to President Obama for his
statement applauding Nobel Laureate Liu Xiaobo. His measured words of
praise provide a stark contrast with the shrill and defensive reaction to the
Nobel Ceremony from the Beijing regime, which seems to be going out
of its way to prove why Liu was the right choice for winning this year's
prize. Obama's rare self-deprecation -- praising Liu as more worthy of the
prize than he was -- was especially gracious and welcome.
When Obama speaks out in defense of the values on which our country stands, he can be very compelling. Even a politically weakened president still commands a powerful bully pulpit. I hope and expect the president will make good use of it in the coming year. His response to the Nobel Ceremony is a good start.
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to the New
York Times, the Obama administration is resisting Beijing's call to respond
to the latest crisis on the Korean peninsula by launching another round of the six-party
talks. The administration is wise to resist the temptation to put the
short-term desire to respond to heightened tensions ahead of the long-term need
to resolve the North Korean problem once and for all.
As Mike Green explained, this is a temptation to which previous Administrations, including the Bush administration, fell prey. When all of the options look bad, sitting down and talking with North Korea can seem, on the surface at least, to be a least-bad way of "doing something." But it has not worked in the past and is unlikely to work this time.
The theory behind the six-party talks was plausible, and many people (including myself) endorsed the approach as a way of breaking a regional impasse that derived from several structural conditions.
The six-party talks were a plausible way to change these conditions. The idea
was to give China an equity stake in the success of the non-proliferation
effort. As host and co-leader, failure of the six-party talks would become
China's failure. North Korea's belligerence would, of necessity, be directed at
all of the six-party members, including China. Few people thought the six-party
talks would by themselves yield a diplomatic solution. More people, myself
included, thought that the collapse of the six-party talks, if demonstrably
North Korea's fault and demonstrably China's problem, might adjust the
incentives sufficiently to elicit more responsible Chinese leadership on the
That theory was tested and found wanting. As expected, North Korea repeatedly demonstrated bad faith. Yet the hoped-for response from China never materialized. Instead of ratcheting up pressure on North Korea, China has responded to North Korean belligerence with successive rounds of concessions and cover-ups. The situation rather resembles a weak parent seeking to excuse the public misbehavior of a spoiled child.
The Obama administration is wise not to rush in to rescue China from this latest embarrassment, and it is wise not to make other concessions that China is demanding -- for instance, restricting U.S. naval activity in the Yellow Sea. Instead, the United States should take visible steps to deepen cooperation with our regional treaty allies. And we should insist that China take similarly responsible steps to reign in North Korea.
The six-party talks only make sense if China is willing to shoulder its regional security responsibilities. Until that is demonstrated, there is not much to talk about.
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The Chinese and the Russians have joined forces to launch an assault on U.S. financial hegemony! From China Daily:
China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.
This all signifies... not much. At most, it is a symbolic attempt to lodge a complaint against perceived U.S. mismanagement of the dollar as a global reserve currency.
Remember, hardly anyone is required to use the dollar. They do so because it is convenient. This is true domestically as well as internationally. A pundit could try to barter a column for a latté, with no money involved, but it would require finding just the right politically-curious barista. It's much easier to use dollars to facilitate exchange.
Globally, there is nothing novel about discovering an exchange rate between the Chinese RMB and the Russian rouble. Once you have each currency's exchange rate against the dollar, it's just straightforward division to calculate (known as the cross rate).
The problem for Beijing and Moscow is that if their trade does not balance - and China, at least, has occasionally had a problem with that - someone is left holding a bag of roubles or renminbi. Other than buying Russian goods, there's only so much one can do with roubles. That's what sets apart the big global currencies, like the dollar or the euro. Even if you don't want to shop in New York, you can always go to a Middle Eastern bazaar and buy a few barrels of oil.
There are perks to issuing a global currency; it's nice to be able to print money that's accepted around the world. There are also responsibilities. If the U.S. Federal Reserve prints too much, all those bags of dollars will drop in value. China, sitting atop many of those bags, has been particularly vocal about its concern.
That's why the Chinese premier is in Russia, issuing joint proclamations, trying to take the dollar down a peg. The Chinese and the Russians may be joining forces, but given the way global finance works, they're mostly going to end up simply encumbering each other.
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China has ever so clumsily drawn attention again to the unpleasant topic of its human rights record. President Barack Obama is traveling to democracies around Asia and making it a point to emphasize that their economic prosperity is in part a result of their democratic systems. A week earlier, Secretary of State Hillary Clinton stated that China will need to reform politically if it is to continue to grow. And yesterday, British Prime Minister David Cameron prodded (ever so gently) China to respect its citizens' human rights.
These are not the Bush and Blair governments. None of these leaders is a crusader for democracy. Quite the contrary, Secretary Clinton began her China policy by downplaying China's human rights abuses. And President Obama came into office thinking that he had to apologize for Bush's attempts to promote democracy. Rather, what is clear to all of these leaders is that there is a strong connection between China's external behavior -- increasingly aggressive -- and its internal repression, in some ways worsening. In fact, this proposition is controversial now only among some political scientists. It is noteworthy that contrary to what so-called realists would predict, as the administration (and the world in general) grows more hard-headed about China, its human rights abuses are receiving more attention.
Indeed, China is making its human rights abuses more of an issue in international affairs. This is partly because China is a victim of its own success -- the media pays more attention to it as it grows in stature. In turn, China is no longer content with simply jailing activists such as Liu Xiaobo, a common practice in the PRC. It now internationalizes its human rights abuses: it has bullied the Britain, Japan, and South Korea, among others, not to attend Liu's Nobel peace prize ceremony and it has downgraded relations with Norway, the committee's host country.
The comments of British and U.S. leaders certainly provide succor to China's many reformers. And the West (by which I mean liberal democracies) must stand up for the rights it holds dear. But ultimately, political leaders will not convince the Chinese Communist Party (CCP) to change based on "its own self interest." (This line of reasoning is not unique to Clinton or Cameron. Former President George W. Bush also used it to try and convince Hu Jintao that democracy was in his interest.) The CCP knows very well what its interests are, and democracy is not one of them. Indeed, democracy would threaten the vast array of perquisites enjoyed by CCP leaders and their families. Instead, democratic leaders should find ways to engage the many Chinese who embrace liberal values, so that when and if the CCP really does face a ruling crisis, there are Chinese democrats ready to take the helm -- and we know their cell phone numbers.
President Barack Obama and his advisors formulated their Afghan policy almost exclusively to achieve one goal: deny safe haven to al Qaeda, according to Bob Woodward's book Obama's Wars. Counterterrorism is an important goal, but the administration seems to believe it is the only goal. This is a seriously myopic vision of U.S. national security interests. We have a much broader range of interests at stake in Afghanistan and South Asia. The administration's failure to understand them goes a long way to explain why it settled on a half-hearted strategy in Afghanistan.
So why are we fighting?
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The anointment of a new leader of the Chinese Communist Party has usefully re-focused the world's attention on how China might use its growing economic, military and diplomatic power and influence in the coming years, and how its neighbors, and especially the United States, will respond. A lot is riding on China's decision. The regional and even the international order for the coming decades, and perhaps longer, will depend on which pathway it selects.
The Chinese have a talent for developing aphorisms that can apply to any situation, and so I've decided to borrow from that tradition and call my remarks "The Four Hopes, the Five Preferences, and the One Test."
Now, a rising China is nothing new. It has been predicted, and feared, for well over two centuries. In the United States, it has long been a repository of hope for those people who had both the vision to understand China's potential and the arrogance to think that the United States could actually shape China to meet our desires.
During the 20th century, these hopes found expression in three separate areas. In the early part of the century, China was viewed as a vast and lucrative market for American goods. The Harvard historian Ernest May tells us that one of the books on China that was popular at the time was called Four Hundred Million Customers. The thinking was that U.S. factories could be prosperous beyond belief if only each Chinese would buy one ... well, one of anything we produced.
Coexisting with this first hope of unimagined riches from trade with China was a second hope, one more concerned with the next world than this more temporal one. Many Americans saw China as a great opportunity to convert pagans to Christianity. More important than four hundred million consumers, there were four hundred million souls waiting to be saved.
The middle of the 20th century saw a third U.S. hope for China: that it would become a thriving democracy. Henry Luce and his media empire of TIME, Life, and Fortune magazines relentlessly trumpeted to the American people the potential waiting to be unlocked by a China comprised of unfettered markets, religious converts, and especially Jeffersonian democrats.
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How can we make sense of a People's Republic of China that is supposed to be, in the words of Deng Xiaoping, "biding its time and hiding its capabilities," but in fact is picking fights with most of its neighbors, including the United States? The Chinese were supposed to be using their deep reservoirs of "soft power" and practicing a highly skilled diplomacy aimed at assuring all that China is rising peacefully. But over the past year, Beijing has been rather more clumsy than the caricature of Chinese cleverness might suggest. China has in effect declared the entire South China Sea -- a body of water that is of critical importance for its abundance of natural resources and for its position as the maritime connection between the Indian and Pacific Oceans -- to be its territorial water.
Needless to say, this has not gone over well with Vietnam and other Southeast Asian nations. And, just when it appeared that China would return to a lighter touch in the face of strong U.S. resistance to its South China Sea claims, Beijing bullied and coerced Japan into circumventing its legal processes after a Chinese fishing trawler rammed Japanese ships in the disputed Senkaku/Diaoyu island chains. In sum, China's exercise of power has been more hard than soft. Beijing seems to be neither "biding its time" nor rising peacefully.
A recent book helps explain how PRC leaders think about the world and what may lead China to engage in the behavior we and our allies find offensive. In The Mind of Empire China's History and Foreign Relations, Christopher Ford makes a persuasive case for hardwired cultural conditioning as an explanation for China's imperious behavior. China possesses, well, the mind of an empire. According to Ford, Chinese history has no precedent for stable coexistence among sovereign equals. Moreover, struggle over primacy within China and later with other states is a fairly continuous characteristic of Chinese history. Here is Ford:
The Chinese tradition has as its primary model of interstate relations a system in which the focus of national policy is in effect a struggle for primacy and legitimate stable order is possible when one power reigns supreme-by direct bureaucratic control of the Sinic geographic core and by at least tributary relationships with all other participants in the world system.
According to Ford, China has an enduring sense of global order. Beijing assumes that the "natural order" of the political world is hierarchical and the idea of truly separate and independent states is illegitimate.
But wait, some might argue, what about China's embrace -- if not sanctification -- of the Western construct of international relations: Non-interference in the affairs of other sovereign states? If China's natural place is atop a Sino-centric hierarchy, and other sovereign states are lesser entities that should pay deference to China, then why use the histrionic defense of Westphalian norms which codifies equal status among states?
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Well, that was awkward. The world's leading economic authorities just gathered in Washington for a weekend session of policy glowering. Heading into the regular fall meeting of the World Bank and International Monetary Fund, there was some hope that some constructive, multilateral dialogue could defuse tensions and calm talk of currency wars. It was not to be.
What happened? The United States went into the meetings pushing for multilateral solutions, in particular an enhanced role for the IMF. In a speech at the Brookings Institution last week, Treasury Secretary Tim Geithner addressed the issue of global misalignments:
This problem exposes once again the need for an effective multilateral mechanism to encourage economies running current account surpluses to abandon export-oriented policies, let their currencies appreciate, and strengthen domestic demand.
He noted that this was part of the long-standing mission of the IMF, then went on to argue that the world's powers had already agreed to address these issues:
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Over the past decade, Washington's Taiwan policy has created unnecessary dilemmas for Taiwan's political leadership. On the one hand, if a president of Taiwan is considered too provocative toward China, Washington, rightfully irritated over undue tensions, will freeze relations with the democratic island. On the other hand, if a president of Taiwan reconciles with China, Washington's impulse is to neglect relations, confident that the cross Strait "problem" is resolving itself. It's a small wonder why many Taiwanese believe that Washington is unreliable.
President Chen Shui-bian faced the former from Washington. While no one in Taiwan doubted that he would protect Taiwan's de facto independent status and its hard won democracy, or fight for its international dignity, he lost the confidence of Washington and then his own people when relations with both China and the United States soured.
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Awarding the Nobel Peace Prize to Chinese dissident Liu Xiaobo should remind the world of two things about China: one pessimistic, one optimistic. The former: The Chinese Communist Party is accustomed to controlling all politics at home and has not loosened its grip on political debate one iota. The latter: Liu is one Chinese of many who are fighting for, indeed risking their lives for, democratic change in China.
Consider the party's behavior. First it tried to bully the Nobel committee into abandoning its consideration of Liu. Then, it engaged in its familiar threatening and bullying rhetoric even after the deed was done. The party's propaganda and internal control apparatus removed any mention of Liu's victory in China's media. Then it announced that Sino-Norwegian ties would be damaged, notwithstanding the fact that the government in Oslo has nothing to do with the Nobel committee's decisions. This is a ruling party that seems not to understand that the rest of the world does not work in accordance with the party's precepts. Note to observers of China: In China there is no such thing as an independent civil body. So Beijing assumes that other governments can, with a wave of a hand (or the shake of an iron fist), stop political activity considered objectionable by a ruling government.
All the nongovernmental organizations we hear about operating in China, while doing great work, can be shut down at the whim of a Communist Party leader. China assumes the same about other countries. It wants to conduct its relations with others through official government channels and get others to pretend that the Communist Party is China. Liu's case is proof positive that nothing can be further from the truth. There are many Chinese who want nothing to do with the party, in fact, who are working toward its demise. The mistake we often make is to limit our engagement with China to the party and therefore ignore the many Chinese who desperately disagree with their government and want another direction for their country. Unfortunately, the party still dominates. This leads to the type of behavior we have seen recently from China in the South China Sea and with Japan, where it expects others to bend to the party's will. Accustomed to getting its way at home, the party is left befuddled when it cannot do so abroad, hence the empty threats aimed at the Norwegian government. Ironically for China, these histrionics amplify the case of Liu and attract more attention. Now the world can read not only about Liu's accomplishments, but also witness China's very bizarre reaction.
That leads to the good news. While the party remains dominant, there are many Liu's within China working for change. If they do not like China's authoritarian ways at home, chances are they do not like China's authoritarian ways abroad (ignoring international law in the South China Sea, forcing Japan to abandon its own legal procedures in the case of captain Zhan Qixiong). They are the hope for a truly peaceful rise for China. While most governments ignore them -- it is obviously easier to deal with the party and avoid the tension that engagement with China's democrats would bring -- the Nobel committee has not. Perhaps other democracies, like our own, will begin to take the Liu's of China and what they stand for more seriously and conduct an engagement policy that engages all of China.
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On Friday the Nobel Peace Prize Committee in Oslo will announce the winner of this year's prize. One of the leading candidates (the odds-on favorite according to Irish book-makers Paddy Power) is imprisoned Chinese dissident Liu Xiaobo. Liu is the intrepid author of the "Charter 08" document calling for democracy in China. Modeled on the landmark "Charter 77" that played an instrumental role in galvanizing freedom's voices behind the Iron Curtain (and written in part by then-Czech dissident Vaclav Havel, himself a supporter of Liu's Nobel candidacy), Charter 08 has been signed by hundreds of Chinese intellectuals. It has prompted wide attention and support from Chinese dissidents, and the wrath of the Chinese Communist Party, such that Liu is now serving an 11-year prison sentence.
The Chinese Government fears that Liu might receive the Peace Prize, evidenced by the PRC's preemptive threats against the Norwegian Government. Nobel Institute director Geir Lundestad astutely dismissed China's ham-handed efforts at intimidation: "China has come with warnings before, but they have no influence on the committee's work."
The Peace Prize might go to another worthy recipient, such as Zimbabwean opposition leader Morgan Tsvangirai or Afghan women's rights advocate Sima Samar. We will all know soon enough. This is an opportunity for the White House to begin putting some follow-up action behind President Obama's laudable UNGA speech two weeks ago, affirming his commitment to promoting human rights and democracy - and to show support for a fellow Nobel Peace Prize Laureate.
For example, if Liu does indeed receive the prize on Friday, how about President Obama makes an in-person, live statement to the press congratulating Liu and calling on the Chinese government to release him from prison, immediately and unconditionally? (The latter meaning not house-arrest but true freedom of movement, speech, and association.) This would be a profound show of support not only for Liu but for all of China's dissidents and prisoners of conscience. And on next month's trip to Asia, President Obama could encourage the leaders of the other Asian democracies he visits -- such as India, Indonesia, South Korea, and Japan -- to speak out on Liu's behalf as well. This would make clear that China's repressive system is not just an American concern but a concern to all free nations.
China's recent thuggish attempts at power-projection in Asia have alarmed many neighboring nations. But the core problem with China is not that it is a rising power; it is the nature of the regime. China's rising power would be much more welcomed by the region if the Chinese government was accountable to its citizens and respected their rights and freedoms. This is the kind of China that Liu Xiaobo and the other signatories to Charter 08 seek to bring about. They deserve our support.
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Anybody who spends time in Singapore, Delhi or Seoul will appreciate how much anxiety China's aggressive new stance on territorial disputes is causing in Asia. Japan is the most recent recipient of Beijing's growing chutzpah. For several years now, the People's Liberation Army Navy (PLAN) has been surging its operations around the Senkaku Islands, which are administered by Japan but claimed by China and Taiwan (the islands are called the Diaoyutai in Chinese). PLAN submarines have circumnavigated Japan and PLAN destroyers have trained their deck guns at unarmed Japanese patrol planes. Over the past few months, Chinese fishing vessels have been swarming around the Senkakus in what Japanese authorities suspect is a coordinated operation. When a Chinese fishing boat collided with a Japanese Coast Guard cutter on September 7, the Japanese ship arrested the Chinese captain on charges of obstructing law enforcement activities. China immediately responded by severing all high level diplomatic interactions with Japan and staging a series of predictable anti-Japanese protests.
The stand-off ended on September 24 when local Japanese prosecutors in Naha (Okinawa) announced that they would return the Chinese captain without pressing charges. State Department spokesman P.J. Crowley welcomed Japan's decision, commenting that this is how "mature states resolve these things -- through diplomacy."
The Obama administration deserves credit for sending a strong signal of solidarity with Japan publicly throughout the confrontation with Beijing. Vice President Joe Biden, Secretary of State Hillary Clinton, Chairman of the Joint Chiefs of Staff Adm. Mike Mullen and others came out early and often to restate the U.S. commitment to the alliance with Japan and to reconfirm that U.S. obligations under Article V of the U.S.-Japan Security Treaty extend to the security of the Senkaku Islands, since they are administered by Japan. However, the administration should be deeply worried about the way this stand-off ended. Japan may have acted as a "mature state" and used diplomacy in search of a quick resolution, but Beijing unleashed a mercantilist assault on Japan that went far beyond the pale of international norms, including the arrest of four Japanese workers in Northern China on charges of "espionage" and threats to embargo critical rare earth metal exports to Japan (Chinese officials later denied the embargo threat after other advanced industrial economies howled, but markets gave that denial little credence).
In all likelihood, the Japanese government counted on Washington's strong support to provide adequate cover for an exit strategy from the showdown and did not anticipate the seventh hour escalation by China. Now the Japanese media have universally declared the outcome a diplomatic defeat for Japan (even the Communist Party's Akahata newspaper has demanded the government give an explanation). Prime Minister Naoto Kan will probably take a major hit in public support in the next round of public opinion polls. Worse, Beijing has come away from the crisis triumphant over Japan's apparent capitulation in the face of overwhelming countermeasures. China's hyper-nationalistic netizens and PLA officers will now expect the government to continue using blunt economic and military tools to put Japan in its place.
The administration can feel satisfied that it provided effective reassurance to Tokyo during this crisis, but the dissuasion message to Beijing has been inadequate. China's neighbors are looking to the United States for leadership -- this includes now even the ruling Democratic Party of Japan which not too long ago campaigned on the promise to distance its foreign policy from Washington. The administration should take full advantage of this opening by enhancing joint military exercises with allies and like-minded maritime states and by using Asia's normally sleepy multilateral institutions to spotlight regional concerns about China's more aggressive stance on territorial disputes. Secretary Clinton won kudos and diplomatic support across the region when she openly addressed China's push for control over the South China Sea during her appearance at the ASEAN Regional Forum in Hanoi in July. Now it would be useful to find ways to demonstrate U.S. and regional concern about Beijing's disproportionate escalation against Japan in the most recent dispute. This case is not closed. As one influential Indian politician put it to me on Friday, "this time it is Japan, but next time it could be us."
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Last week, the House Ways and Means Committee approved a bill aimed at addressing China's currency practices. It is scheduled for a vote by the full House sometime this week. In hearings, Committee Chairman Sander Levin (D-MI) stated, "the status quo with currency imbalances is unacceptable and unsustainable." He argued that China's "mercantilist policies" distort trade and slow U.S. economic growth and job creation.
Levin had listed a number of potential policy responses. None of the remedies promise quick or significant relief to America's jobs deficit. A number of them risk serious side effects. The committee settled on one which may be more symbolic than potent. The bill seeks to increase the chances for American businesses to win tariff protection by treating China's currency policy as an illicit subsidy. The bill was watered down significantly so it would not run afoul of global trading rules.
The fundamental problem is a disconnect between U.S. policymakers' sense of what global rules of economic conduct ought to say and what they actually say. Two prominent examples of this disconnect can be found in the rules of the World Trade Organization: An agreement on subsidies and countervailing measures establishes the conditions under which a nation can retaliate against a trading partner's export-encouraging practices; Another specific provision -- Article XV -- says that exchange rate manipulation should not be used to frustrate the intent of the trade agreement.
These provisions form the basis of some of the most prominent U.S. plans for action against China. This week's House bill would let U.S. firms seek tariff protection from Chinese goods "subsidized" by an undervalued exchange rate. A WTO case on Article XV would take China to task for the trade distortions resulting from a misaligned exchange rate.
But the WTO does not allow retaliation against any and all subsidies. It sets some strict conditions on which ones are actionable. According to veteran international trade lawyers, there is serious doubt that a distorted currency would meet those conditions. Nor does Article XV offer much clarity about lines that cannot be crossed. In each case, there is an important gap between the rules as they stand and the rules as envisioned by China's U.S. critics.
With such a disconnect, there are three options. The United States government could pretend global rules read more favorably; it could ignore the rules and strike out, perhaps by imposing a broad unilateral tariff; or it could seek to modify the rules through negotiation. The first approach risks the appearance of flouting international agreements and sparking new trade conflicts. The second approach would leave no doubt about U.S. contempt for global accords and would risk destroying the rules-based multilateral trading system.
The remaining option, then, is to seek new agreement on proper international economic behavior. Fortunately, the groundwork for such an agreement is already in place. The Group of 20 leaders, meeting in Pittsburgh last year, endorsed a framework for "Strong, Sustainable, and Balanced Growth." Earlier this month, John Lipsky of the International Monetary Fund said in a speech that, while there had been substantial "buy-in" to the idea of rebalancing, the plans that had been put forward to date fell short of what was needed.
While discussions of the principles undergirding the global economic system should be inclusive, the implementation problems are really the concern of a small number of large countries. This suggests a new solution. A G-20 Implementation Subgroup, consisting of the United States, Japan, China, and Germany, would be well-positioned to craft a more serious program than we have seen to date. Representatives of the European Central Bank and the IMF could also attend, given those institutions' relevant roles.
This should not be a meeting to talk down the dollar, nor to vent criticisms of China. Rather, the Subgroup would have a mandate to discuss the broad range of macroeconomic policies needed to achieve the kind of global rebalancing that meetings of the full G-20 have already endorsed. This would certainly include ways for China to address its unhealthy global surplus, but it would also include discussion of deficit reduction measures to reduce U.S. borrowing. If the subgroup meeting were held in January, it could take into account the recommendations of the U.S. bipartisan deficit reduction commission.
This approach has the virtue of engaging the key players in a multilateral discussion in a group sufficiently small that it might reach agreement on action. The multilateral approach is preferable to unilateral or bilateral pressure both in that the underlying problem is multilateral and in its avoidance of the kind of national rivalries that can emerge in bilateral discussions.
There are obvious potential pitfalls to such an approach. There could be a complete failure to reach agreement, for example. These are deep-seated problems that run up against serious domestic concerns. Or there could be ill-advised attempts at a quick fix, as some have characterized a previous effort at coordinated action, the 1985 Plaza Accord.
But the other options on the palette are unpalatable. There is a broad sense among U.S. policy folk (and some abroad) that bounds of proper international economic behavior have been crossed. The problem is that those bounds are not spelled out anywhere. This mix of ambiguity and discontent seems like a recipe for serious conflict. A meeting with a pre-set mandate to address imbalances would offer the best opportunity to defuse some of those festering tensions.
The latest round of tension between Japan and China reveals the underlying instability in East Asia. The Chinese are in high dudgeon over Japan's arrest of a Chinese fishing captain, whom Japanese officials claim rammed Japanese vessels in disputed waters in the East China Sea. They have apparently shut off exports of rare earth materials (though China denies it) to Japan and threatened greater sanctions unless Japan complies with its demands to release the captain (the Japanese did).
The incident reveals that Beijing is willing to use its increased economic strength as a tool of coercion, no matter the consequences, for its own standing in international markets. But that is not all it reveals. Indeed, this is one in a series of arguments and incidents between China and Japan over the last decade related to sovereignty, territory, rights to natural resources, and China's expanding maritime capabilities in and around Japan.
The key factor in Asia's underlying instability, then, may not be the perception of China's rise relative to the United States' decline. Rather it may be China's rise relative to Japan's decline. The Chinese economy has now overtaken Japan's. China spends more on defense than does Japan. And within Japan as well as the rest of the region, there is a perception that Japan cannot shake its stagnation.
Great power conflicts often begin when a once stronger country believes it is losing its relative position to a rival. This is a more accurate description of Japan's attitude toward China than of the U.S. attitude toward China. In addition to this perceived change in power position is the emotional aspect. These two countries harbor great reservoirs of mutual resentment and hatred, which may not drive their disputes but certainly makes them worse.
For Washington, the lesson is that the era of great power politics is far from over in Asia. Its finite diplomatic energy should be spent on the "high politics" among Asia's great powers -- issues of war and peace (or how to avoid the former and maintain the latter), rather than on the "low politics" of climate change and currency disputes. The diplomatic task with respect to Japan, one that should be carried out at senior and sustained levels, is to help shake Tokyo out of stagnation, and to help Japan become a more coherent and powerful strategic actor. Washington's future in Asia depends upon a rich, strategically active Japan.
The diplomatic task with respect to China, one that should also be carried out at senior and sustained levels, is not to paper over the many disagreements and clashing political objectives that characterize China-U.S. relations. The task at hand is to manage the growing Sino-U.S. security competition -- a competition that increasingly appears to be about two very different visions for Asia -- so that rivalry does not lead to conflict.With its economic coercion in blocking the export of a strategic commodity, mixed with its use of gunboat diplomacy, Beijing is looking, as security expert William O'Neil has said, a bit too much like Imperial Japan.
This post has been updated.
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Over the weekend, the Taipei Times reported that the United States will soon begin operating high-altitude, long-endurance RQ-4 Global Hawk unmanned aerial vehicles (UAVs) out of Guam. When operational, these drones will monitor Chinese forces opposite the Taiwan Strait. Ultimately, they will replace the U-2 and RC-135 aircraft that conduct reconnaissance in the west Pacific.
The Obama administration deserves credit for such efforts to keep a close eye on Chinese military modernization. Although the term "transformation" has fallen out of favor in Washington, it has not in Beijing. China is deploying a range of capabilities aimed at blunting U.S. military power in Asia, including the DF-21D anti-ship ballistic missile, a large family of precision-guided ballistic missiles, anti-satellite weapons, and cyber warfare capabilities. As Jacqueline Newmyer writes in a thought-provoking article in the latest issue of The Journal of Strategic Studies, Chinese strategists believe that the so-called "revolution in military affairs" offers Beijing a historic opportunity to alter the military balance with the United States. Having concealed its military buildup for years, the Chinese leadership has become increasingly open and bellicose in discussing its ability to inflict damage on U.S. forces.
The deployment of Global Hawks to Guam offers more than just an opportunity to monitor Chinese military deployments; it also holds with it the possibility of new methods to enhancing security and strengthening deterrence in Asia -- something that should appeal to an administration that has favored multilateral approaches. The United States' Asian allies are all concerned about Chinese military modernization, and about U.S. staying power in the face of a rising China. They are also interested in purchasing or developing high-altitude, long-endurance UAVs like the Global Hawk. The door would thus appear to be open for bold action: What if the United States spearheaded a multinational effort to field a constellation of high-altitude, long-endurance UAVs and share the data produced by their sensors to establish a common picture of the west Pacific? With some vision and bold action, U.S. drones could become the core of an Asian allied airborne reconnaissance network. Such a network could increase transparency in the region. Having many eyes watching the region could also represent a powerful deterrent to Chinese aggression, whether across the Taiwan Strait or in the South China Sea.
The deployment of UAVs to Guam is a good move. With a bit of boldness and creativity, it could yield much more.
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The Sino-Japanese standoff over Japan's detention of a Chinese trawler captain who acted aggressively towards the Japanese coast guard in waters near the disputed Senkaku islands is part of a larger pattern of Chinese assertiveness towards its neighbors over the past few years. This pattern includes renewed Chinese claims to the Indian state of Arunachal Pradesh, Beijing's increasingly forceful claims to sovereignty over the South China Sea, China's effort to claim suzerainty over the Yellow Sea (where it sought to prevent recent U.S.-South Korean naval exercises), and a series of naval provocations directed at Japan.
These have included China's unprecedented deployment in April of ten warships -- including Kilo-class attack submarines and advanced Sovremenny-class destroyers -- through the Miyako Strait just south of Okinawa, the buzzing by a Chinese naval helicopter of a Japanese destroyer near Japan's home waters, and heightened Chinese submarine activity in waters near Japan. These incidents come in the context of new frictions in the Sino-Japanese dispute over claims to disputed natural gas fields in the East China Sea - despite an earlier agreement between the countries for joint development -- and increasing Chinese heavy-handedness towards smaller Southeast Asian neighbors with regard to the South China Sea.
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What was the administration trying to achieve by sending Larry Summers to Beijing? What message was it trying to convey? And was the intended audience American or Chinese?
Taken at face value, Dr. Summers, as head of the National Economic Council, was there to deliver a message about American economic concerns. Foremost among these has been the stubborn stasis in China's exchange rate against the dollar. If this was the real purpose of his trip, he achieved little; the Chinese did not even pretend to accommodate. According to the Wall Street Journal:
Chinese officials have consistently said that they won't change key economic policies because of foreign pressure, and argued that the exchange rate has little bearing on the U.S. trade imbalance with China. "Our exchange rate reform can't be pressed ahead under external pressure," Foreign Ministry spokeswoman Jiang Yu said at a regular press briefing Tuesday.
If Dr. Summers' mission was to describe mounting political pressure in Washington, it is not clear what he could have said that would have surprised his hosts. The Chinese have certainly already heard of Sen. Schumer (D-NY) and they have undoubtedly read the Ryan-Murphy bill in the House.
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Subtle shifts in the balance of power are difficult to detect yet of foremost importance to peace and stability. And even if detected in a timely fashion, policymakers can be slow to react. But maintaining a balance of power favorable to one's interests is one of a president's key tasks. On that score, our leaders have been negligent for over a decade.
Occasionally, presidents detect shifts in the military balance when it is too late and then compound the problem by responding with questionable policy choices. For example, President Eisenhower's policy of massive retaliation was, in part, a response to what seemed to be a loss of the U.S nuclear monopoly and Soviet conventional supremacy in continental Europe. (Eisenhower also wanted to maintain U.S superiority on the cheap -- by cutting Truman's conventional defense build-up).
A policy of responding with a nuclear attack to Soviet aggression anywhere did not seem very prudent to many at the time, but at least the president took the perceived shift in the balance of power seriously. Some of President Nixon and Carter's questionable arms control ideas were a response to a shift in the strategic balance in favor of the Soviets. Unfortunately, most of the time, policymakers do not react to an adversary's growing capabilities until met with disaster (e.g. Pearl Harbor, the Soviet invasion of Afghanistan, 9/11).
Today the balance of power in Asia is shifting. Since the end of World War II, Washington has kept the peace in Asia through its forward presence of military forces and its uncontested ability to project force into the region. Take an example from just 14 years ago. Realizing how destabilizing were China's missile tests conducted in the waters around Taiwan, President Clinton sent carrier battle groups near the Taiwan Strait. The missile tests stopped, Taiwan held its elections, and conflict was avoided.
Today, any president would think twice about doing the same. Why? China has arguably gained conventional supremacy around its periphery. Without remediation this could become a hard fact. China's growing short-range missile arsenal (maybe up to 1,500) and fleet of modern aircraft could not only be used to destroy much of Taiwan, but could also be used to strike devastating blows against U.S. forces in Japan. Together with its fast-growing submarine fleet, the Chinese missile force will, within the next decade, be able to cause serious harm to U.S. carriers steaming into the region.
Beijing has been focused like a laser beam on how to coerce and intimidate Taiwan while deterring U.S. and Japanese intervention. Washington has not given the same attention to defense. Our shipbuilding program has atrophied, our ability to protect the bases from which our aircraft fly is non-existent, and there is nothing in the current navy or air force programs of record that demonstrate our attentiveness to this problem.
As a country, we have become so accustomed to projecting air and sea power with impunity anywhere in the world that the idea that our aircraft could be shot down or surface ships sunk seems like science fiction. But China has been studying how to undermine the way we do battle for decades, and its efforts are bearing fruit.
A president choosing to respond to a Chinese attack on Taiwan would now face a host of bad options, most of which are dangerously escalatory. If U.S. forces or those of an ally were attacked, Washington could eventually bring its superior power to bear from other theaters of conflict, but it would take time, and, as shown both in the Center for Strategic and Budgetary Assessment's AirSea Battle and in RAND's A Question of Balance, would probably require hitting military targets in China itself. Considering China's growing conventional superiority, a president's response to a devastating blow by the Chinese against U.S., Japanese, and Taiwanese assets may, by necessity, be highly escalatory.
The good news is that it is not too late to restore some stability to the equation. The United States is a far richer and more stable nation than China. With marginal adjustments in how we spend our finite tax-payer dollars, we can restore a favorable conventional balance in the Pacific that would lessen Chinese temptations to use force and provide us with more strategically stable defensive options should Beijing succumb to those temptations. We seek a cooperative relationship with China, which makes it difficult to think about the unthinkable -- a conflict with China. But a conflict with the United States is just about all the PLA thinks about, and for the sake of peace we must take them seriously.
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The Washington Post recently reported that China is pushing for a resumption of the Six Party Talks. This means one thing: President Obama's North Korea policy is working. The relationship with China works best when China needs something from us. Consider this: former Secretary of Defense Donald Rumsfeld refused to see the Chinese for a year after the PLA rammed our EP3 surveillance aircraft with a fighter jet. The Chinese were begging to see him, and DOD got what it wanted from the relationship. That is the proper way to handle Beijing -- the deft use of leverage.
Now we want China to use its influence to disarm North Korea, join our contingency planning for a political transition in Pyongyang that could get messy, and discuss the eventual unification of the peninsula. The fact that China is practically begging the other Six Party participants to come back to the table means that China is feeling the pain of Obama's policy. The administration has conducted joint exercises with the Republic of Korea, enacted harsh sanctions on Pyongyang, and refused to negotiate with Pyongyang unless it stops its provocations. We are demonstrating to Beijing that if it does not control its North Korean ally, China should be ready for intense U.S. pressure on its periphery. The administration should stick with its approach until Beijing forces Pyongyang to abide by international law and give up its nuclear weapons.
But the Washington Post article closes on a somewhat troubling note: the administration wants some contact with Pyongyang. This is not the time to talk to Pyongyang. Obama should not repeat President Bush's mistake -- as soon as he used U.S. leverage over North Korea and China in the form of biting sanctions, he lifted them only to receive more dangerous provocations in return. Obama should wait until China is clear about its choices: disarm Kim or face unrelenting U.S. pressure.
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There are strange goings-on in Pyongyang these days. First, former President Jimmy Carter arrived in the North Korean capital to secure the release of Aijilon Gomez, an American human rights activist who had been sentenced to seven years hard labor after wandering across the border from China. Then, within 12 hours of Carter’s arrival, North Korea leader Kim Jong Il suddenly shows up in China for his second visit in several months. All these moves are leading to speculation that the United States is about to slide back to the pattern of engagement and concessions that has followed every other confrontation with Pyongyang over the past two decades.
I think the odds are probably against such a replay of history. But then again, the temptation of “parking” the intractable North Korea problem in slow motion talks has proven irresistible to two previous administrations nervous about sustained confrontation with the North. The Loyal Opposition would be doing the Obama team a favor by scrutinizing its next steps for similar wobbliness.
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In 2009, the Group of 20 nations committed themselves to rebalancing the world economy. Summiteers in London and Pittsburgh resolved that the large trade surpluses and deficits that had characterized the global economy in the lead-up to the financial crisis should no longer be tolerated.
The G-20 leaders were so effective in their proclamations that much of the requisite rebalancing took place in anticipation, before the leaders could even implement any collaborative policies. China's current account surplus of $426 billion in 2008 fell 33 percent to a surplus of $284 billion in 2009. The Middle East, which as a region ran a surplus of $348 billion in 2008, saw it drop 90 percent to just $35 billion in 2009. The United States current account deficit of $706 billion in 2008 shrank by over 40 percent to $418 billion in 2009.
Such anticipatory compliance on the part of the world economy would have been most welcome, had it only continued. Yet recent economic data shows it has not. The New York Times summarized the latest numbers:
The United States trade deficit ballooned to $49.9 billion in June, the biggest since October 2008. In July, one month later, China recorded a $28.7 billion trade surplus, the biggest since January 2009. In the first five months of the year, Germany's trade surplus... rose 30 percent compared with 2009, to about $75 billion.
So what does this mean? Before the world's leaders could even assemble, the imbalances shrank, but once they issued their proclamations, the imbalances revived. The moral is that trade balances are driven by deep-seated forces within an economy and are difficult to manipulate. The shock of the housing bust and financial crisis dampened consumption and, thus, imports. Some countries were hit harder than others. U.S. monthly imports peaked at $232 billion in July of 2008. They bottomed out at $151 billion in May of 2009. That 35 percent plunge is a pretty good depiction of economic panic. Over the same period, exports fell by "only" about 24 percent, and they were smaller than imports to begin with (hence the deficit).
Of course, relative consumer confidence around the globe was not the only factor driving these numbers. There were also wild exchange rate swings as investors tried to puzzle out which of the world's major markets posed the least risk.
The point is that none of this was due to the fine-tuning of finance ministers or chancellors of the exchequer. They were all trying everything they could to restore confidence among consumers and investors and to revive economic growth. The standard tools that would be used to manipulate external imbalances were instead directed toward crisis response. This is unlikely to change in the near future. China is much more worried about steering between their Scylla and Charybdis of inflation and unemployment than it is about its trade surplus with the United States. Fed Chairman Ben Bernanke is far more preoccupied with concerns about a double-dip recession and deflation than he is about the value of the dollar. Their moves may end up shrinking global imbalances -- significant new quantitative easing by the Fed might depress the dollar -- but this would not be the principal intended effect.
From an economic standpoint, the inability to tackle the imbalances is less worrying than some commentators made it seem. There was a connection between a global savings glut (one aspect of the imbalances) and the U.S. financial crisis, but the latter did not follow inevitably from the former. It took a whole raft of unwise U.S. domestic policies to mishandle the offer of cheap global funds (e.g. offering mortgages with no money down to purchasers of dubious credit was problematic). Similarly, there is no inevitable link between trade deficits and unemployment. Countries with flexible exchange rates and sound policies can adjust to all kinds of external shocks, though the adjustment may be painful.
From a political standpoint, however, the situation may be more dire. Michael Pettis, an astute observer of the Chinese scene, this week concluded that "The world seems to be marching inexorably towards trade war." He argued that the United States will be forced to choose between protection and soaring trade deficits, with the former threatening an ensuing round of global protectionism.
The issue will re-emerge in Washington when Congress returns next month. The Obama administration won a respite from Congressional pressure when China agreed to allow its currency to move in June. Since then, the Chinese yuan has appreciated from a rate of 6.83 to the dollar all the way up to 6.80 to the dollar (less than half a percent). Congressional hearings are already scheduled.
None of this is to argue that it was wrong for the world's major nations to try to address imbalances at their 2009 gatherings, just that the problem is more intractable than they acknowledged. To navigate the economic and political imperatives successfully will require substantially more deft diplomacy.
Washington is demonstrating strong support for its South Korean ally after the tragic murder by North Korea of 46 ROK sailors. Secretaries Gates and Clinton are visiting Seoul in the first ever U.S.-ROK "2 plus 2" meeting (a reference to the regular meetings between the Secretaries of State and Defense and their Japanese counterparts). The leaders issued a joint statement calling for the "complete and verifiable" denuclearization of North Korea and they finalized details for major joint exercises to be conducted next week.
The exercises will include up to 8,000 sailors, airmen, and marines. The massive USS George Washington carrier strike group will be involved, as will F-22s (by far the most capable aircraft ever made -- I am sure the South Koreans and Japanese wish we had produced more of them) and air and missile defense assets, including Aegis-equipped destroyers, and other anti-submarine warfare capabilities.
All of this is welcome. Less promising is an unnecessary concession to China. The first exercises, which include the George Washington, are not being held anywhere near the site where the South Korean corvette, the Cheonan, was sunk by the North. Administration officials protest that they never said the carrier would exercise in the Yellow Sea, so there is no concession at all. But that is beside the point. The Chinese clearly did not want a massive show of force near their coastline. The answer should have been "too bad."
This concession is a mistake for two reasons. First, the Chinese have made the crisis worse by protecting the North Koreans from tough responses to their war-like behavior. Second, the Chinese are increasingly trying to change the rules of maritime behavior. The U.S. Navy is well within its rights to exercise in the Yellow Sea. China's resistance comes at the same time that it is trying to restrict lawful U.S. operations in other parts of its Exclusive Economic Zone. We certainly need not always be tough on the Chinese (leave them alone on climate change, for example -- they need to grow). But when China acts irresponsibly, our instinct should not be to reassure them. To the contrary, we should demonstrate that there are costs for irresponsible behavior, including allied exercises right off their coast. If Beijing wants such exercises to stop it should control its North Korean ally.
In addition, Washington should not talk about "a return to the Six Party Talks." After the murder of South Korean sailors, a return to talks seems rather disconsonant. North Korea has pretty well demonstrated its lack of interest in any talks that do not involve the other parties offering one-sided concessions to it and recognizing it as a nuclear state. Rather, South Korea, the United States, and Japan should talk about a vision for a unified Korea under ROK rule. China should be invited to join such talks, but the allies should set the agenda.
Because a unified Korea under South Korean rule is a long-term goal, the allies should discuss measures to deter North Korean provocations, ways in which South Korea and Japan can improve ties and operate more closely together, and contingency planning for a North Korean collapse.
In short, the visit by secretaries Gates and Clinton to South Korea is an important and deft alliance management move. But there is no reason to placate a China that should be controlling its dangerous ally.
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What happened to China's much vaunted "soft power" and "good neighborly" diplomacy about which we have heard so much in recent years? China's supposed "soft power," always overstated, has passed from the scene in short order.
Over the past few months, the Chinese have not-so-softly declined to invite Secretary of Defense Gates to visit Beijing; called the South China Sea a "core interest" (akin to claiming that the sea is China's territorial water); threatened to retaliate if the United States proceeds with the sale of additional F-16s to Taiwan; and refused to so much as condemn the North Koreans for killing 46 South Koreans sailors in cold blood.
Why are the Chinese coming out swinging now? Two reasons. One is the smell of American weakness, which Obama appears to be correcting. The second is that all is not well within China.
On reason one: As master practitioners of it, the Chinese Communist Party understands and respects power. It was no accident that Sino-American relations were stable, and at times even constructive, while President Bush was balancing China's power by upgrading relations with Japan, selling arms to Taiwan, and developing a strategic partnership with India.
President Obama approached China differently, eschewing balance of power politics and going out of his way to avoid ruffling Beijing's feathers. For example, the U.S. relationship with India was not considered an important part of Asia's balance of power, China's human rights abuses were ignored, and the administration put off selling needed arms to Taiwan or meeting with the Dalai Lama for as long as it could. While Obama saw these moves as strengthening a partnership with Beijing, China jumped at the chance to end what it views as America's irritating practice of meeting with the Tibetan spiritual leader and helping Taiwan defend itself.
On top of these misguided policies, Japan was going through its own political turmoil and, through no fault of President Obama's, thus unavailable to help maintain the balance of power.
Predictably, Beijing saw a U.S. government it could push around and wanted more. Now it is going for the jugular, demanding an end to arms sales to Taiwan and declaring the South China Sea a Chinese lake.
China's manifold domestic problems are another cause of China's belligerence. With an upcoming political succession in 2012, featuring party cadres without any ties to the communist revolution vying for leadership roles, the politburo has every reason to worry. Popular unrest is also becoming more political, sophisticated, and organized, as many migrant workers have worked in different places, and seen inequalities and injustices all over the country (see Minxin Pei's recent article in The Diplomat).
It is likely that the People's Liberation Army and China's anti-American nationalists see a ripe time to put pressure on the political system and to "get tough." What one hears from the Chinese is, "we are strong and not going to take it in anymore." The "it" includes arms sales to Taiwan and U.S. military activity in China's periphery.
The Obama administration appears to have gotten the message. They did sell a much needed package of arms to Taiwan. Secretary Gates did not mince words in talking about U.S. and allied interests in the South China Sea and the administration appears to be going forward with joint anti-submarine warfare exercises with the South Koreans despite howls of protests from China.
Washington still has a strong hand to play. China is growing stronger, but, for all of its chest thumping, it pales in strength compared with the United States and its allies in Asia. And none of our Asian allies want a dominant China. Indeed, one of the untold stories in Asia is the region's military modernization. Almost all of our allies are buying advanced tactical aircraft (mostly the F-35), maritime surveillance capabilities, and diesel submarines -- to deal with a rising China. The atmosphere is ripe for us to begin creating an informal network of alliances operating more closely together, particularly since much of what our allies are buying is American equipment. Washington should start to build the institutions today that will allow the allies to train together on their fifth-generation aircraft, patrol the South China Seas, and hunt for submarines. How about announcing the creation of a fifth generation aircraft "center for excellence" in Singapore, where all allies can train?
The point is that there is still a chance to present China with a choice: act like a responsible power or face a great wall of resistance. The good news is that there are many Chinese who want the former.
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After rumors that the Obama administration might back down in the face of Chinese pressure, the Pentagon confirmed on July 14 that the United States and the Republic of Korea would in fact go ahead with joint naval exercises off both coasts of the Korean peninsula in response to North Korea's March 26 sinking of the South Korean Navy corvette Cheonan. Time will tell, but this could be the moment that Barack Obama finally found his inner realist when it comes to China strategy.
From the beginning, the Obama administration has had a schizophrenic view of China's growing power and influence. On the one hand, realists in the administration continued the prevailing "Armitage-Nye" strategy (named after former Bush administration Deputy Secretary of State Rich Armitage and former Clinton Defense official Joe Nye) of engaging China while maintaining a favorable balance of power in the region through tighter relations with U.S. allies. Consistent with that strategy, Obama made a point of inviting Japanese Premier Taro Aso for the first bilateral summit in the Oval Office and Secretary of State Clinton made Japan her first overseas stop last March.
At the same time, however, other senior members of the Obama administration argued that balance-of-power logic was inimical to the kind of accommodation the United States would have to make towards China in order to deal with new transnational challenges such as climate change. They argued in a formula that undermined the realists' approach that no major international challenge could be resolved without China's cooperation -- a message that was internalized in Beijing as meaning that China had earned a veto on all major international issues from the Obama administration. When Obama and Chinese President Hu Jintao issued a joint statement last November in Beijing, the two leaders acknowledged each others' "core interests." Since then, the Chinese side has steadily expanded the list of Chinese "core interests" to include U.S. arms sales to Taiwan and suzerainty over the South China Sea while yielding virtually nothing in terms of military transparency, human rights or curbing North Korea's nuclear program.
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Did the Obama administration just score a big foreign policy victory on Chinese currency practices? Over the weekend, China announced that it would let its currency begin to move for the first time in years. As trading for the week opened, the Chinese renminbi (RMB) broke free from its long-held 6.83 rate to the dollar, and rose above 6.80.
This certainly seems like the successful culmination of a strategy the administration pursued at some political risk. In the spring, pressure was mounting on the Treasury to name China a "currency manipulator." The administration resisted the pressure and ignored the Congressionally-mandated April 15 deadline for a determination. Top administration officials persuaded Congress to await the outcome of multilateral efforts to persuade the Chinese to move. Key Congressional figures, like House Ways and Means Chairman Sander Levin (D-MI) set out a new deadline: get results by the G-20 meetings at the end of June, or Congress would act.
Now, the Chinese seem to have responded in the nick of time. Not only did China seem to relent, but it did so on the eve of the G-20 summit in Toronto. The Obama administration had previously trumpeted the elevation of the G-20 as the world's premier multilateral forum as a principal foreign policy success of its first year.
So what's not to celebrate?
China has long said it would change its policy; it had just not said when. In its weekend announcement, Chinese authorities were exceedingly vague about the specifics of the new policy. The only real clarity is that the change will not be a dramatic one-off appreciation of the sort that some U.S. critics of China have been calling for.
The most likely outcome is that the RMB will bounce around as it gradually appreciates, perhaps at a rate of 6 percent per year. This is the most likely outcome only because it is the policy China pursued in the only other instance in which significant appreciation was allowed, from 2005 to 2008. Nouriel Roubini has even noted that the RMB could depreciate, should the euro continue its sharp decline.
The change could be sufficiently minor that the real puzzle is why China did not do this months ago. The move relieves a great deal of international pressure on the Chinese and they incur minimal costs in terms of new competition for their exporters. Now the Chinese are free to spend their summit time criticizing Western budget deficits.
The U.S. domestic politics of China's currency move get complicated. The only position that really united the bulk of Western critics was that Chinese stasis on currency was unacceptable. Some prominent critics pointed to Chinese revaluation as a cure for U.S. job market ills. Fred Bergsten, Director of the Peterson Institute for International Economics, wrote that Chinese revaluation would be "by far the most cost-effective possible step to reduce the unemployment rate and help speed economic recovery" in the United States. A Washington Post story Sunday cited Bergsten to note:
"A jump of 20 percent (in the RMB) could cut as much as $150 billion off the U.S. trade deficit with China and create as many as 1 million U.S. jobs by making American exports more competitive..."
This weekend's move will not come close to meeting those expectations. The analysis promising job gains is problematic at several levels. For example, in our sole previous experience with Chinese appreciation, the 20 percent rise from 2005 to 2008, the U.S. bilateral trade deficit with China actually expanded.
A more fundamental issue is that the link between trade deficits and jobs is tenuous. The United States has experienced full employment at times of large trade deficits, and we've experienced painful rates of unemployment at times when deficits were declining. Normally, we think trade deficits have little to do with the overall rate of unemployment. The relatively sophisticated argument being put forward by Paul Krugman is that we are suffering from a ‘liquidity trap,' placing us in an exceptional time in which the standard rules do not apply. That view is controversial, but let's accept it for the moment. There is little indication that the liquidity trap, if we are in one, will go on indefinitely. [A key feature of liquidity traps is that interest rates are near zero, and right now longer term interest rates are not]. Thus, if Chinese currency appreciation were to cure U.S. unemployment, it would have to be big and quick. The Chinese announcement just made clear it would be neither.
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For too long, Beijing has coddled, excused, shielded, subsidized, and appeased the indefensible -- Kim Jong-Il's nightmarish regime in North Korea.
China is the key to solving the Korean quandary. The Middle Kingdom is North Korea's largest trade partner, most generous aid donor, and only real friend. Without help from China, North Korea is not viable -- if such an impoverished and benighted nation can be said to be so. In what should be an embarrassment to modern business and political leaders in Beijing, relations between China and North Korea are still conducted by their recondite and fossilized Communist Parties.
Again, the North has crossed the line of civilized behavior -- if indeed it has ever resided on the proper side of that boundary -- by torpedoing a South Korean ship and killing 46 sailors. This is not new behavior. In October 1983, North Korean agents attempted to blow up South Korean President Chun Doo-Hwan during a wreath-laying ceremony in Burma. The attempt failed, but killed 21 people, including several of Chun's cabinet. In the 1970s and 1980s, North Korea kidnapped dozens, if not hundreds of Japanese and South Korean citizens, ripping them from their families to exploit them for their knowledge of the outside world. In the 1990s, Pyongyang's policies of meeting military needs first and autarky starved more than 1 million North Koreans. Later, North Korea exported nuclear weapons material and technology to Libya and Syria.
In response to the North's latest atrocity, Chinese Premier Dai Bingguo toured Northeast Asia, urging restraint and maintaining studied neutrality between the aggressor and the aggrieved. Surely, this is a prelude to asking the United States, Japan, and South Korea to make further concessions to Pyongyang. At the same time, North Korea seems to be implementing plans for Kim Jong-Eun to succeed his father, perhaps after a period of regency. Undoubtedly, Pyongyang consulted its Chinese patrons on this plan. But rather than perpetuating this monstrous dynasty, Beijing should seize the opportunity for change.
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Is the "China Fantasy" starting to get deflated by reality? Three years ago, Jim Mann's provocative book of that title identified the "China Fantasy" as the dogmatic belief of many Western political and commercial elites that China's economic liberalization and growth would lead inevitably to democracy at home and responsible conduct abroad. The operative word was "inevitably" -- the assumption being that China's remarkable economic success would automatically produce a middle class that demanded greater political rights, and that China's growing integration with the global economy would produce benign and responsible international behavior. Based on this assumption, the corollary policy prescription for the West was to pursue a policy of engagement and encouragement towards China's rise.
This paradigm seems to be shifting. I recently participated in a conference in Europe on China, attended by a cross-section of policy, academic, and commercial leaders from Europe, the United States, and China, and came away struck by palpable attitude changes in at least three dimensions. Taken together, these are signposts that the previous conventional wisdom on China is coming under question:
The erosion of the "China fantasy" does not mark from a precise date, but a watershed moment ironically may have been the 2008 Beijing Olympics. Anticipated as China's grand arrival on the global stage, the Olympics were by many measures a major success -- and not just for people named "Michael Phelps." Yet surrounding the Olympics were constant reminders of Beijing's authoritarianism, whether the petulant rhetorical attacks on Tibet supporters, the draconian efforts at pollution reduction, the omnipresent surveillance, and the tight control on any voices of dissent. Put it this way -- as obnoxious are those %&*!@ vuvuzelas at the World Cup, they are also the sound of a free society. You can bet they would have been banned in Beijing.
The end of the "China fantasy" does not necessarily prescribe a wholesale shift in the free world's posture towards China -- just a more realistic one. For the United States, this has several policy implications:
None of this precludes continued bilateral cooperation with China on important issues, or continued support for sound investment in such a vast market. The "China fantasy" was based more on hope than experience, but the benefit of recent experiences with state capitalism is the chance to replace hope with prudence.
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Robert Kaplan has written an excellent, thought-provoking piece in Foreign Affairs. He argues that China's insatiable demand for energy and natural resources is driving its strategic policy, as it expands its military reach and influence both on continental as well as in maritime Asia. It is not that China has a master plan for world domination, rather, like all rising powers, (nineteenth-century America included) the logic of its growth requires it to play a greater international role.
To its west China is strengthening its grip on Xinjiang and Tibet. Soon it will complete two major pipelines extending from Central Asia to Xinjiang. In Tibet it is building roads and railroads to extract resources, pacify the restive population, and keep it out of Indian hands. China is marching southward as well, as it increases control over Burma, which may provide Beijing with a port and maritime access to the Bay of Bengal. And it is trying, as Kaplan says, to "divide and conquer" other ASEAN states, who, in response to American inattention, are beginning to team up in opposition to China's influence. According to Kaplan, Beijing's main objective on the Korean peninsula is to help North Korea develop into a more "modern authoritarian" state, so that it remains a buffer against U.S.-allied South Korea. Even so, Kaplan writes, China would not necessarily be opposed to a unified Korea that, for economic reasons, would be a part of "Greater China's" sphere, and eventually lead to the removal of American troops from South Korea.
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My last post for Shadow Government elicited some concern from friends in the Obama administration that our criticism of the President's Asia policy was overblown. I stand by what I wrote, but this pushback is fair. Not all the problems in U.S. relations with important Asian powers can be laid at Washington's door. And the Obama administration has taken some constructive early steps.
On the positive side of the ledger, President Obama can claim credit for intensifying U.S. outreach to Indonesia -- although formalization of a new Comprehensive Partnership remains unfulfilled given the postponement of the President's trip there to launch it. President Obama also deserves plaudits for committing the United States to exploring membership in the East Asia Summit, meeting with ASEAN heads of state, and fostering strong relations with key ally South Korea. Here again, however, the Korea-U.S. Free Trade Agreement, whose implementation should be a centerpiece of the relationship, remains stalled; President Obama seems unwilling to push Congress to ratify it. In another welcome trade-related move, the President has expressed his support for the Trans-Pacific Partnership. This is a worthy minilateral trade initiative, but it excludes Asia's big economies and is no substitute for a wider Asia-Pacific trade liberalization agenda. These are all early steps in the right direction, but they do not amount to strategic accomplishments.
On the negative side of the roster, there is no question that President Obama has been dealt a particularly difficult hand in relations with core Asian ally Japan -- where a veritable political revolution last August deposed America's staunch allies in the Liberal Democratic Party and brought to power a new and untested government. It has defined itself in office in part by opposing a previously agreed plan to realign American forces in Okinawa, leading to growing concern over the future of the alliance. The U.S. administration has struggled with how to handle this unresolved conflict -- which has been badly mismanaged by Prime Minister Hatoyama and his colleagues. Resolution may be in sight, but the whole affair risks tarnishing the alliance at a time when Chinese and North Korean assertiveness is intensifying.
Indeed, President Obama has been on the receiving end, until recently, of an increasingly sharp-elbowed China's projection of its power and influence in world affairs, which has created the rockiest period in Sino-American relations since the EP-3 incident of 2001. Here, a firmer and more balanced approach to China early on -- one that prioritized U.S. relations with allies in Asia a little more and reassured China a little less -- could have paid strategic dividends. But the administration's recent recalibration of its policy promises a sturdier defense of American interests and values and, by extension, a more stable relationship. It may even result in a Chinese decision to allow the renmimbi to appreciate. This would be an important accomplishment indeed -- one that China should take in its own interests, given its overheating economy. It would be welcomed by India, South Korea, Indonesia, Singapore, and other U.S. partners in Asia whose competitiveness has suffered from China's artificially cheap currency.
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Does China control the fate of the U.S. labor market? Fred Bergsten, the distinguished director of the Peterson Institute for International Economics, writes that persuading China to boost the value of its currency would be "by far the most cost-effective possible step to reduce the unemployment rate and help speed economic recovery" in the United States.
He claims that "such a trade correction would generate an additional 600,000 to 1.2 million jobs." In this claim he actually underbids competitors such as Paul Krugman (1.4 million jobs) of the New York Times and Rob Scott (2.4 million) of the Economic Policy Institute. Praiseworthy as Bergsten's moderation may be, how does one get a number like his?
Here is his chain of assumptions:
Every single link in this chain is weak. Let's take them in turn.
Weak link No. 1: While estimates may vary about how much China ought to revalue, there is less quibbling about how much China is likely to revalue. I agree with Gary Hufbauer, also of the Peterson Institute, who writes:
The period between July 2005 and July 2008, when China temporarily abandoned its peg to the U.S. dollar, suggests the maximum extent and pace the Chinese might allow the yuan to appreciate. During that period, the yuan increased 20.15 percent against the dollar; on a per month basis the average increase was 0.52 percent."
So the most likely outcome is a modest appreciation of the renminbi. But even if the United States could compel a 40 percent overnight appreciation, China would be left reeling from the magnitude of the economic shock. It would be unlikely to turn into a vibrant source of demand for Western goods.
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Shadow Government is a blog about U.S. foreign policy under the Obama administration, written by experienced policy makers from the loyal opposition and curated by Peter D. Feaver and William Inboden.