Sunday, 6 December 2009
When Uncle Sam calls East Asia’s bluff
At least by the measure of stock market prices, the world is returning to the happy days of early 2008, before the financial shocks. But some less obvious, yet perhaps more profound, signs point to fundamental changes. Asia, in particular, boasts about some of these - a shift in power and wealth to the East - but, in practice, is ill-prepared for their realisation.
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When Uncle Sam calls East Asia’s bluff
Philip Browring
06 December 2009
At least by the measure of stock market prices, the world is returning to the happy days of early 2008, before the financial shocks. But some less obvious, yet perhaps more profound, signs point to fundamental changes. Asia, in particular, boasts about some of these - a shift in power and wealth to the East - but, in practice, is ill-prepared for their realisation.
The US is stretching all its military sinews to send just another 30,000 troops to Afghanistan, adding an extra US$30 billion to an already vast budget deficit. Meanwhile in Japan, America’s closest Asian ally, the new government is demanding renegotiation of a bases agreement, notably over Okinawa, in respect of the US forces stationed there. Closer to home, Premier Wen Jiabao bizarrely claims that it is “unfair” for other countries to ask Beijing to stop manipulating its currency by pegging it to a weak US dollar - to maintain a huge trade surplus while most other currencies appreciate.
Let us join the dots of these bits of news. For sure, the US has itself to blame for its costly Iraq involvement and partly so for the current need to reinforce its presence in Afghanistan. But huge though these costs are, they are little more than what the US spends every year on its presence in the western Pacific.
A cash-strapped nation may reasonably ask: what do we get from the massive military spending in a region that is the major source of our trade imbalance? Is South Korea no match for a starving North? Must Japan hide forever behind its “peace constitution”? For sure, China would be happy enough to see the gradual withdrawal of US forces, in the expectation that it would fill the vacuum - making it easier not merely to pressure Taiwan into a reunification deal but to enforce its historically absurd claims over the whole South China Sea. But, for all their fretting about the need to loosen ties with Washington, Japan and South Korea are, in practice, so terrified by the idea that they do not think about it at all.
Maybe they should. Maybe Southeast Asian countries that provide facilities for the US military should be more upfront about the merits of the US security umbrella.
This is not to suggest that the US will back out of Asia any time soon. But it may well demand rather more in return, whether as cash contributions or in commercial or diplomatic ways. In the past, American arrogance assumed that US power was unbeatable and the power of the dollar inexhaustible. But views in Washington are changing, and Main Street America is tiring of paying for US imperial over-reach, as well as for Wall Street’s greed. It is noting, too, that the export of US jobs was driven by corporate profits, not national interest.
Of course, the US has abused the role of the dollar to finance its consumption excesses. But other countries, China included, have been equally irresponsible in assuming they have the right to export-led growth based on mercantilist notions and state-directed policies. No one ordered China to accumulate US$1 trillion of US Treasuries at the expense of its consumers.
This era is rapidly closing. It may be ended by US households maintaining a new sense of thrift. It may come when the US decides to level the playing field by using the trade weapons of last resort to impose import surcharges. Or, it may link up with the European Union, and some developing nations, to demand sanctions against China for currency manipulation, contrary to International Monetary Fund rules.
No one should forget that, when the US was in a similar, though less serious, situation in 1971, Washington ended the convertibility of dollars into gold and imposed an import surcharge. Chances are it will do so again, at least against countries like China. In short, the time is approaching when the US will call the bluff of a triumphalist but still dependent East Asia. Next year may well be when the empire strikes back.
Philip Bowring is a Hong Kong-based journalist and commentator
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