The business of US economic diplomacy in Asia


December 7, 2016

The business of US economic diplomacy in Asia

by  Dr. Martin Parkinson PSM, Canberra

The outcome of the US election has created considerable uncertainty at the country’s future policy directions towards the Asia-Pacific. While it is difficult to predict how US economic diplomacy in the region will change, the rule-based order it has led remains crucial to regional security and stability.

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As a general rule, the United States has had more care for the development of the international system of global trade and investment than many other countries. Rather than acting unilaterally, the United States often deliberately constrains itself by acting through the IMF, WTO, the World Bank and other multilateral bodies. While it has used explicit economic levers at times — such as infrastructure spending, concessional finance or highly preferential trade deals — the United States has done so to a noticeably lesser extent than other powers for at least two reasons.

 

First, the great and successful US experiment with constitutionalism has led to clearly defined and separate roles for the public and the private sector. The constitution constrains what various US administrations may do in the short run. But in the long run this increases certainty and enables businesses to prosper through hard work and ingenuity. Separation of powers also limits the US government in its discretion on how to achieve economic ends internationally. The United States simply doesn’t have large state-owned enterprises or development banks that can be directed to international ends.

The second reason why the United States has been exceptionalist in economic diplomacy is pure realpolitik. As the dominant global power, the US benefited from economic activity almost irrespective of where it occurred around the globe. Immediately after World War II, the institutions set up with the support of the United States to regulate businesses around the globe to a significant extent set rules for its own businesses. But as we transition to a more multipolar world there is a risk that the link between US interests and the interests of the global economy is becoming less clear-cut.

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History shows that increased trade and investment delivers job opportunities and rising living standards. We have all benefited from the US inclination for international rules over the exercise of arbitrary power. Global rules and norms have allowed businesses, and even countries, to specialise in production and for investment to flow where it is most valued. As I have said elsewhere, the rules-based order effectively underwrote the massive explosion of regional incomes – from Japan, to the Asian Tigers of South Korea, Taiwan, Hong Kong and Singapore, and now China, India, Indonesia and others.

Despite some shortcomings, the US model of economic diplomacy is still the right bet for our region. First, it’s flexible. The rules-based order creates the conditions for markets to flourish — and markets pivot faster than governments. Second, it’s voluntary. Relying on markets fits neatly with the ‘ASEAN way’ of doing economic diplomacy which emphasises non-interference and relationship building.

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It is a strength of the system that the rising emerging countries now want to participate in setting the global rules. These aspirations are legitimate and the alternative scenario of competing trade and investment blocs is deeply unappealing.

The rules-based order encourages countries to implement best practice policy settings. For example, in recent decades we have seen US multinationals bring expectations around the rule of law and transparent regulations to markets around the world.

Perhaps most importantly, the US model of engaging internationally — with soft power and economic dynamism — is a success. Economic success is the foundation of economic diplomacy. Failing to pursue policies that foster dynamism, help manage shocks, and deliver citizens what they desire and value, risks the capacity to project power and sustain influence. Economic success makes US society attractive around the world, and it is US businesses abroad which help sell the American dream. US soft power remains unsurpassed.

Without a doubt, developments during President-elect Trump’s term will have a lasting impact on how the United States does business in this region. Yet if the United States retreats, whether in terms of economic, trade or military engagement, there is really only one other single player that could attempt to fill the vacuum. China’s economy is as big as the next 13 largest emerging countries combined, though its GDP growth is obviously slowing as it approaches the technological frontier, and with its ageing and shrinking working population.

It is clear that the United States needs help in maintaining support for global rule setting.

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The United States needs the support of its friends and allies to maintain its focus on this region and on far-sighted and open regionalism. This is in our interest — indeed, in the interest of all countries in the region. With the slump in trade growth, the world has lost a key engine of economic growth that benefits all in the world. This requires other countries to step up and do more of the heavy lifting to advocate for the promotion of open markets, the importance of foreign investment and trade, and the benefits of immigration.

While we all need to get used to US dominance being replaced by pre-eminence, continuing to develop the rules-based order could be the most important legacy bequeathed to our region from the US primacy of the 20th century. US president Calvin Coolidge famously said that, ‘After all, the chief business of the American people is business. They are profoundly concerned with buying, selling, investing and prospering in the world’. Since business is certainly something the new US President-elect knows a lot about, we should all aim to ensure that this legacy will continue.

Martin Parkinson is the Secretary of Australia’s Department of the Prime Minister and Cabinet. This is an edited version of an address originally delivered at the American Chamber of Commerce in Australia in Sydney on 16 November 2016

http://www.eastasiaforum.org/2016/12/05/the-business-of-us-economic-diplomacy-in-asia/

Malaysia-China Relations: A New Turn? – Analysis


November 25, 2016

 

Malaysia-China Relations: A New Turn? – Analysis

Malaysia’s Najib Razak. Photo by Malaysian government, Wikipedia Commons.

Malaysia’s perceptible tilt towards China especially in economic relations reflects Malaysia’s foreign policy of hedging major power influence in the region and globally. While it seeks closer ties with China, it does not imply that Malaysia is shifting away from the US.

By Johan Saravanamuttu and David Han Guo Xiong*

Since Najib Razak assumed the premiership of Malaysia in 2009 China has featured significantly in his foreign policy. It was Najib’s father Tun Abdul Razak, Malaysia’s second prime minister, who was the first leader in Southeast Asia to establish diplomatic relations with the People’s Republic in 1974.

That said, Malaysia’s foreign policy has been one of hedging against major powers in the region and globally. While Malaysia has shown great awareness of China’s rise and importance in the Asia Pacific region, it remains highly cognisant of the political and economic role of the United States in the region.

Malaysia’s Perceptible Tilt Towards China

Thus, Malaysia is among the 12 countries that have signed the US-sponsored Trans-Pacific Partnership (TPP) Agreement in Auckland, New Zealand, on 5 February 2016. The TPP is interpreted by some observers to be a crucial pillar of US rebalancing in the Asia Pacific to check China’s rising political and economic influence.

However, it is uncertain whether the US would commit to the TPP after the Obama administration. Thus, seemingly as a hedge to the signing of the TPP, the Malaysian parliament approved on 20 October participation in the Asian Infrastructure Investment Bank (AIIB) — thought to be China’s brainchild — just prior to the Malaysian premier’s seventh state visit to China this week.

Recent developments in Malaysia demonstrate a perceptible tilt towards China, particularly in economic relations. When President Xi Jinping unveiled China’s 21st Century Maritime Silk Road or “One Belt One Road” (OBOR) strategy some three years ago, Malaysia welcomed the initiative and has remained very enthusiastic about it.

On 3 September 2016, the Malaysian Minister of Transport, Liow Tiong Lai (concurrently President of the political party Malaysian Chinese Association, MCA) extolled the virtues of OBOR in a Malaysia-China Business Dialogue event in Kuala Lumpur. Liow suggested that Malaysia could be “China’s gateway to ASEAN” and a crucial link to the 65 OBOR countries across Asia, Europe and Africa.

Impact of New Posture

This new Malaysian posture has come together with concrete developments in Malaysia-China relations. Malaysia is currently China’s largest trading partner in ASEAN with total trade of some US$100 billion expecting to reach $160 billion by 2017. China has also recently become the largest direct foreign investor in Malaysia, overtaking Singapore, Japan, Netherlands and the US, through buying assets in Malaysia’s troubled 1MDB.

These multi-billion assets bought from the Malaysian national fund include Edra Global Energy sold to China General Nuclear Power Corp for $2.3billion and a 60 percent stake in Bandar Malaysia, 1MDB’s flagship 197-hectare property site in Kuala Lumpur, at a price tag of $1.7 billion to China Railway Construction Corp. The China railway corporation is also thought to be in pole position to undertake the Kuala Lumpur-Singapore high-speed railway worth some $16.6 billion.

More interestingly, in keeping with its OBOR policy, China has been deeply involved in the rebuilding and refurbishing of sea ports in Malaysia. According to Transport Minister Liow, Malaysia’s has signed a “port alliance” with China linking six of Malaysia’s ports to 11 of China’s. Currently, China is helping Malaysia to rebuild and expand port services at Klang, Malacca and Carey Island in the Straits of Malacca and Kuantan on the South China Sea. Some 70 to 80 percent of the ships passing through the Straits of Malacca are said to originate from China.

Kuantan on the east coast of the Malay Peninsula would be of great importance to Chinese maritime trade as well. Liow said his ministry is therefore encouraging China to participate in port construction across 120 kilometers of the Malacca Straits. According to Liow, the port alliance with China would help develop shipping, logistics and other related industries to augment the $1 trillion worth of OBOR trade.

Ramifications for Malaysia

There are three ramifications of Malaysia’s embrace of OBOR. Firstly, OBOR, which is partly funded by the AIIB, would help China to further expand its prominence in Southeast Asia. It is expected that through the OBOR, Malaysia would be a key node for China to access the ASEAN market. China’s increased economic prominence through OBOR and the AIIB could improve China’s image among ASEAN countries as a major player in boosting the economies of Southeast Asia.

The strengthening of economic ties between ASEAN and China would obviate potential conflict, and enhance the benefit for ASEAN and China to work closely together economically.

Secondly, Malaysia’s perceptible tilt towards China in the OBOR venture could be a nudge to the US to maintain its current commitment to Southeast Asia. If the US, under its new President, reneges on its commitment to TPP, this would be a setback for Malaysia as the TPP has the potential to enhance Malaysia-US economic ties.

Thus, Malaysia’s favourable tilt towards China and OBOR could help to cushion some of the negative fallout of such a scenario. It could also be a signal to the next US President that America risks losing the support of its friends to China if the US does not continue its economic rebalancing role in Asia.

Thirdly, domestically, strengthening economic growth would be advantageous to Najib’s administration. Due to domestic political challenges having a strong economic performance would enhance the legitimacy of Najib’s government. The economic benefits of OBOR would play a vital role in buttressing Najib’s regime.

Najib’s recent visit to China  will improve bilateral ties significantly with OBOR featuring prominently in this development. This does not however imply that Malaysia is coming under China’s sway while shifting away from the US.

Drawing closer towards China economically is a pragmatic move by the Malaysian government to expand its economic space and boost economic growth. Provided the US continues its commitments to Southeast Asia Malaysia will also seek to build up ties with the US for regional peace and development.

*Johan Saravanamuttu, Adjunct Senior Fellow at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore, was previously professor of political science at Science University of Malaysia (USM). David Han is a Research Analyst with the Malaysia Programme at RSIS.

APEC PERU 2016 Barack Obama’s Last Hurrah


November 20, 2016

APEC is a Talk Shop–PERU 2016 Barack Obama’s Last Hurrah

by Gary Hawke

When assessing the impact of APEC, too much attention is paid to the annual Economic Leaders’ Meeting (ELM). Leaders will just talk about whatever interests them, but the main purpose of the ELM is to establish deadlines for the work program that APEC will engage in through multiple fora over the year.

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The 2016 ELM in Peru will generate some entertainment. President Obama will be interrogated about the likely impact of his successor and will try to provide reassurance without commitment. The result of the election is clear, even if extraordinary. There was never any chance of a repeat of then US President Bill Clinton’s ‘Triple Whammy’ — the Uruguay Round, North America Free Trade Agreement and inauguration of the APEC ELM — but few considered the likelihood of a complete reversal.

The immediate question is where US policy is likely to engage, considering there is widespread scepticism of the value of economic integration. Will US policy endorse and promote that scepticism? Will ‘American Jobs First’ be the new form of ‘America First’? Such questions will not be answered in Lima.

The nearest the official agenda will come to such questions is discussions over the future of the Free Trade Area of the Asia-Pacific (FTAAP) initiative. The working party — jointly chaired by the United States and China — will present the report, which has evolved over the course of this year but certainly does not contain a proposal for a clear way forward.

China will favour renewed commitment and promotion of negotiation while respecting the role of APEC as an incubator rather than a venue for negotiations. The US delegation will procrastinate, conscious that the incoming administration is unlikely to acknowledge any commitment and that Congress is unlikely to give a mandate for any negotiations with China. Statements will likely turn formulaic, probably deferring to further study.

In recent years, APEC has identified several ‘paths’ to the FTAAP — notably the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP) and the Pacific Alliance. TPP members are unlikely to bother much with any formal meeting on the sidelines of the ELM. Other economies that are interested in the TPP will simply monitor the informal discussions, which should give them a good idea of whether the TPP is ‘on ice’ or dead. Chinese leadership will presumably focus on RCEP, creating linkages between the Asia and the Pacific Alliance, and the China–US economic relationship as the key component of a Trans-Pacific understanding.

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All of this will occur on the sidelines of the ELM itself. The formal proceedings will include the receipt and endorsement of useful work from the APEC fora, including recommendations on trade in services from the Economic Committee. APEC economies have fallen behind OECD averages in growth of services trade and in achieving reductions in the trade restrictiveness index.

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The Economic Committee has responded to analysis which shows that increased services trade is related to increased productivity and living standards. Its work is focused on the competitiveness of service sectors rather than on increasing the exports of selected sectors. This has enhanced its appeal to developing economies and increases its likely impact — mainly due to its connections with innovation, absorption of new technology and inclusive growth.

The Economic Committee has also exploited synergies with work on good regulatory practice. ELM will surely endorse its proposals for further work in the area. Interestingly, it has attracted the Committee on Trade and Investment as a collaborative partner, having long seen itself as the premier arm of APEC.

Demand for ‘inclusive’ growth has been part of the Asian prescription of APEC goals since the Yokohama ELM. The conventional trade and investment facilitation and liberalisation agenda has responded mostly through adding ‘micro’ to ‘small and medium enterprises’ in trade agreements and facilitation processes. A focus on ‘inclusion’ might generate more interest in production networks and innovation. The result could be an effective response to dwindling public support for the integration process as a whole.

The headlines from ELM will provide entertainment. But the significant contribution of APEC will only be heard in the background.

Gary Hawke is an Associate Senior Fellow at the New Zealand Institute of Economic Research, and a member of the Academic Advisory Council of the Economic Research Institute for ASEAN and East Asia.

Leaders aren’t APEC’s heroes

Asia Foundation: Top 10 Recommendations for Trump Administration on Asia Foreign Policy


November 18, 2016

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Leading up to the 2016 U.S. elections, The Asia Foundation—a non-partisan, non-governmental organization—convened high-level, closed-door working groups of Northeast, Southeast, and South Asian policy specialists led by Dr. Yoon Young-kwan, Professor of International Relations at Seoul National University and former Foreign Minister of South Korea; Dr. Thitinan Pongsudhirak, Executive Director of the Institute of Security and International Studies at Chulalongkorn University in Thailand; and Dr. C. Raja Mohan, Founding Director of the India Center of the Carnegie Endowment for International Peace.

“Asia will only grow in strategic importance for the United States,” said project Co-Chairs of the American Task Force Dr. Harry Harding, University Professor at the University of Virginia, and Ellen Laipson, President Emeritus of The Stimson Center in Washington, D.C., who together provided the U.S. response to the Asian views. “Of greatest concern to Asians today is the extent to which the American role in the region has been questioned during the 2016 U.S. presidential election campaign. Early signs from the new administration that it will devote high-level attention to the vital region are gravely important.”

Asia Foundation: Top 10 Recommendations for Trump Administration on Asia Foreign Policy

http://asiafoundation.org/2016/11/14/asia-foundation-releases-top-10-recommendations-trump-administration-asia-foreign-policy/

San Francisco, November 14, 2016 — The U.S. must not shrink from its leadership role in the international order, according to a new Asia Foundation report released today. Asian Views on America’s Role in Asia: The Future of the Rebalance is the Foundation’s signature foreign policy initiative bringing together diverse, distinct perspectives from influential Asian foreign policy specialists and thought leaders. The report arrives on the eve of possibly the greatest change in American foreign policy in Asia since the end of World War II. One of the principal conclusions of the report is that most Asians believe that a robust, sustained, and consistent U.S. diplomatic, economic, and security presence in the region is essential.

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By John J. Brandon

avarabannerpicfinalAfter a grueling election season, on November 8, Americans elected their 45th president of the United States in a stunning victory for Donald Trump. As in much of the world, policymakers in Asia have been transfixed by the twists and turns of the 2016 U.S. presidential campaign, raising questions over where U.S. foreign policy toward Asia will stand under new leadership.

With 60 percent of the world’s population and some of the world’s fastest-growing economies and thorniest security challenges, Asia’s rising strategic importance cannot be overstated. The 2016 campaign revealed mounting skepticism on how the U.S. will to continue its role in global leadership, and concern over what the China strategy would be in a new administration.

Now President-elect Donald Trump will find a complex set of issues to address in the dynamic and divergent region, including security, trade, pressing inter-Asian tensions, expectations of Asian leaders and the broader public about America’s role, as well as rising powers eager to set their own agendas.

Yesterday, The Asia Foundation released “Asian Views on America’s Role in Asia: The Future of the Rebalance“—a set of strategic recommendations for the incoming president on foreign policy toward Asia, including concise top 10 crucial actions. The Asia Foundation’s quadrennial project convenes a series of closed-door, high-level working groups of Asian and American thought leaders across the Asia Pacific leading up to the election.

In contrast to the majority of Asia policy studies in the United States which limit their inquiry to American views, this project emphasizes a diverse set of Asian perspectives. This year’s Asian participants comprise both established foreign policy luminaries and a younger generation of rising stars from civil society and policy institutes. In addition to the chapters written by the project’s three Asia chairs, three emerging Asian leaders who participated in the workshops contributed a forward-looking snapshot entitled “The Future of Asia,” in which they envision Asia’s future and the optimal role of the United States in it. A response from two prominent American foreign policy specialists examines the political appetite within the U.S. for such recommendations.

Here are the top 10 recommendations for the new president:

1.Maintain a robust, sustained, and consistent American presence in the Asia-Pacific. A precipitous reduction of engagement in Asia would be detrimental to the interests of most Asian countries as well as the United States. Any diminution of U.S. credibility will push the Asian states toward self-help in the security realm and trigger massive destabilization of the regional order.

2. Support Asian regional architecture and institutions. While bilateral relations are important, multilateral mechanisms and diplomacy that promote greater cohesion among Asian countries are essential to America’s continued engagement in the region. America should support the mandate of the China-led AIIB, while partnering with Japan and India in infrastructure development in Asia.

3. President-elect Trump should re-examine his position on the campaign trail and ratify the Trans-Pacific Partnership (TPP), finding a way to move forward productively on this comprehensive trade agreement, which most Asians see as a mutually beneficial pillar of America’s role in the region.

4. President-elect Trump should rethink U.S. strategy on the Korean peninsula. North Korea’s nuclear and missile programs are an evermore imminent threat. In a matter of just a few years, the DPRK will have the ability to attack U.S. territory with a nuclear-armed ICBM. U.S. “strategic patience” has failed. After toughening international sanctions, the United States must eventually begin talks with North Korea to find a permanent solution on the Korean peninsula. At the same time, the U.S. government must be prepared for sudden political instability in the DPRK, and continue consultations with key stakeholders, including South Korea and China.

5. President-elect Trump should pursue a balanced approach toward China. As China continues to rise as an economic, political, and military power, the 45th president must resist the temptation of polarizing rhetoric or policies. Asian nations value America’s economic and security presence, but they do not want to be forced to choose between the world’s two largest powers. A strategic mix of engagement and hedging is a better U.S. policy toward China than either confrontation or appeasement.

6. The new president should ratify the United Nations Convention on the Law of the Sea. Although the United States follows UNCLOS as a matter of customary international law, the failure of Congress to ratify UNCLOS weakens the U.S. position on the South China Sea and on international law more broadly. The U.S. should continue its freedom-of-navigation operations and encourage other countries such as Japan and Australia to undertake their own FONOPS to make such activity more multilateral.

7. President-elect Trump should work with India to address South Asian security. As it draws India into a larger role in Asian security, Washington should work with Delhi to develop a coordinated approach to countering terrorism, nudge Pakistan toward political moderation, and promote regional economic integration in the South Asian subcontinent and the Indian Ocean region.

8. President-elect Trump should not abandon Afghanistan. It would be unwise for the U.S. to withdraw completely from Afghanistan. Poor governance is often the cradle of terrorism and instability, and to counter such instability, the U.S. must continue to promote the rule of law, build civil society, and support economic and development measures that increase Afghanistan’s national capacity to effectively govern and to provide for its own security.

9. The Trump administration should continue to play a leading role in nontraditional security. Broadly speaking, Asian nations have been slower than the United States to address security challenges such as climate change, disaster relief, terrorism, and food security. Most Asian countries welcome American expertise in humanitarian assistance, disaster response, and mitigating the effects of climate change, and they want the United States to continue to lead and to facilitate cooperation in these nontraditional security areas.

10. Finally, President-elect Trump needs to continue to project American “soft power.” No country in the world can match the resonance of American “soft power” in Asia. The United States can strengthen liberal and modernizing forces in Asia by exercising its unique influence in partnership with local initiatives rather than imposing an agenda on the region and interfering in the internal affairs of states. Political modernization owned by Asians themselves will enhance America’s political standing and advance her foreign-policy objectives over the long-term. The U.S. should continue to cultivate educational and cultural ties with Asia, support civil society organizations and technological innovation, and serve as a role model for good governance by building capacity and sharing best practices.

It’s clear from our many long discussions across the region that Asia wants the U.S. to exercise global leadership in this complex era, and not succumb to the temptation of isolationist sentiments. If the U.S., rich with experience in global leadership, retreats in this situation, there will be a leadership vacuum. This will not only damage the long-term interests of the United States, but will create a chaotic situation in Asia and throughout the world. For this reason, Asia and Asians expect continued leadership from the United States. It must not falter.

Read the full report

John J. Brandon is senior director for The Asia Foundation’s International Relations programs in Washington, D.C. The views and opinions expressed here are those of the author and not those of The Asia Foundation or its funders.

Donald Trump and The West


November 17, 2016

Donald Trump and The West

by Lord Chris Patten

Lord Chris Patten, the last British governor of Hong Kong and a former EU commissioner for external affairs, is Chancellor of the University of Oxford.

https://www.project-syndicate.org/commentary/trump-threat-to-the-west-by-chris-patten-2016-11

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I have spent my whole political life somewhere called “the West.” It was not literally “west”: while its heartland was Western Europe and the United States, it also included faraway countries like Australia and Japan. Rather, it was a community that embraced shared hopes and values. Reflecting America’s global leadership after World War II, the West was protected by US hard power and shaped by US soft power. And it was the most peaceful and prosperous place in the world.

The West has long provided the foundation for the global order – probably the most successful such foundation ever created. Led by the US, the West built, shaped, and championed international institutions, cooperative arrangements, and common approaches to common problems. As it helped to sustain peace and boost prosperity in much of the world, its approaches and principles attracted millions of followers.

Donald Trump looks at Barack Obama

The POTUS-Elect Donald J. Trump

The election of Donald Trump as US President, however, threatens this entire system. If Trump does in office what he promised to do during his crude and mendacious campaign, he could wreck a highly sophisticated creation, one that took several decades to develop and has benefited billions of people. Those of us who, like Americans, have gained from it must fight for it while it still breathes.

One promise on which Trump must not follow through is to advance trade protectionism. The case for tearing up free-trade agreements and aborting negotiations for new ones is premised on the belief that globalization is the reason for rising income inequality, which has left the American working class economically marooned. But the real sources of American workers’ economic pain are technological innovation and tax-and-spend policies that favor the rich.

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The Presumptive Secretary of State–In God Americans Trust

If Trump, say, walks away from the North American Free-Trade Agreement (NAFTA) with Mexico and Canada, turns his back on ratifying the Trans-Pacific Partnership, and challenges the World Trade Organization, he will hurt the very people who voted for him. And he will lose friends and influence abroad.

Another dangerous policy that Trump could pursue would be to back away from America’s security arrangements with countries like Japan and South Korea, as well as with NATO. In Trump’s distorted view, the US should not be offering “free” security to its allies, and instead should leave them to fend for themselves.

In practice, such a stance would be highly destabilizing. Eastern Europe and the Baltic states would be at the mercy of Russia. And Asia and the Middle East would be at risk of nuclear proliferation, as countries lacking the US security backstop would seek to develop their own nuclear arsenals – an approach that Trump has said would be acceptable.

Trump’s pledge to scrap the nuclear deal with Iran is a case in point. Does anyone think Saudi Arabia would sit still if Iran restarted its weapons program? Criticizing the agreement – a major achievement of US President Barack Obama – might have served Trump during the campaign, but actually abrogating the deal would make the world a far more dangerous place.

Trump’s stated approach to climate change is just as problematic. He has declared his intention to pull out of the Paris climate agreement, aimed at reducing greenhouse-gas emissions and staving off catastrophic climate change. He has already appointed Myron Ebell, an outspoken climate change denier, to oversee the transition at the US Environmental Protection Agency.

Trump bases this approach on the nonsensical belief that human-driven climate change is a hoax, invented by the Chinese to make US industry less competitive. And that is far from the only accusation Trump has hurled at China. His generally hostile attitude toward the country, particularly with regard to trade, threatens further damage to an already-tense bilateral relationship – and thus poses a risk for US multinationals and US allies alike.

A Trump presidency also poses something of an existential threat. His derogatory comments about marginalized groups – including Muslims, Mexicans, women, and people with disabilities – imperil the values that are fundamental to America’s identity and place in the world, and that bind the countries of the West together.

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Germany’s 21st century Otto von Bismarck

German Chancellor Angela Merkel is one leader who seems to recognize how quickly the collapse of US leadership could bring about the end of the post-1945 global order. Her response to Trump’s victory was eloquent and powerful: “Germany and America are connected by values of democracy, freedom, and respect for the law and the dignity of man, independent of origin, skin color, religion, gender, sexual orientation, or political views.” On the basis of those values, she declared, she would work with Trump.

That is precisely how all of America’s allies and friends should be responding. Like Merkel, we should all speak up for all that the West has stood for, and all that it has achieved. We must condemn any move by Trump to shirk the rule of law and the norms of a free society. We must argue the case for free trade, which has brought far-reaching benefits to humanity. And we must fight to uphold the nuclear deal with Iran and nuclear non-proliferation around the world.

There is also an imperative to reiterate our commitment to stand firm against Russian adventurism in Eastern and Central Europe. In particular, we must make clear that Article 5 of the North Atlantic Treaty applies to Lithuania, Latvia, Estonia, and Poland – all members of the military alliance that the US still leads. (It would also help if, after years of backsliding, NATO’s European members upped their contributions to our collective defense.)

Finally, we should assert that, while we in the West do not agree with China’s mercantilist policies and repressive measures at home, we want to work with it, not seek to marginalize and humiliate it.

The idea of “the West” is one of America’s finest achievements (though many other countries have also contributed). It would be a true disaster for the world if America, in an act of self-destructive decadence, tossed this noble, practical, and inspiring creation into the dustbin of history.

 

Australia’s China choice is not between security and prosperity


November 15, 2016

Australia’s China choice is not between security and prosperity–Why not both?

by Paul Hubbard, Australian National University @Canberra

http://www.eastasiaforum.org
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If strategic rivalry between China and the United States escalates, Australia will face uncomfortable choices that could leave one or both partners unsatisfied. But it is wrong to frame this as a trade-off between national security and economic prosperity, as if strategic strength were born from economic pain. National security and economic prosperity are both vital national interests and deeply symbiotic. A stable international order underwrites economic prosperity; international economic engagement supports a stable order.

Foreign Affairs Minister Julie Bishop in her office at Parliament House.

Australia’s Foreign Affairs Minister Julie Bishop in her office at Parliament House. Photo: Alex Ellinghausen

Unfortunately, economists and strategists have trouble talking on the same terms. The starting point for economists is usually an abstract model that assumes the security infrastructure and norms needed for markets to thrive. If economists think about armed conflict it is usually as a ‘tail risk’ — potentially catastrophic, but highly unlikely. But take away a stable national, regional or global order and the business and commerce that generate material prosperity will evaporate.

Security thinkers don’t sit around and assume thriving societies. Instead they are paid to detect threats and contemplate worst-case scenarios. Mitigating these requires clear thinking, well-resourced diplomacy and defence capability. This, in turn, depends on a prosperous economy.

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Chairman Mao Zedong meeting with the Hon. Gough Whitlam QC, Prime Minister of Australia during the historic Prime Ministerial visit to the People’s Republic of China, 31 October – 4 November 1973. Photo courtesy the Hon Tom Burns AO, Chair of the Queensland China Council, personal collection.

Australia can afford multi-billion dollar submarines and joint strike fighters because it has a US$1.2 trillion economy. The Defence White Paper’s US$32 billion funding target for 2020–2021 assumes that the Australian economy will continue growing faster than the United States, the Euro Area or Japan. Achieving this requires deeper economic engagement with a fast growing Asia.

The complementarity of security and prosperity is not a new discovery. Former US president Lyndon Johnson’s 1965 Peace Without Conquest speech recognised that popular support for communism in Southeast Asia came not from the peasant’s fascination with Marxism, but rather from a desire for basic life necessities and an ‘end to material misery’. He proposed the creation of the Asian Development Bank to show that these needs could be met through markets and capitalism, without resorting to radical communism and violent conquest.

While the United States lost the battle against communism in Vietnam, it won the war for open markets and prosperity in Asia. The examples of Japan, Hong Kong, Taiwan, South Korea and Singapore convinced China’s leaders in 1978 to put aside the horrors of Maoism and adopt not just ‘reform’ but crucially, ‘opening up’.

Unbridled ideology was exchanged for market pragmatism. The result was the largest and most rapid movement of humanity from poverty in history. China stopped exporting international revolution and instead now exports 18 per cent of the world’s manufactured goods, in accordance with the rules-based order of the World Trade Organization. Foreign investment in and out of China puts assets at risk on both sides, giving owners a strong material interest in preserving peace.

Of course national interests go beyond the economy. Providing for the material welfare of citizens is only one of the legs of political legitimacy. States sometimes adopt goals that cut across the material welfare of their citizens. The first era of globalisation did not stop the imperial follies of the First World War. The following wave of fascism and totalitarianism subordinated individual welfare to the strategic interests of the state.

China’s policies after 1978 were calibrated to reassure the international community that its re-emergence would not follow this menacing route. Deng Xiaoping’s foreign policy mantra was to hide China’s strength and bide its time. Hu Jintao promoted China’s ‘peaceful rise’. Which is why strategists have reacted with alarm to a more assertive foreign policy under Xi Jinping.

Image result for Xi and Australia

What should economists make of this? Is China’s increasing assertiveness ‘a reality that seems to have bypassed many of Australia’s economic commentators’ as one strategic commentator suggests?

The new direction is worrying. Perhaps the risk of conflict is slightly less remote. But there’s not enough to overthrow the central scenario under which China continues to prioritise domestic and international stability. Just as regional stability serve Australian prosperity, so too does it serve China’s own vital economic interests.

The economist would also distinguish threats to international stability from more common but less catastrophic risks that hide among the cross-border movements of people, goods and capital. As Deng Xiaoping famously observed, opening the window invariably involves letting in a few flies.

The best line of defence against economic harm is competition in a well-regulated domestic market. Unlike Mao’s China, which hoped that correct behaviour would flow from correct ideology, the market system does not depend on the goodwill or benevolence of market participants. Where threats appear to specific security interests, the solution is not to shut the window on prosperity, but rather to use some of the proceeds to buy more and better fly-swats.

This approach allows Australia to choose both security and prosperity, putting the country in a more comfortable position to deal with both the United States and China.

Paul Hubbard is a doctoral candidate at the Crawford School of Public Policy, The Australian National University. He is currently on leave from the Australian Treasury as a Sir Roland Wilson Scholar, and is a former Fulbright Scholar in international relations. The views in this paper do not reflect those of the Australian Treasury.

The economics of Australia’s security in Asia