The Telegraph, 8 November 2017
Donald Trump’s trade policy is making America’s allies vulnerable to Chinese pressure, but this doesn’t signal the end of American dominance
As Donald Trump continues his long tour around Asia, the question is whether the President will be able to articulate a strategy toward the region at a critical time in its history. Having rejected Barack Obama’s signature policies – the Pivot to Asia and the Trans-Pacific Partnership (TPP), which were meant to balance China’s rise with continued American leadership – it is not clear what he will put in their place.
It is not even clear if the region will wait for him to make up his mind, with a number of states asking very serious questions about the US’s staying power in the region. Given the fact that some predict that Asia will make up 40 per cent of the global economy by 2050, the question of who leads the region will have global implications.
In terms of regional integration, Trump’s brand of “America First” economics is looking distinctly at odds with Asia’s move towards ever-closer liberalization. While Japanese Prime Minister Shinzo Abe made sure the president felt welcome in Tokyo on Monday, he did not budge on the possibility of a bilateral trade deal.
He and other leaders have decided to press on with the TPP without the US. Abe and the other 16 national leaders are expected to announce the continuation of TPP at the next APEC summit. The Master of the Deal may leave the region without getting one, it seems.
And US strategy is not only floundering in the economic sphere. Just days before Trump embarked for the region, America’s ally South Korea buckled under Chinese diplomatic and economic pressure with regards to the THAAD missile system.
Some estimates put the total damage to Korean business at $10 billion, and Seoul eventually agreed not to host any additional THAAD systems, to not participate in a US missile defence system, and finally, to avoid participating in a US-Japan-South Korea alliance. Meanwhile Trump’s insistence on renegotiating the Bush-era KORUS free trade agreement adds economic tensions to this blow to military interoperability.
China’s attempts to loosen Washington’s alliances is evident throughout the region. In addition to Seoul’s recent reversal, Beijing has applied economic leverage with great success to Australia and the Philippines. A growing clique in Canberra argue for an “independent” foreign policy that does not upset Beijing.
Foreign Minister Julie Bishop’s noncommittal stance toward a revived US-Japan-India-Australia Quadrilateral last weekend was clearly meant to avoid antagonizing China. Similarly, the Philippines – a crucial state in the geostrategic struggle over the South China Sea – has openly shifted closer to China under the leadership of its president, Rodrigo Duterte.
In all this, China is giving a warm welcome in Beijing to the American President, but it may be the consoling arm of a state that sees itself in the ascendancy. In the wake of October’s 19th Party Congress, President Xi Jinping stands in marked contrast to his American guest.
At the pinnacle of the Chinese state, Xi has amassed more power around himself since Chairman Mao Zedong and is fostering a surge in Chinese nationalism and pride. He has helped push through a number of organizational reforms that have strengthened China’s increasingly modern military and commands an economy that still grows at a healthy 6.3 per cent.
Yet despite this gloomy prognosis, it is not at all clear that Beijing will succeed in becoming the region’s or the world’s greatest superpower.
For one thing, Xi’s brand of anti-Western authoritarianism and hard-nosed mercantilism may actually increase pressure on China’s structural weaknesses, as Chinese universities experience brain drain to their Western competitors.
Furthermore, China’s policy of pushing its inefficient state owned enterprises (SOEs) to invest into the landmark Belt and Road Initiative risks worsening China’s debt of $22 trillion, by lending billions to states who will be unable to repay them.
Hedge fund manager Kyle Bass estimates that in a debt crisis, Beijing’s loses could total five times those of the US subprime crisis of 2007-10. Then there is the demographic challenge, which threatens to make China old before it becomes rich. Its working population began declining in 2015 and according to Chi Ho, a senior economist, China’s share of population over 65 will increase from 9 per cent to 30 per cent by 2040.
Geostrategically, China can capitalize on the loosening of ties between regional states and the “untrustworthy” Trump administration in the near-term. However, Beijing will be undone by its own long-term grand ambitions.
Encroaching on the East China Sea, the South China Sea, and India’s northern border, Beijing has needlessly made firm geopolitical opponents where before there were none.
Tokyo, Delhi, and Hanoi all view Chinese encroachment on their territory with likeminded resolve and have begun to develop closer defence links with each other and with Washington. Australia notwithstanding, the most interesting news this year is that the US-Japan-India trilateral will be reinvigorated by closer defence cooperation.
By comparison, the US has much to offer – despite the president’s personal lack of popularity – in structural terms if not soft power. As Joseph Nye noted in a recent Financial Times piece, US shale-energy independence and currency advantages contrast favourably with China’s vulnerable shipping lines and its weak currency.
While China has attempted to internationalize its renminbi currency, 64 per cent of international foreign reserves are in the dollar, with only 1.1 per cent in renminbi. Furthermore, US liberalism contrasts very well with China’s authoritarian-style interference in the region, and this will only increase as Xi’s China becomes more authoritarian.
Australia was hit by revelations this year of Chinese interference in its education and political system. Polls taken in 2017 also show that 3.1 per cent of Hongkongers identify as Chinese.
Finally, in its rise, China has attempted to side-line the region’s second largest power, Japan. While this sounds trivial, Japan’s still-sizable population, regional diplomacy, strong defence capabilities, and place as the world’s third largest economic power show the depth of this mistake.
Trump’s warm welcome in Tokyo may well serve as a metaphor for how Japan will keep the US in the region over the next four years; even now, Japanese diplomats have fostered relations with the Philippines to balance against a total shift toward China.
Aides close to Abe admit to keeping a space on the TPP for the Americans to “dock in” in some future date. Whatever the case, the stakes could not be much higher in a region set to be the engine of the global economy. How Trump and the United States get through the trip – and the next four years – remain critical.