Navigating the new international economic policy landscape


December 22, 2018

Navigating the new international economic policy landscape

by Shiro Armstrong and Peter Drysdale, ANU
http://www.eastasiaforum.org/2018/12/19/navigating-the-new-international-economic-policy-landscape/

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The United States under President Donald Trump is on a mission to add economic policy to the armoury of national security policy to deal with a rising China. The approach holds the global economic order hostage to the attempt to put China back in its box. The stakes are as high as they get. But how should middle powers like Australia and its neighbours like Japan or Indonesia respond to the hard choices they now confront?

Using economic instruments for geopolitical objectives is nothing new. Between the two world wars the practice ended in wholesale military conflict. But the US inspired post war rules-based international regime extended US political influence through the spread of open markets at the same time as it constrained the use of trade sanctions for political security objectives (although not completely as United Nations-based economic sanctions became a feature of the geopolitical action).

‘Geoeconomics’ — conventionally defined as the use of restrictions on international commercial transactions to achieve political objectives — is now being touted as a new force in international and security relations that should be brought into active play.

Without understanding the economic implications of international economic policies, alongside their political and security implications, however, the ill-considered use of economic policy for geopolitical objectives will produce misguided policies that damage both economic and national security.

That’s exactly what the United States is doing with tariffs on Chinese imports, increased barriers to investment and bilateral economic coercion in the name of national security. China is the main target but other countries, the WTO system and multilateral institutions are also under threat. These policies will make the United States poorer and weaker, and damage its status as a global leader. If other countries follow suit, they will make themselves and the world poorer, weaker, and less secure.

How should a country like Australia navigate a world in which its primary security ally and its largest economic partner are descending into destructive rivalry while still themselves being deeply economically integrated?

For some, the answer is to follow the United States further down this track and reframe foreign policy in security terms. In this conception, the only option is total alignment with US decoupling strategy, and every economic exposure to China is cast as an all-or-nothing risk to national security. No understanding of the economic costs or the security options enters this calculus. Nor are third countries assumed to be an effective object of policy engagement on an alternative, multilateral course with or without the United States.

For others, the answer is to add a geoeconomic approach to foreign policy. That might sound like a good idea but what exactly does that entail?

The intellectual origins of ideas about geoeconomics are twofold. The first is simply about the analysis of spatial, temporal, and political aspects of economies and resources. The second is a branch of geopolitics that interrogates international politics, security and economics and commonly insists that the same logic that underlies military conflict also applies to international commerce. The first idea is of interest, though marginal, to the big issues today. The second is the way of thinking about international commerce, that prominently undergirds that of Peter Narravo, US President Trump’s trade advisor, as an instrument of warfare. That idea has been hijacked by those focussed on security issues, absent hard economic calculation and comprehensive consideration of economic as well as political security that is ostensibly its purpose. Especially for small and middle powers such as Australia it’s a strategy that will sap both economic strength and national security.

The securitisation of all national interests reduces the policy space and instruments that can be deployed to enhance both economic and national security. Soundly framed international economic policies are central to reducing the costs of broader economic and political engagement, both in dollar and in policy terms.

Economic policy and engagement reinforce and habituate a rules-based international order and, significantly, they create a bigger, broader plurality of interests in countries that reduces the costs of national security.

If geoeconomics is the answer, it had better be informed by the agencies of hard economic analysis, not left to the agencies of diplomacy or security, else it too will be a security strategy bereft of judgment about national economic interest.

Take the large economic relationship that Australia has with China. A third of Australia’s exports go to China, led by education, natural resources and tourism. No economist would sensibly advocate deliberately reducing trade dependence on China, even if they consistently argue for broadening Australia’s range of economic relationships. Many in the political and security community do. It may be doable, but the question is at what cost and whether there are better options?

It’s not a matter of just the profits of businesses at the high end of town but people’s livelihoods that are put at risk. If Australia made the choice to cut back dependence on China, it would be withdrawing from trade with the world’s largest trading nation, a country that’s playing by rules to which we’ve all agreed. We certainly need more rules in some areas. But only Mr Navarro (and perhaps Mr Trump) would suggest that that’s a reason for tearing down the rules we have and that have worked quite well.

The right strategy is to manage economic interdependence within the multilateral trade regime and continue to build rules and markets that reinforce the global plurality of interests on which security within the global economic system is more soundly built. That system protects Australia effectively. It’s Australia’s primary national economic and security priority. It would be most unwise to acquiesce in tearing it down.

Shiro Armstrong is Director of the Australia-Japan Research Centre and Director of the Asian Bureau of Economic Research, The Australian National University.

Peter Drysdale is Professor of Economics and head of the Asian Bureau of Economic Research, The Australian ,The Australian National University.

The War on Huawei


December 20, 2018,Image result for huawei meng wanzhou

The War on Huawei

The Trump administration’s conflict with China has little to do with US external imbalances, closed Chinese markets, or even China’s alleged theft of intellectual property. It has everything to do with containing China by limiting its access to foreign markets, advanced technologies, global banking services, and perhaps even US universities.

 

NEW YORK – The arrest of Huawei CFO Meng Wanzhou is a dangerous move by US President Donald Trump’s administration in its intensifying conflict with China. If, as Mark Twain reputedly said, history often rhymes, our era increasingly recalls the period preceding 1914. As with Europe’s great powers back then, the United States, led by an administration intent on asserting America’s dominance over China, is pushing the world toward disaster.

The context of the arrest matters enormously. The US requested that Canada arrest Meng in the Vancouver airport en route to Mexico from Hong Kong, and then extradite her to the US. Such a move is almost a US declaration of war on China’s business community. Nearly unprecedented, it puts American businesspeople traveling abroad at much greater risk of such actions by other countries.

The US rarely arrests senior business people, US or foreign, for alleged crimes committed by their companies. Corporate managers are usually arrested for their alleged personal crimes (such as embezzlement, bribery, or violence) rather than their company’s alleged malfeasance. Yes, corporate managers should be held to account for their company’s malfeasance, up to and including criminal charges; but to start this practice with a leading Chinese businessperson, rather than the dozens of culpable US CEOs and CFOs, is a stunning provocation to the Chinese government, business community, and public.

Meng is charged with violating US sanctions on Iran. Yet consider her arrest in the context of the large number of companies, US and non-US, that have violated US sanctions against Iran and other countries. In 2011, for example, JP Morgan Chase paid $88.3 million in fines in 2011 for violating US sanctions against Cuba, Iran, and Sudan. Yet Jamie Dimon wasn’t grabbed off a plane and whisked into custody.

And JP Morgan Chase was hardly alone in violating US sanctions. Since 2010, the following major financial institutions paid fines for violating US sanctions: Banco do Brasil, Bank of America, Bank of Guam, Bank of Moscow, Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Clearstream Banking, Commerzbank, Compass, Crédit Agricole, Deutsche Bank, HSBC, ING, Intesa Sanpaolo, JP Morgan Chase, National Bank of Abu Dhabi, National Bank of Pakistan, PayPal, RBS (ABN Amro), Société Générale, Toronto-Dominion Bank, Trans-Pacific National Bank (now known as Beacon Business Bank), Standard Chartered, and Wells Fargo.

None of the CEOs or CFOs of these sanction-busting banks was arrested and taken into custody for these violations. In all of these cases, the corporation – rather than an individual manager – was held accountable. Nor were they held accountable for the pervasive lawbreaking in the lead-up to or aftermath of the 2008 financial crisis, for which the banks paid a staggering $243 billion in fines, according to a recent tally. In light of this record, Meng’s arrest is a shocking break with practice. Yes, hold CEOs and CFOs accountable, but start at home in order to avoid hypocrisy, self-interest disguised as high principle, and the risk of inciting a new global conflict.

Quite transparently, the US action against Meng is really part of the Trump administration’s broader attempt to undermine China’s economy by imposing tariffs, closing Western markets to Chinese high-technology exports, and blocking Chinese purchases of US and European technology companies. One can say, without exaggeration, that this is part of an economic war on China, and a reckless one at that.

Huawei is one of China’s most important technology companies, and therefore a prime target in Trump administration’s effort to slow or stop China’s advance into several high-technology sectors. America’s motivations in this economic war are partly commercial – to protect and favor laggard US companies – and partly geopolitical. They certainly have nothing to do with upholding the international rule of law.

The US is trying to targeting Huawei especially because of the company’s success in marketing cutting-edge 5G technologies globally. The US claims the company poses a specific security risk through hidden surveillance capabilities in its hardware and software. Yet the US government has provided no evidence for this claim.

recent diatribe against Huawei in the Financial Times is revealing in this regard. After conceding that “you cannot have concrete proof of interference in ICT, unless you are lucky enough to find the needle in the haystack,” the author simply asserts that “you don’t take the risk of putting your security in the hands of a potential adversary.” In other words, while we can’t really point to misbehavior by Huawei, we should blacklist the company nonetheless.

When global trade rules obstruct Trump’s gangster tactics, then the rules have to go, according to him. US Secretary of State Mike Pompeo admitted as much last week in Brussels. “Our administration,” he said, is “lawfully exiting or renegotiating outdated or harmful treaties, trade agreements, and other international arrangements that don’t serve our sovereign interests, or the interests of our allies.” Yet before it exits these agreements, the administration is trashing them through reckless and unilateral actions.

The unprecedented arrest of Meng is even more provocative because it is based on US extra-territorial sanctions, that is, the claim by the US that it can order other countries to stop trading with third parties such as Cuba or Iran. The US would certainly not tolerate China or any other country telling American companies with whom they can or cannot trade.

Sanctions regarding non-national parties (such as US sanctions on a Chinese business) should not be enforced by one country alone, but according to agreements reached within the United Nations Security Council. In that regard, UN Security Council Resolution 2231 calls on all countries to drop sanctions on Iran as part of the 2015 Iran nuclear agreement. Yet the US – and only the US – now rejects the Security Council’s role in such matters. The Trump administration, not Huawei or China, is today’s greatest threat to the international rule of law, and therefore to global peace.

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and of the UN Sustainable Development Solutions Network. His books include The End of Poverty, Common Wealth, The Age of Sustainable Development, Building the New American Economy, and most recently, A New Foreign Policy: Beyond American Exceptionalism.

Decoupling the US from Asia


November 21, 2018

Decoupling the US from Asia

Author: Editorial Board, ANU

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ww.eastasiaforum.org/2018/11/19/decoupling-the-us-from-asia/#more-155952

 

...[D]ecoupling or divorce from China, Cold War-style, is an option that would threaten economic and political turmoil and promise a global winter of discontent that stretched the Asia Pacific order to breaking point”.

Maybe US Vice President Mike Pence didn’t mean to fire the opening shots in a new Cold War with China in his 4 October speech at the Hudson Institute, but the global policy community can be forgiven now for taking the proposition seriously.

 

The idea of a new Cold War is of course not new: it had been canvassed in security circles in Washington and the chill has been cultured actively by some in allied capitals for some time. A range of President Donald Trump’s advisors and former advisors, Steve Bannon, Peter Navarro, John Bolton and Robert Lighthizer, all identify as proponents of political and economic decoupling from China to a more-or-less extreme degree. Navarro most recently advocated the idea in its most extreme form at his CSIS speech about how China was undermining US national security, giving the impression that an economic ‘self-sufficiency’ strategy, like that which has been so disastrous in North Korea, was the only way to keep America secure. Larry Kudlow, Director of the President’s National Economic Council, disavowed that thinking with an unequivocal declaration that Navarro had misspoken and had no authority to speak on the matter on behalf of the Trump administration.

The new Cold War narrative gained traction as President Xi Jinping consolidated his power and began to assert the discipline of the Chinese Communist Party across the government and society in China. It has been accompanied by a discernible shift right across the political spectrum in the United States towards a hard-line posture on China. The conflation of frustration with China’s military assertiveness in the South China Sea and the perception that its Party dominated political system qualified every commitment China had made under international law to the rules-based international economic system has been an easy logical slide even for those in the US policy community who had been architects of China’s entrapment within that system.

Make no mistake. There are real issues on the agenda for negotiation in securing a more efficient and more equitable foundation for the next phase of the economic and political relationship between China and the United States. China is no longer a poor, developing country aspirant to membership of the WTO but a very large, upper-middle income economy that is the largest trader in the world. While China’s entry to the WTO was on terms that were more onerous than that even advanced and established members of the WTO had to bear, issues beyond the coverage of the WTO, with respect to its foreign investment regime for example, and new issues, such as those related to digital trade, beg negotiation. Contrary to much of the new American narrative, it is not that China has flagrantly flouted the rules of the system to which it and its partners signed on in 2001 — it is rather that it has outgrown them bigtime.

Many of the issues for negotiation now that have the highest priority — to do with treatment of foreign investment, intellectual property, industrial subsidization and competition policy — were encompassed within the negotiations that had been on-going between China and the United States over a Bilateral Investment Treaty, that have now been suspended. There is also the issue of further trade liberalisation and industrial reform that the absence of progress with multilateral negotiations through the WTO has left unattended. Attending to these issues is not only in the interests of the United States and other countries, it is also in the interests of China in prosecuting the reform agenda that it has articulated as the path towards catching up with at least lower-end advanced industrial economies and avoiding the middle income trap.

All these things would seem eminently negotiable, if only President Xi and President Trump could agree to sort them and some others things out.

But as Gary Hufbauer warns in our lead essay this week, the Pence declaration last month represents a significant departure from ‘business-as-usual’.

‘Economic sanctions are the front line of the new Cold War, unlike the US–Soviet confrontation of yesteryear,’ says Hufbauer. ‘But military escalation cannot be far behind. Since the United States and China already possess enough intercontinental nuclear missiles for “mutually assured destruction”, and since the United States would be hopelessly outnumbered in conventional land battles, military escalation will focus on naval power and hypersonic short-range missiles.’

Hufbauer worries that the United States will ramp up its economic war, with the goal of securing an economic divorce from China. While the immediate complaints from the Trump administration are about the persistent US trade deficit with China and the appropriation of US firms’ technology, the real story is simply fear that China will overtake the United States economically and technologically as the arithmetic, however manipulated, suggests it will by 2030 or 2050, take your pick.

Hufbauer sees American attempts to decouple from the Chinese economy and the close down of US trade and technological ties as a loser’s game — a national science and technology strategy that stayed open to scientific and technological links would more likely keep the United States ahead of the game, incorporate less risk of pushing China back into a corner from which it posed a bigger threat and strengthen US economic and political security, he suggests. But he rates the chances of this outcome low, barring unlikely conciliation from Xi’s China. The new Cold War promises, he assesses, to be a lasting legacy of presidents Trump and Xi.

Yet, in a hard-headed if gloomy assessment of where China and the United States are at right now, Henry Paulson, Secretary of the Treasury under former US President George W Bush and leading US China expert, sounds a strong warning on the decoupling strategy.

Decoupling, he says, is easier when you’re actually a couple. But the United States and China are not a couple. They are part of an international economy that is multilaterally integrated on an unprecedented scale, especially within Asia.

The United States might well continue to pursue divorce through cutting back trade, capital and technology flows, but that’s a cost no Asian country, including US allies, can readily afford, Paulson says. The cost is a function of their geography, of economic gravity and of the strategic reality in which they live day-by-day.

Many countries around the world may share many of Washington’s present concerns. But decoupling or divorce from China, Cold War-style, is an option that would threaten economic and political turmoil and promise a global winter of discontent that stretched the Asia Pacific order to breaking point.

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

China in the Xi Era


November 20, 2018

China in the Xi Era

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by: David Shambaugh, George Washington University

Xi Jinping is widely viewed as the strongest leader China has had since Deng Xiaoping or Mao Zedong. But six years into his perhaps indefinite tenure, what has Xi actually accomplished? And where might China be headed under his rule?

 

Like all Chinese leaders since the 1870s, when Qing dynasty rulers launched the Self-Strengthening Movement, Xi also seeks ‘the great rejuvenation of the Chinese nation’. The quest has been consistent for 150 years: for China to acquire the material attributes of a major international power and the commensurate respect from others. The legacy of the country’s former weakness and humiliation continues to haunt Xi and his generation.

So too does the collapse of Communist Party rule in the former Soviet Union. Now having ruled almost as long as their Soviet counterparts, Xi and his peers in the Chinese Communist Party (CCP) live in regular trepidation of a similar meltdown. These two issues — augmenting China’s strengths while rectifying the Communist Party’s weaknesses — are intertwined in Xi’s thinking and dominate his agenda.

Xi believes in the absolute power of the Communist Party. As Xi told the 19th Congress of the CCP in October 2017: ‘The party controls all’. Unlike Deng Xiaoping, who launched China’s reforms four decades ago and sought to relatively reduce party power, Xi wants to bring the party-state back into all aspects of national life.

The CCP under Xi is also reaching back to the Maoist era by constructing a massive personality cult around Xi’s own persona. Maoist rhetorical throwbacks such as zhuxi (chairman), lingxiu (leader), hexin (core), even da duoshou (great helmsman) are again commonly used to refer to Xi. The official ideological canon of ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’ has now been enshrined in the party constitution too. Xi personally chairs all central Leading Groups and party and military organs. He has also emasculated the authority of Premier Li Keqiang.

Xi is systematically rolling back many of the core elements of Deng’s reforms that guided China’s leaders for the past four decades: no personality cult around the leader, collective leadership and consensual decision-making, bottom-up ‘inner-party democracy’ rather than top-down diktat, active feedback mechanisms from society to the party-state, relative tolerance of intellectual and other freedoms, limited dissent, some de facto checks and balances on unconstrained party power, fixed term limits and enforced retirement rules for leaders and cadres, a society and economy open to the world, and a cautious foreign policy. These and other norms were all central elements of Deng’s post-1978 reform program and they were all accepted and continued under Jiang Zemin and Hu Jintao — but all are being systematically dismantled and rolled back by Xi Jinping.

So dominant is Xi that Chinese politics have become a sycophantic echo chamber. Xi is trying to run the party like a military, with orders given and to be followed — rather than as an organisation with feedback mechanisms and procedures to curtail dictatorial practices. Xi is very much a mid-20th century Leninist leader ruling a huge country in the globalised, early-21st century era. There is thus a contradiction between Xi’s modality of rule and the realities of the modern world and China’s developmental needs.

Since coming to power in 2012, Xi has sought to relatively close China’s doors rather than further open them. There has been a significant tightening of the foreign investment and corporate operating environment, a sweeping suppression of civil society and foreign NGOs, stepped-up study of Marxism and an assertion of ideological controls over the entire educational sphere, and xenophobic campaigns against ‘hostile foreign forces’.

Meanwhile, the party continues to enforce strict media controls, carry out pervasive public security surveillance, tighten control over Xinjiang and Tibet, and persecute Christians and other organised religions. Xi has also cracked down on corruption in the party (and government and military), and presided over the most draconian purges and political repression in China since the 1989–92 post-Tiananmen period.

These actions have more in common with Maoism than Dengism. To be certain, Xi has definitely succeeded in strengthening the party institutionally over the past five years — but it is fair to wonder whether he has not actually weakened it in the longer term? How long can such retrograde and repressive actions endure in an increasingly globalised, wealthy and sophisticated society?

Xi’s economic impact is mixed. GDP growth remains very respectable at 6.9 per cent. Xi has also launched programs to eliminate poverty by 2020, spur innovation and high-tech manufacturing under the Made in China 2025 program, increase urbanisation and build eco-cities, expand coverage of social services, attack pollution and transition to a green economy, decrease desertification and increase forestation, deleverage China’s ballooned debt while expanding domestic consumption and services as drivers of growth. These are all commendable goals and initiatives — but they are all just that. Time will tell whether they are achieved.

On the other hand, Xi’s administration has significantly failed to meet the benchmarks or implement the policies of the Third Plenum economic reform plan of November 2013. The significance of this shortfall is that the Chinese economy is not making the structural adjustments needed to navigate through the middle-income trap and up the value-added chain to become a developed economy over time. Structural maladies and overcapacity continue to plague economic efficiency, the stock market has plummeted, while dangerously high debt levels loom overhead.

If there is one policy area where Xi does deserve better marks, it is in foreign relations. China is now widely seen as a global power. Xi has taken a personal interest in global governance. As a result, China under Xi is contributing much more to the United Nations operating budget, global peacekeeping, overseas development assistance and the Millennium Development Goals. And it is more active in a range of areas from combatting public health pandemics to disaster relief, energy and sea lane security, counter-terrorism and anti-piracy operations.

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Xi’s signature Belt and Road Initiative (BRI) is also noteworthy. An infrastructure development initiative unparalleled in history, the BRI will build rail lines, pipelines, telecommunications networks, electric grids, deep-water ports, highways, cities and other needed infrastructure from Asia to Europe. While the BRI is encountering criticism of late, it is nonetheless illustrative of China’s new foreign policy activism under Xi.

To be certain, China’s international relationships are not all rosy — but they are, on balance, positive. Only with the United States — and perhaps Australia, Japan and India — are China’s bilateral ties strained. Everywhere else they are sound.

The same must also be said about China’s military and defense — probably Xi’s No. 2 priority (after strengthening the party) over the past five years. Under the new title of Commander-in-Chief of the armed forces, in January 2016 Xi launched a sweeping reorganisation — the most comprehensive ever — of China’s military and paramilitary forces. The restructuring is but one part of systematic efforts to build a world-class military and, in Xi’s repeated exhortations, to ‘prepare to fight and win wars’.

Like all leaders, Xi’s tenure has so far achieved mixed results. But this variegated verdict is at variance with the overwhelmingly positive portrayals proclaimed in China’s official media. In Beijing’s rendering, Xi can do no wrong. This in itself may prove to be his Achilles’ heel. No leader is infallible. The subterranean grousing about Xi’s ‘imperial’ leadership style now increasingly heard in China (and from Chinese when they go abroad and speak with foreigners), may be a harbinger of difficulties to come.

Having constructed a caricature of an infallible Xi Jinping, the regime will find it very difficult — if not impossible — to deconstruct this image of China’s new ‘great helmsman’. And there are many constituencies in China that are suffering from Xi’s policies — including the party and state cadres and military officers who have lost their positions and privileges as a result of Xi’s anti-corruption purges — all of whom lie in wait for him to trip up.

David Shambaugh is the Gaston Sigur Professor of Asian Studies, Political Science and International Affairs at The George Washington University, Washington, DC.This is an adapted version of an article originally published here in Global Asia.

 

Asia Needs Pence’s Reassurance


November 16, 2018

Asia Needs Pence’s Reassurance

By Patrick M. Cronin

He should confront Trump’s mistakes and put forward a positive agenda.

U.S. Vice President Mike Pence at the ASEAN summit in Singapore on Nov. 15. (Roslan Rahman/AFP/Getty Images)

In Asia, anxieties about the United States’ role in an increasingly China-centered world are palpable. While some fear that the United States is retreating from its international obligations, other worry that it is bent on instigating conflict.

.As U.S. Vice President Mike Pence visits Southeast Asia and the South Pacific this week to attend the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation leaders’ meetings, he should make clear that the United States remains a stalwart partner for the region with a vision for peaceful cooperation and development.

No U.S. retreat

The United States is not withdrawing into fortress America. It remains actively engaged in global affairs and is focused on strengthening the economic and military foundations of its power. The country’s central aim is to stay competitive in a world driven by a dynamic Indo-Asia-Pacific region. That goal, of course, derives from a real concern that China is challenging the postwar order and an understanding that the United States needs to find new ways to renew its diplomatic, economic, and military competitiveness.

The United States is not withdrawing into fortress America. It remains actively engaged in global affairs and is focused on strengthening the economic and military foundations of its power. The country’s central aim is to stay competitive in a world driven by a dynamic Indo-Asia-Pacific region. That goal, of course, derives from a real concern that China is challenging the postwar order and an understanding that the United States needs to find new ways to renew its diplomatic, economic, and military competitiveness.

But as U.S. President Donald Trump said last November in Da Nang, Vietnam, the United States has been “an active partner in this region since we first won independence ourselves,” and “we will be friends, partners, and allies for a long time to come.” U.S. Secretary of State Mike Pompeo has likewise been a forceful advocate for diplomacy in the region. Meanwhile, Congress is on the cusp of passing a bipartisan bill designed to bolster U.S. engagement there. The Asia Reassurance Initiative Act would authorize $1.5 billion in new funding over the next five years for regional diplomacy, development, and defense programs. In short, rumors of America’s disengagement miss the mark.

No Cold War with China

Pence also needs to reassure the region that when it comes to China, the United States is not seeking a war—trade, cold, or hot.

Pence also needs to reassure the region that when it comes to China, the United States is not seeking a war—trade, cold, or hot.

Instead, the U.S. administration wants a fair, open, and cooperative relationship. That doesn’t mean ignoring China’s attempts to compete with the United States, including through grey-zone operations like muscling the Philippines out of Scarborough Shoal and militarizing artificial islands despite pledging not to do so. And America will not shy away from meeting challenges directly. But on a fundamental level, the Trump administration would like to channel competition toward cooperation where possible.

In fact, the Trump administration rejects the idea of Thucydides’s Trap: that conflict between a rising power and a status quo power is inevitable. Leaders have agency, and it is up to them to determine the future course of relations. And for its part, the United States seeks to remain a force for good, not to contain or curb the China’s peaceful rise.

Of course, it would be useful for Pence to clarify that Washington will not tolerate coercion or the use of force against allies and partners in the region. But the vice president should also reiterate what he said last month at the Hudson Institute: “America is reaching out our hand to China. We hope that Beijing will soon reach back with deeds, not words.” That sentiment is broadly shared, even among Democrats, who do not agree with some of the administration’s tactics. (As Joaquin Castro, a Democratic representative from Texas, said last month, China should “compete, not cheat.”)

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US Vice President Mike Pence has confronted Myanmar’s de facto leader Aung San Suu Kyi at the ASEAN summit about what is being done to hold those responsible for the persecution of the Rohingya ethnic minority in her country to to account.

This will be a difficult balance to strike. And here, China’s approach to the South China Sea is instructive. It alone pursues claims there based in part on historical rights rather than contemporary international law. It showers the region with promises of infrastructure investment, but it fails to deliver transparent, equitably financed, high-quality development. It promises to follow an ASEAN Code of Conduct for the region but seeks a veto on the right of ASEAN members to extract natural resources from the South China Sea or hold military exercises there with Australia, Japan, the United States, and other non-ASEAN states.

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But the fear that a major confrontation, or even war, will play out in Southeast Asia is greatly exaggerated. China seeks to advance its goals by means short of war, and the United States aims to cooperate where it can but compete where it must. The resumption of the Diplomatic and Security Dialogue—a U.S.-China working group involving top defense and diplomacy officials—is thus a good sign.

 

Yes to an affirmative agenda for Asia

Beyond dispelling myths about U.S. retrenchment and bellicosity, Pence should also put forward a positive agenda for Asia. Here, he will have to confront some of Trump administration’s mistakes.

Many in the region question the United States’ predictability, because Trump has reversed major U.S. initiatives, from the Trans-Pacific Partnership to the Paris Agreement on climate change. Meanwhile, he has escalated tariff wars without articulating a coherent strategy for achieving results, and his uneven application of penalties has rankled allies and competitors alike. Nor has the administration deployed soft power well, often ignoring U.S. values like democracy and human rights, turning the country’s back on refugees, using unbefitting language, papering over conflicts of interest rather than cracking down hard on corruption, and being far too comfortable with authoritarians.

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Despite these missteps, Pence can use the trip to Asia to burnish four cornerstones that should be the foundation of the administration’s free and open Indo-Asia-Pacific strategy, especially in Southeast Asia and the Pacific Islands. Those four elements are a rules-based order, sustainable economic development, inclusive diplomacy, and effective security cooperation.

First, upholding and peacefully adapting the set of rules chosen freely by strong and independent sovereign states will be the foundation for U.S. engagement with the region. The United States has enduring interests in the South China Sea: stability, freedom of navigation, and resolving disputes peacefully and without coercion.

Although ensuring the rule of law will require far more than freedom of navigation operations, the United States will continue to help maintain the openness of the seas by sailing, flying, and operating anywhere international law permits. Importantly, seafaring nations from Asia and Europe are also demonstrating their commitment to the same cause by conducting similar operations.

Second, for growth to be sustainable, it has to be fair and reciprocal. It should be pursued in a manner that is transparent, non coercive, and environmentally sustainable, especially when it comes to the global maritime commons. There is nothing wrong with China’s Belt and Road Initiative that sunshine and high standards of accountability cannot fix.

Meanwhile, the United States should go even further to mobilize public and private support for trade, investment, and development. Eventually, the country can create a whole constellation of allies and partners that can invest in energy infrastructure, digital connectivity, transportation, and more. For instance, the United States is in active discussions to leverage the BUILD Act to expand joint efforts with allies and partners in the Philippines, Thailand, Cambodia, Indonesia, Malaysia, Vietnam, and elsewhere. In doing so, it can set a gold standard for development in the region.

Take Indonesia for example. China aside, a prosperous, democratic, and stable Indonesia is in the vital interest of the United States. Yet few in Washington are aware of the opportunities that await in Southeast Asia’s most populous country. The U.S. government’s Millennium Challenge Corporation has just completed a successful economic investment in Indonesia. Pence should ensure Washington starts negotiating a follow-on compact while simultaneously using BUILD Act funds to facilitate new U.S. private sector entry into Indonesia.

A third tenet of U.S. policy in Southeast Asia is inclusive diplomacy, including trust-building with competitors and partners alike.

ASEAN deserves broad support for its unique convening authority. Certainly, that is a major reason why the United States embraces the body having a loud unified voice in Indo-Pacific engagement. It also is in favor a strong, binding Code of Conduct—not one that unfairly limits the freedom of action of Southeast Asian states.

Inclusive confidence-building measures, such as plans to extend the voluntary Code for Unplanned Encounters at Sea to include coast guard vessels and efforts to protect rapidly depleted fishery stocks, deserve action. The United States should signal its support for promoting a new framework of “Resilience, Response, Recovery,” which is one of several useful concepts being put forward by ASEAN under Singapore’s chairmanship. At the same time, ASEAN members are pragmatic. The United States will often have to cooperate with them on a bilateral or trilateral basis to find effective responses to real challenges.

In terms of diplomacy with China, it might be worth creating a new crisis avoidance mechanism—perhaps mirroring the 1972 Incidents at Sea agreement. The bilateral pact did not prevent all U.S.-Soviet mishaps, but it helped avert major disasters, something that is even more important in a region where intermediate-range cruise missiles, hypersonic weapons, and the military use of cyberspace and outer space are unrestricted.

Finally, the United States will continue to support effective security cooperation centered on information sharing, capacity building, and interoperability. The United States should buttress such efforts by firming up its commitment to respond appropriately to threats of coercion and the use of force.

Boosting the ability of allies and partners to see better what is happening in their maritime backyards will help them become more resilient. And assistance with capacity building, especially for coast guards and other law enforcement agencies, will give nations a better ability to protect their sovereignty. Bilateral, “minilateral,” and larger multilateral exercises can also help create a readiness for dealing with future contingencies.

In sum, a confident but not boastful United States is neither stepping away from Asia nor trying to provoke wars there. Rather, it aims to ensure stability in the region so that all countries there can advance both sovereign interests and regional cooperation.

Patrick M. Cronin is senior director of the Asia-Pacific Security Program at the Center for a New American Security in Washington. @PMCroninCNAS
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ASEAN — finding middle path in the US-China conflict


 

November 9, 2018

Opinion

ASEAN — finding middle path in the US-China conflict

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Despite local uncertainties, the region must be bold in shaping its own future

For almost a decade, the basic strategic issue for Southeast Asia has been how to respond to the changing dynamics of the Sino-American relationship as it enters a new phase of heightened long-term competition.

The U.S. and China will not quickly or easily reach a new modus vivendi. Southeast Asia will have to navigate a prolonged period of unusual uncertainty.

U.S.-China rivalry in the South China Sea has emerged as something of a proxy for their competition. Strategically, the situation is a stalemate. China will not give up its territorial claims and the deployment of military assets. But neither can China stop the U.S. and its allies operating in the area without risking a war it does not want because it cannot win.

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The Trump administration has given the 7th Fleet more latitude to conduct Freedom of Navigation Operations in the South China Sea. Japan and other U.S. allies are beginning to push back against China’s claims. The U.S. has signaled its intention to conduct even larger shows of force. This raises the risk of accidental clashes. Still, that risk does not at present seem unacceptably high.

A premeditated war is improbable. China will feel it must fight only if the U.S. supports Taiwan independence. This is unlikely. If an accidental clash should occur in the South China Sea or elsewhere, both sides will probably try to contain it. The Association of Southeast Nations ought to be able to cope with situations short of a U.S.-China war. ASEAN has previously managed far more dangerous circumstances. But this will require greater agility, unity and resolve than ASEAN has shown recently.

 

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The most obvious manifestation of increased Sino-American competition is U.S. President Donald Trump’s “trade war.” Trade is the means; the objective is strategic competition. China accuses the U.S. of using trade to hamper its development. China is not wrong.

Although attention has focused on the tit-for-tat tariffs, the more significant aspect is new U.S. legislation to limit technology transfers to China, which sets new rules that future administrations will find hard to change.

Trump’s attitude toward China is no aberration, but reflects a bipartisan view — widely shared in business as well as politics — that the U.S. has been too accommodating to Beijing. Whoever succeeds Trump will likely stay tough on China.

The Trump administration has often been described as isolationist, but this is a distortion. Rather, it believes that this is an era of great power competition and is determined to compete robustly, with a preference for bilateralism over multilateralism, and a return to “peace through strength.”

China has misread the implications of the global financial crisis of 2008-2009 by believing its own propaganda about the U.S. being in irrevocable decline. It missed the souring mood of U.S. business toward China, mainly over intellectual property theft and forced technology transfers. These concerns are shared by businesses in other developed economies, which support Trump’s goals although they may disagree about his methods.

President Xi Jinping’s 19th Party Congress speech a year ago abandoned Deng Xiaoping’s approach of “hiding light and biding time.” But his main focus was domestic. Xi said China’s new “principal contradiction” was between “unbalanced and inadequate development and the people’s ever-growing needs for a better life.” This poses a fundamental challenge. Unless those needs are met — which will require immense resources — Communist Party rule could be at risk.

To find a new growth model, the party must balance control and market efficiency. An enhanced role for markets implies a loosening of control.

It remains to be seen what Xi will do. So far he seems to have opted for stronger control, and may have sharpened the problems he faces.

The Belt and Road Initiative is as much about this domestic challenge as China’s global ambition. The BRI exports the old growth model based on state-led infrastructure investment. The BRI buys time to find a new balance between the market and the party.

But the BRI rests on the foundation of U.S.-led globalization. Can it succeed if the world turns protectionist? China may well be the main loser if that global order frays. China cannot replace U.S. leadership. An open international order cannot be based on a largely closed Chinese model. BRI partner countries are pushing back, including in Southeast Asia, and implementation will be problematic.

China is not happy with every aspect of the post-Cold War order based on U.S.-led globalization. China wants its new status acknowledged. But Xi has championed and profited from globalization. The trade war is now hurting China and slowing growth. China may seek to become more self-sufficient technologically, but this will take time while the pressures are immediate.

Some have speculated that there may be opportunities for ASEAN if foreign companies shift production from China. This is possible. But doing so is easier said than done and no one will forgo the Chinese market. ASEAN members must also resist temptations to act as a backdoor into the U.S. for Chinese companies.

A prolonged trade war and concerns that China may have compromised the security of supply chains, are likely to upend existing supply links. This could seriously complicate ASEAN members’ efforts to move up the value chain, for example if U.S. groups relocate business back to America. In response, ASEAN must attract higher grade investments by improving infrastructure and skills, and assuring investors their technology is secure.

Low labor costs and a potential market of 700 million consumers are no longer sufficient to make Southeast Asia an attractive investment destination. The attitude of ASEAN members toward China and the extent to which they are beholden to it are likely to become important considerations in investment decisions.

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BALI, Oct 12 — Tun Dr Mahathir Mohamad has lamented ASEAN for not fully tapping its potential as an economic powerhouse, despite having abundant resources and a consumer market of nearly 700 million people.

ASEAN needs to move decisively to hedge against long-term uncertainties, while taking advantage of available opportunities.

Reforms such as the removal of non-tariff barriers and harmonization of ASEAN’s approach toward services and labor mobility could help make Southeast Asia a common production platform. Member states meanwhile should implement plans to upgrade skills and infrastructure. But internal political changes in some member countries could undermine the goal of closer economic integration. Unfortunately, ASEAN has, in recent years, become too timid for its own good.

 

 

Ambassador A Large Bilahari Kausikan, a former Permanent Secretary at Singapore Ministry of Foreign Affairs, is Chairman of the Middle East Institute at the National University of Singapore.

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