other reserve currencies, including China’s renminbi, has been growing, especially in Europe and Africa. Thus, ironically, as Trump wages trade wars on both foes and friends, China will probably gain, both geo-politically and economically.

The resulting global economic shift will not only hurt the US dollar and economy through the exchange rate and borrowing costs, but also its geopolitical dominance.


Anis Chowdhury
, Adjunct Professor at Western Sydney University (Australia), held senior United Nations positions in New York and Bangkok.

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development. In 2007, he was awarded received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. He was recently appointed a member of Prime Minister Dr. Mahathir Mohamad’s Eminent Persons Council on Strategy and Policy.

 

 

Economic and Political Security today


July 10, 2018

Economic and Political Security today

by Editorial Board, ANU

http://www.eastasiaforum.org/2018/07/09/economic-and-political-security-today/
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The Trump administration in Washington has invoked security threats under Section 232 of the Trade Expansion Act of 1962 to impose punitive tariffs on imports of steel and aluminium. The next target is automobiles and parts and US$34 billion of Chinese imports. While it may sound plausible that dependence on these crucial industrial imports from potential adversaries might affect national security interests, there’s absolutely no responsible analysis that suggests they do. Security policy is dominating broader national strategy in the United States, while economic considerations affecting security in more important ways are taking a back seat.

 

Only 2 per cent of US military steel supplies are sourced abroad. As for automobiles, as the global auto association recently pointed out, ‘America does not go to war in a Ford Fiesta’. The national defence requirement for imported cars and parts is virtually zero. If US capacity for the production of civilian autos and trucks is relevant to national defence, it is stronger now as a result of trade and import competition than it has ever been. As the US National Association of Manufacturers says, import restrictions simply give an edge to foreign production. The unilateral imposition of tariffs or quotas under Section 232 would undermine the sector and broader manufacturing production and jobs in the United States, the association suggests. A weaker American economy undermines America’s military power.

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Donald Trump declares a Tariff War on China

National security arguments for these tariffs simply provide a fig leaf of ‘legal’ authority for President Trump to impose penalties on US trading partners, including Europe, Japan, China (which incidentally supplies only 3 per cent of US steel imports), South Korea and Canada — Australia having done a WTO-illegal deal to wriggle out — for totally spurious reasons.

False claims about the relationship between trade and national security are not just a figment of Mr Trump’s fantastical imagination. They are reflected in US National Security statements and the pronouncements of national security authorities in other countries, including in Australia. The Trump administration’s first National Security Strategy called China a ‘revisionist power’ that seeks to ‘displace the United States in the Indo-Pacific region’ and ‘shape a world antithetical to US values and interests’. It said that the engagement policy had ‘failed’ and that ‘great power competition’ had returned between the United States, China, and Russia. Soon after, the National Defense Strategy changed the primary focus of US strategy from fighting terrorism to preventing the threat to ‘US prosperity and security’ and ‘international order’ posed by China’s quest for ‘global pre-eminence’ and the leadership of an ‘authoritarian’ world.

It’s not that these claims should not be seriously evaluated; that’s exactly what should happen. But they should not be accepted as unchallengeable holy writ and dominate the national strategies of the United States and other countries. The issues in national economic strategy at stake for the people of the United States and other countries extend well beyond the competence of the security policy establishment, just as security issues extend beyond the competence of the economic policy establishment. Each needs to inform the other.

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Peter Drysdale and Shiro Armstrong in our lead essay this week look at better processes for getting the hard choices that Australia faces in strategic policy right. Like a number of other countries in Asia, the United States is Australia’s principal security partner and its major trading partner is China. Australia’s national interest comprehends both China and the United States — and security and economics need to be integrated into strategic decision making from the outset. Australia needs to be better placed to deal with the ongoing challenges from both countries (and others) in a world that’s become more complex.

‘The problem’, Drysdale and Armstrong suggest, ‘lies in how Australia’s strategic policy choices are currently being framed and made’.

‘Strategic policy is overwhelmingly framed from a security perspective in political–military terms. Yet the economic dimension of national power and influence is also central to the hard choices to be made on strategic policy. Economic policy and engagement reinforce and habituate a rules-based international order and, significantly, they create bigger, broader interests and pluralities in countries. Incorporating economic options with political–military elements in thinking about strategic policy broadens options for attaining both national security and prosperity’.

Drysdale and Armstrong illustrate the problem through the lens of responses to China’s infrastructure initiatives such as the Asia Infrastructure Investment Bank (AIIB) and the Belt and Road Initiative (BRI). The security community in the United States frames these initiatives in concerns about territorial disputes and political developments in China, and represents them to their allies in Asia as designed to compromise willing partners in Chinese debt. That’s clearly not the whole story: though the AIIB and BRI do provide China with a means ‘to increase its influence, as other countries like Japan have in the past, [they are] also a way for China to support economic development and poverty reduction by building infrastructure and creating economic links between countries, and [for China] to become a responsible global and regional player commensurate with its growing economic size and power’.

‘The responses of the security specialist and the economist are each inadequate in themselves. But bringing them together offers a path of constructive and active engagement that can support both security and prosperity. Drawing away is not going to stop China pursuing the BRI, while engaging intelligently and systematically can mitigate some of the downside risks and help lift global prosperity and security’, Drysdale and Armstrong point out.

This problem is not limited to choices about China. Australia and its partners in Asia are now confronted with the reality that the United States, their primary security alliance partner is actively engaged in seeking to destroy the rules-based economic regime on which their prosperity and their political security is fundamentally based. This is an immediate and existential threat. The medium to longer term consequence of the United States’ own self-inflicted harm will, on all rational calculations, shrink its economic power and political influence. Where’s that reflected anywhere in Australia’s national strategy at this time?

The Drysdale–Armstrong analysis leads to the powerful conclusion that Australia’s national strategy policymaking is deeply flawed in the marriage of these two arms of the national interest. The system worked well when Australia’s main security and economic partners were the same. But that world has changed, and the way in which top political decisions on national strategy are framed as well as the foundations of policy advice on which they depend are overdue for significant reform.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

Foreign Affairs: Time for East Asia


July 9, 2018

Time for East Asia

By Bunn Nagara@www,thestar.com.my

READ : https://asia.nikkei.com/Spotlight/The-Future-of-Asia-2018/Mahathir-revives-Look-East-policy-to-join-ranks-of-economic-giants

AS an indication of how out of touch some international pundits of Asia are, they still call North-East Asia (China, Japan and Korea) “East Asia.”

East Asia as a region comprises the sub-regions of North-East Asia and South-East Asia, the latter being the countries of ASEAN and Timor-Leste.

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The ASEAN region developed steadily with peace and prosperity as its watchwords. It became known as a region consistently posting some of the highest growth rates in the world.

Yet ASEAN and its member countries were severely constrained by a lack of economic weight and global reach.

ASEAN’s diplomatic clout is fine, but South-East Asia as a region falls short of economic heft in a rapidly globalising world. Nonetheless, the forces of globalisation themselves would take care of that with growing economic integration within East Asia.

North-East Asia included two of the world’s three largest economies, so as a region it had no problems of limited reach or heft. Despite global constraints, China on the whole continued to grow.

As the economies of North-East Asia and South-East Asia grew more integrated, growth in East Asia as a whole would soon reach an altogether different plane.

Studies generally find intra-regional trade surpassing foreign direct investment (FDI). A 2009 study found that tariff reductions as well as closer monetary cooperation among East Asian countries made sense.

A report by the Asian Development Bank Institute last year acknowledged the impressive growth of East Asia’s intra-regional trade ratio over the past 55 years.

It noted how trade had become “more functionally linked to international production networks and supply chains” as well as FDI in the region. This is indicative of East Asia’s deepening regionalisation. Typically, after Japan’s export of capital to South-East Asia in the 1970s and 1980s, China took up the slack as Japan’s economy leveled off from the early 1990s.

In 1990, ISIS Malaysia and Prime Minister Tun (then Datuk Seri) Dr. Mahathir Mohamad worked on a proposal for an East Asia Economic Grouping (EAEG). It was time for East Asia to come into its own.

When Chinese Premier Li Peng visited Kuala Lumpur in December 1990, Dr Mahathir proposed the EAEG to him. Li Peng accepted and supported it.

The idea had not been discussed within ASEAN before. Indonesia, the biggest country and economy regarding itself the region’s “big brother,” felt miffed that it had not been consulted about the plan.

Singapore’s position, traditionally more aligned to a US that was not “included” in the East Asia proposal, was slightly more nuanced. Lee Kuan Yew, upon becoming Senior Minister just the month before – and on the cusp of the Cold War’s demise – still preferred an economic universe defined by the West.

At the time this was the European community and the Uruguay Round as an outgrowth of the General Agreement on Tariffs and Trade (GATT).

It was still three years before the European Union (EU), and four years before the North American Free Trade Agreement (NAFTA).

Generally the world was still beholden to Western economic paradigms and game plans. The EAEG was thus seen as the work of some upstart Asians, in turns brash and occasionally recalcitrant.

Most of the six ASEAN countries, like South Korea, accepted the EAEG even as they tried to learn more about it. But it was still at best tentative.

The EAEG’s critics, however, proved more vocal. US President G.H.W Bush and Secretary of State James Baker wanted to crash the regional party by becoming a member also, or else would see the idea crash.

The Uruguay Round was then seen to be quite rudderless, and APEC, itself formed just one year before, appeared fumbling in the doldrums.

The EAEG, misperceived as an “alternative”, would be thinking and acting outside the box. An energised Asia owing nothing to Western patronage was far too much for an Occidental-conceived world order to contemplate, much less accept.

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Prime Minister Hun Sen and China’s President Xi Jinping

Malaysia tried to soothe anxieties about the EAEG by emphasising its soft regionalism. It was to be only “a loose, consultative” grouping and no more.

Why should a booming, rapidly integrating East Asia be deprived of a regional economic identity, when Europe and North America could develop their own?

Unfortunately the EAEG’s public relations campaign proved too little too late. The idea, albeit now conceived as an ASEAN project, lacked traction and ground to a halt.

Singapore saw its merits and tried a different tack. Prime Minister Goh Chok Tong proposed an East Asia Economic Caucus (EAEC) within APEC, allaying fears of an insecure US that this would remain within the ambit of a US-dominated APEC.

Several political speeches and conference papers later, the EAEC idea also failed to germinate. A Bill Clinton Presidency was lukewarm-to-cool to the idea, still without the encouragement Japan needed for a nod.

A flourishing East Asia would be left without a regional organisation of its own, again.

In 1997 the devastating Asian economic and financial crisis struck, hitting South Korea, Thailand and Indonesia particularly badly. If the EAEG had been in place by then, greater regional cooperation and coordination would have helped cushion the shocks.

Suddenly, South Korea took the initiative to push East Asia into forming a regional identity: ASEAN Plus Three (APT). This grouping would consist of the same EAEG countries.

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Indo- Pacific Partnership –An Alternative to China’s One Belt One Road Initiative (BRI)

Japan this time was more accommodating, and the APT was born.

For decades, “the West” led by the US was identified with open markets and free trade. But now a Trump Presidency deemed protectionist, even isolationist, is hauling up the drawbridge and raising the barricades with tariffs and other restrictive measures.

These are aimed at allies and rivals alike, whether in Europe or Asia. Equivalent countermeasures have been launched, and the trade-restraining spiral winds on.

China, by now identified globally as a champion of open markets and free trade, has called on Europe to form a common front. Strategic competitors are making for strange trade bedfellows and vice-versa.

Dr Mahathir was on his annual visit to Tokyo last month for the Nikkei International Conference on the Future of Asia. He duly revisited the idea of an East Asian economic identity and community.

For emphasis, he added that he preferred this to a revised Trans-Pacific Partnership that the US has now rejected. How would an EAEG now play in today’s Japan and East Asia? More to the point, how would it play in Washington? The answer may still determine its prospects in Tokyo and East Asia as a whole.

It is possible that the US has become too tied to the idea of battling trade skirmishes, if not outright trade wars, with any presumed adversary to have time to frown on an EAEG.

Dr Mahathir has noted how this is the time for such a regional grouping, since we still need it and particularly when the US is helping to justify it. It is also conceivable that Japan today is more open to the EAEG, just like with the APT post-1997.

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America First Fallacy– In fact it is US retreat from global engagement

 

The more the rhetoric of a US-China trade war rages, the more likely East Asia can finally develop a regional economic identity of its own.

Even a US-EU trade conflict will do. East Asia should not be too choosy about its benefactors.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

Bunn Nagara

Trade, Technology, and Xi Jinping’s Question


July 7, 2018

Trade, Technology, and Xi Jinping’s Question

by Kaushik Basu

https://www.project-syndicate.org/commentary/digital-technology-trade-war-protectionism-by-kaushik-basu-2018-07y Kausik Basu

Despite unprecedented technology-enabled development, the world is beset with challenges, from violent conflict to rising inequality. The underlying reason for these problems may be that we have reached a turning point in the march of technological progress – and we are navigating it very badly.

Image result for xi jinping at davosThe Protectionist (Donald Trump) is the Loser. The Globalist (Xi Jinping) will emerge the winner eventually.

 

NEW YORK – “It was the best of times; it was the worst of times,” said President Xi Jinping, quoting Charles Dickens’ famous line to open his speech at the 2017 World Economic Forum. “Today,” Xi continued, “we also live in a world of contradictions.” On one hand, “growing material wealth and advances in science and technology” have enabled unprecedented rates of development. On the other hand, “frequent regional conflicts, global challenges like terrorism and refugees, as well as poverty, unemployment, and a widening income gap” are generating deep uncertainty.

Xi then posed a potent question: “What has gone wrong with the world?”

Perhaps the answer lies with the very technology that Xi regards as the key to China’s rise to high-income status. Specifically, it may be that we have reached a turning point in the march of technological progress – one that we are navigating very badly.

Technology has been shaping and reshaping our lives ever since early human beings discovered how to make tools from stone. It is only natural for such a long process to include moments when technological change generates unprecedented challenges.

One such turning point was the Industrial Revolution. In mid-eighteenth-century Britain, the revolution’s birthplace, progress entailed considerable adversity. Some workers toiled 12-14 hours per day, yet inequality surged. And the incidence of child labor rose beyond the levels seen in some of the poorest Sub-Saharan African economies today.

But Europe rose to the occasion. Groundbreaking research in economics was carried out by the likes of Adam Smith and Antoine Cournot, leading to novel interventions like progressive income tax, as well as new labor laws and regulations. As a result, the Industrial Revolution accelerated economic development and human welfare.

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Human development has seen other “industrial revolutions,” including the one that is currently unfolding. This so-called Fourth Industrial Revolution is centered on advances in digital technology, including “labor-linking technologies” (which enable workers across continents to work together in real time) and, more recently, artificial intelligence and robotics.

These advances have enabled economic globalization, which, like the Industrial Revolution, has brought unprecedented progress, as Xi acknowledged, while generating new challenges, including rising inequality and worker vulnerability. But instead of managing those challenges, as Europe did in the nineteenth century, much of the world is succumbing to political polarization, rising nationalism, and a toxic blame game. Most notably, the United States under President Donald Trump has initiated what is rapidly escalating into a tit-for-tat trade war – one that will be devastating for the entire world, but especially for the US itself.

What such behavior fails to take into account is that globalization is, fundamentally, a natural phenomenon. It is the result of billions of individuals going about their daily activities, making decisions based on the possibilities available to them. Arguing against globalization is as constructive as blaming gravity for a building’s collapse. As Xi pointed out in his WEF speech, it “is a natural outcome of scientific and technological progress, not something created by any individuals or any countries.”

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In the case of Trump’s trade war, US policy also reflects a misunderstanding – one that economists have repeatedly pointed out – about bilateral trade deficits. According to Trump, a trade deficit is essentially a loss, and the countries with surpluses vis-à-vis the US, such as Mexico or China, are behaving in unfair and exploitative ways. Thus, they should be made to pay.

To understand the fallacy, consider your interaction with the neighborhood grocery store. At the end of each year, you run up a large “trade deficit” vis-à-vis the store, because the store sells goods to you, whereas you do not sell anything to the store. To claim that China “owes” the US for its trade bilateral trade surplus would be like saying that your local grocery store owes you for the money you spent there during the last year. In fact, you were not cheated, just as your employer was not cheated by the bilateral deficit it runs with you. Rather, you made mutually beneficial transactions based on your needs.

The modern economy depends on bilateral trade deficits; it would collapse without them. In an age of advanced technologies and accelerating specialization, attempting to manufacture everything domestically or bilaterally would be prohibitively costly.

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The One and Only Harley defies Trump’s America First Trade Policy

For now, the US seems committed to its demands that its partners pay up. The more likely scenario, however, is that economies like Canada, Europe, and Mexico will seek to offset the impact of Trump’s tariffs by deepening their ties with China – an obvious win for America’s main global competitor. Meanwhile, US corporations will probably move production elsewhere to avoid retaliatory tariffs, as some – such as Harley-Davidson – have already threatened to do.

There is no denying that the technological turning point at which we find ourselves has caused strain for all countries. But instead of blaming one another for the challenges generated by technological progress – an approach that will only bring about the worst of times – we should work together to address them. Any country that refuses to do so will create strain for all – and end up condemning itself to being left behind.

Kaushik Basu, former Chief Economist of the World Bank, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

The world is pushing back in the South China Sea


July 4, 2018

The world is pushing back in the South China Sea

Tuan N Pham, Yokosuka

 

http://www.eastasiaforum.org/2018/06/29/the-world-is-pushing-back-in-the-south-china-sea/

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In recent weeks, there have been several commentaries reporting a temporary new norm in the South China Sea (SCS) — realpolitik’s triumph over moralpolitik and the rapid decline of regional US soft power. But current developments suggest otherwise. Years of ill-advised US acquiescence and accommodation (strategic patience and wishful thinking) in the SCS appear to be over for now.

There indeed seems to be a new norm emerging in the SCS. But it is more reflective of the new muscular US National Security Strategy and US National Defense Strategy that call for an embrace of strategic great power competition with China than of a decline of US influence in the region.

Many countries are now firmly pushing back against Chinese unilateral expansionism in the SCS. Philippine President Rodrigo Duterte reportedly declared that he was ready and willing to go to war with China over SCS resources. A prominent Taiwanese think tank has proposed leasing Taiwan-occupied Taiping Island to the US military. And at the 2018 Shangri-La Dialogue, the United States, India, Vietnam, France and the United Kingdom all spoke strongly against China’s assertive and destabilising actions in the SCS.

These words are being backed up by actions.

Washington disinvited Beijing to the 2018 Rim of the Pacific naval exercise on the grounds that Chinese actions in the SCS run counter to international norms and the pursuit of free and open seas. US freedom of navigation operations (FONOPs) and presence operations in the SCS continue, and US defence officials are reportedly considering a more assertive program that could include longer patrols, more ships and closer surveillance of Chinese facilities.

London and Paris have joined Washington to challenge Beijing in the SCS. Both have conducted naval operations in the SCS to put pressure on China’s increased militarization of the disputed and contested waters.

Vietnam continues the modest expansion of its outposts in the Spratly Islands. With the latest construction at Ladd Reef, Hanoi has made small and incremental upgrades to 21 of its 49 outposts in recent years. The construction work also underscores a new facet of Vietnam’s military doctrine in the SCS — the employment of a maritime militia that will emulate China’s maritime militia, which China uses to enhance its presence and operations in the contested waters without provoking a military response from other countries.

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Layang Layang–Malaysia

Malaysia — like Vietnam and the Philippines — is embarking on a military buildup to better protect its maritime claims and interests in the SCS. Kuala Lumpur recently announced that it would upgrade its naval aircraft as well as purchase ship-based naval helicopters. The enhanced naval aviation capabilities are intended to support an ongoing comprehensive modernization of its surface fleet.

The aforementioned commentaries on the SCS also repeat some familiar Chinese perspectives on US FONOPs and US intelligence, surveillance and reconnaissance (ISR) operations that require some US perspectives for a more balanced understanding of the issues.

US FONOPs are an important expression of and are recognised by international law. The purpose and intent of US FONOPs are clearly laid out in US policy, and all operations are meticulously documented and published every year. On the whole, US FONOPs challenge excessive maritime claims in the SCS, not competing sovereignty claims; do not discriminate against particular states, but rather focus on the claims that individual states assert; are deliberate in nature, but are not deliberate provocations; and contest unilateral restrictions on freedom of navigation and overflight rather than accept rhetoric.

US ISR operations — which are conducted inside other countries’ exclusive economic zones (EEZs) — are lawful under customary international law and Article 58 of the United Nations Convention on the Law of the Sea (UNCLOS).

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The Chinese aircraft carrier Liaoning steaming forward the South China Sea.

The Chinese argument on the permissibility of military activities in EEZs is counter to the US position. The United States believes that while coastal states under UNCLOS have the right to regulate economic activities in their EEZs, they do not have the right to regulate foreign military activities in their EEZs.

Beijing contends that military activities — such as ISR flights, maritime survey operations and military exercises — on the high seas and in EEZs are unlawful according to UNCLOS, and that it is a requirement under UNCLOS that the high seas are used only for peaceful purposes, despite itself doing exactly the opposite.

Beijing’s interpretation of UNCLOS is a minority position held by 27 states, while the vast majority of states (over 100, including all permanent United Nations Security Council members other than China) do not hold this position.

The region and the world have come to the realisation that Beijing’s actions in the SCS are dangerously undermining the extant global order that China itself has benefited from. Other countries must now be more assertive to encourage and challenge China to become a more responsible global stakeholder that contributes positively to the international system. Otherwise, Beijing will be further emboldened to expand and accelerate its campaign to control the disputed and contested strategic waterway through which trillions of dollars of global trade flows each year.

Tuan N Pham is widely published in national security affairs and international relations. The views expressed therein are his own and do not reflect the official policy or position of the US Government.