x Abu Dhabi, UAESunday 23 July 2017

Crippled at home, the US pursues a limp policy in Asia

Barack Obama embarked on Saturday on a 10-day tour of Asia amid a growing chorus of China-bashing in Washington.

Beijing 2030: Addressing his students in Mandarin, the Chinese professor asks, "Why do great nations fail?" Because, he says, they "forgot the principles that made them great". The United States tried to escape a recession through "enormous stimulus spending" and "government takeovers of private industries", he explains. Because most of that was financed by Chinese credit, he adds with a devilish chuckle, "now, they work for us."

That bizarre dystopic vision created one of the most effective anti-Obama TV ads of the US midterm election campaign, paid for by the Citizens Against Government Waste. Never mind that China's own stimulus spending was substantially more effective than America's, or that state-ownership remains commonplace in the Chinese economy. The ad reincarnated 19th century "yellow peril" nationalist fears to promote fiscal austerity. Keep spending and the Chinese will own you, the Republicans warned; many Democrats countered with charges that Republican policies had "shipped millions of jobs off to China".

Barack Obama embarked on Saturday on a 10-day tour of Asia amid a growing chorus of China-bashing in Washington. Mr Obama won't be stopping in China; his India-Indonesia-South Korea-Japan itinerary, together with recent calls by his administration for Asian allies to be more assertive in the region, could be read as dusting off the Bush administration's policy of building an alliance of Asian democracies as a bulwark against growing Chinese influence. But the days of zero-sum Asian politics are over, not simply because George W Bush is gone, but because of the decline of US military and economic power.

The wars in Afghanistan and Iraq have exposed the failure of Washington's overwhelming advantage in military force to impose US will in distant lands. Nobody ought to be so naive as to imagine that American soldiers will be sent to die for the Senkaku/Diaoyu islands whose ownership is disputed by China and Japan. Not that China is interested in conflict, which would jeopardise its overwhelming priority of maintaining economic growth in order to alleviate poverty. Nor do its neighbours have any appetite for confrontation.

Despite ongoing territorial tensions, Japan-China trade in the first half of 2010 surged to a record $138 billion (Dh507 billion). By contrast, US-Japan trade over the same period totalled $56 billion, whereas US trade with China totalled $201 billion. States are no longer arrayed in binary Cold War-type alliances in Asia, or anywhere else in the world for that matter.

Even India was expected to do $75 billion in trade with China this year, compared with $50 billion with the US. So just as excited as India's politicians are to finally welcome a US president they believe has neglected them, the country's business community right now sees more opportunity in China.

Where the American economy was once arguably the most important source of global US authority, today that economy - and its oversight by a dysfunctional political system - is increasingly becoming a source of global anxiety.

Bashing China on currency and trade issues will be a recurring theme in the US Congress elected last Tuesday, which could possibly even enact trade sanctions. Whatever the fairness and wisdom of Beijing's currency policy, harping on China smacks of an attempt to blame a malign foreign force for corporate America's gutting of the economy over the past three decades. Better to play the nationalist card lest anyone notice that, despite high unemployment, the richest 1 per cent of the population continues to do spectacularly well.

Working people were lulled into a false sense of prosperity by easy credit and cheap Chinese-made consumer products. The global financial crisis and property market collapse has obliterated the credit line for middle class Americans and the grim reality is, as rock 'n roll populist Bruce Springsteen sang a quarter century ago about the deindustrialisation of America, "these jobs are going, boys, and they ain't coming back to your home town". The US economy now faces a deep structural crisis from which current trends show little prospect of a recovery that generates millions of jobs and spurs domestic demand.

While Iraq and Afghanistan have demonstrated Washington's eroded geopolitical authority, so has the economic crisis diminished its leadership role in global economic matters. Where US officials would once sanctimoniously lecture developing countries about the virtues of free markets, today there is an international consensus that the US laissez faire model of financial regulation gave us the global financial crisis. And last week, voters handed the country's legislature back to a party committed to reversing the limited progress that Mr Obama had made towards regulating the banks. Conflicts over currency manipulation by China, and arguably by the US via last week's move by the Federal Reserve to pump $600 billion into Treasury bonds, suggest a worrying lack of consensus among the world's economic players.

On at least one front, the interests of US exporters align with Washington's efforts to get allies such as India to play a more assertive regional role. One of the most important export opportunities identified for US corporations in India has been New Delhi's intention to replace 120 fighter jets from its ageing Soviet-built fleet, as part of a $45 billion military upgrade in the coming years.

Count that together with the $60 billion arms deal recently concluded with Saudi Arabia, and it becomes clear that the decline of the US role as global sheriff offers its own defence industry new opportunities to arm allies who are more flush with cash. At least for the likes of Boeing and Lockheed-Martin, even strategic multi- polarity can be good for business.

 

Tony Karon is a New York-based analyst who blogs at www.tonykaron.com