02 Jun 2017

Neither China or Europe are viable alternatives to a strong America

The growing conventional wisdom in Asia is that America's 70-year run as leader of the global order is ending, and that China will inevitably take over, replacing global Pax Americana with a regional Pax Sinica.

I fear that U.S. disengagement, as signaled by the country's new administration, will result in a more unstable and less open world. But a regional Pax Sinica is neither inevitable nor desirable. Moreover, if Asia is to continue enjoying stability and prosperity, it will still need U.S. leadership. In fact, there is no alternative.

Since 1945, U.S. hard and soft power have underpinned a stable and open global order. Asia's extraordinary postwar economic success would not have been possible without it. U.S. treaty alliances, troops on the ground and naval predominance have maintained regional peace and facilitated commerce within Asia as well as between the region and the world.

But U.S. leadership has been declining since the beginning of this century, alongside China's spectacular economic ascent. All eyes are on what will come next under U.S. President Donald Trump.

Destructive economics

We should all be worried by Trump's character and judgment as well as his isolationist views on immigration, geopolitics and globalization. These affect the two most vexing global issues: security and trade.

It is still too early to tell whether U.S. national security policy will lean toward disengagement or re-engagement with the world. Trump and his senior trade advisers are economic nationalists obsessed with trade deficits, China-bashing and industrial policy aimed at reviving U.S. manufacturing.

This is an approach that U.S. economist Paul Krugman once called "pop internationalism" -- a destructive, do-it-yourself economics. Washington's withdrawal from the Trans-Pacific Partnership agreement was a monumental blunder. The country is forgoing substantial economic gains and sending a dangerous signal of disengagement from Asia.

Some argue that other powers will substitute for U.S. leadership to keep the world stable and open. Europe might do so. So conceivably could India, Brazil, Russia or China. International cooperation could be more equally shared.

But I doubt very much that this will happen. The European Union is ever more divided and weak. Keeping the euro intact has alienated the public from the bloc and sown division among member states. The global financial crisis and its aftermath have exacerbated these divisions. The EU will soon lose the U.K., its most outward-looking member. The upshot: The union will be too consumed with crisis fighting and containing internal fractures to exercise global leadership.

India and Brazil will remain sub-regional -- or at best regional -- powers for some time to come. Vladimir Putin's Russia is rife with corruption and has an economy dependent on oil, gas and other commodities, without a solid foundation for growth. Beyond its borders, it manages to disrupt and destroy, but does not cooperate or provide stable or productive leadership.

China not an option

Is China a viable contender for global leadership? If not leadership globally, perhaps at least in Asia?

Beijing has actively begun shaping rules in Asia with grand initiatives and massive spending on cross-border infrastructure through the Belt and Road Initiative and related ventures. With U.S. withdrawal from the TPP, the field is open for China to assume trade leadership in Asia.

It has already become more aggressive militarily in the East and South China seas, and cemented bilateral relationships in Southeast Asia, South Asia and the Pacific islands at the expense of the U.S.

But I have strong doubts about Chinese leadership in Asia. At home, China is much weaker than most outsiders think. Market reforms have stalled, obstructed by outsize vested interests in the Communist Party and state apparatus. China's Leninist political system is regressing to greater authoritarianism under President Xi Jinping.

Naive optimists believe the combination of "Mao and markets" -- authoritarian control and market reforms -- is viable. But more "Mao" means more arbitrary institutions protecting entrenched insiders in a less open society. How can this deliver more "markets," decentralizing power to outsiders like private-sector entrepreneurs and consumers? How can this approach deliver better financial and legal institutions insulated from political interference?

An unreformed political system will increasingly hobble China's economy. A weaker economy, resting on brittle political and social foundations, will consume Chinese leaders' attention and prevent them from exercising their responsibilities abroad while increasing the temptation to resort to aggressive nationalism, or even militarism, to distract the people from their domestic woes.

These are deep flaws within China's polity and economy. Creeping maritime aggression and opportunistic deals with political and business elites in countries plagued by corruption and weak institutions make matters worse. These are not a recipe for leadership to provide a stable and open regional order, let alone a global one.

Indispensable nation

Without the U.S. to check China's advances, Asia will see more aggressive power politics, with the strong bullying the weak. It will be more exposed to Chinese mercantilism and crony capitalism. Asian societies will be less, not more open; individuals will be more restricted, not freer.

That, in turn, will narrow opportunities for growth and prosperity beyond Asia's entrenched elites. Take the U.S. out of the picture and liberal values and rules will be much more difficult to defend. That is why continued and strong U.S. engagement in Asia is vital for freer, more prosperous people in more open societies.

I do not think U.S. leadership is doomed, nor do I think the end of the postwar liberal global order is preordained, for there are powerful countervailing forces. The most potent of these is the existing reach of globalization. U.S. companies are woven thickly into global value chains. American producers and consumers would suffer from protectionism at home and from other countries' retaliation.

There are economic liberals and internationalists in the executive branch of the government, in the U.S. Congress and across the states to counter Trumpian isolationists and protectionists. There are also checks and balances in the U.S. Constitution and the dynamism of the country's open society.

There are powerful countervailing forces outside the U.S. too. Asians and others who believe in a liberal global order should work with kindred spirits in the U.S. to keep the country looking outward rather than turning inward, and advancing toward, not retreating from, its leadership responsibilities. The U.S. remains central to global order. It is still the "indispensable nation."

This piece was published in Nikkei AsianReviewon 1June 2017.