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1:00AM

Taiwan Relations Act: The Brer Rabbit defense

My friend Galrahn dutifully--and correctly--takes me to task for not specifying, in last week's post, that the Defense Department is obligated by law to both provide for Taiwan's defense against China (sell them arms) and maintain a US military capacity to resist Chinese force.  He says that my critiquing the Pentagon on this is unfair.

While Galrahn's points are technically correct, it's also certainly true that the Defense Deparment has a lot of leeway on how they can interpret meeting that requirement.  After all, what stops us from simply noting that we've got a lot of nukes and they can be enough to deter China from invading Taiwan.  Nothing in the Taiwan Relations Act of 1979 specifies conventional capabilities versus nuclear.  It just says "to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan." Give Taiwan enough defensive firepower, promise a nuclear back-up and call it a day.  But we choose, or rather, our Defense Department now chooses, to build an entire big-war warfighting concept around this scenario (no, no, nothing provocative there).  Nothing in the law demands that level of strategic focus or conventional effort.  So no, Galrahn, my rant wasn't misdirected. Pointing the Pentagon's finger at Congress and saying, "I'm just following orders" doesn't cut it here.

We've made a series of choices inside the Pentagon to elevate the meaning of Taiwan going back a decade and a half.  No outside power forced these choices; the military made this call on its own. The Taiwan scenario has become the calling-card scenario for the big-war force, much sturdier than the pathetic North Korean scenarios of collapse, or the bomb-heavy vignettes for Iran (unless you think we want to occupy that place too any time soon).  Simply put, until the Taiwan Strait crises in 1995-96 got the DoD turned-on to China as the near-peer competitor, you simply never heard about the Act as a baseline justification for force structure.  It merely explained arms sales to the island.  I know this, because I worked force structure issues for the Navy at the Center for Naval Analyses in the early 1990s (it was, like, bullet 4-a on slide 53, and when you saw it, you'd turn to the guy next to you, and intone knowingly, "Of course, the Taiwan Relations Act of 1979," and then you'd be back to business).  The Act was a completely backburner issue until the Sov residual threat got so low in those early post-Cold War years (after it became likewise apparent that the "rising sun" wasn't going to fulfill anybody's fantasies except Michael Crichton's--yes, I actually had senior military officers tell me in great seriousness to read the book to understand the future looming Japanese threat), that the Act sort of surfaced like a bureaucratic bedrock at low tide.

The Taiwan Strait crises also birthed many of the original network-centric warfare concepts.  It really was a seminal series of events--the proverbial wake-up call.  But then 9/11 comes and we don't hear about it all that much anymore--save for those pesky arms sales and the usual huffing and puffing from Beijing on the subject. 

The difference today is that the AirSea Battle Concept--basically a navalized, mini-me version of the AirLand Battle concept vis-a-vis the Sovs in Europe during the 1980s--is clearly based on this scenario, with a paltry assist from Iran (not a great country you want to lump in, image-wise, when you seek China's help on Iranian nuke developments, but a sale is a sale).  And I gotta tell you, that's some chutzpah, basing a new high-end combat ordering principle on the same nation you're seeking all this cooperation from--like salvaging your economy right now.

Seriously, anybody has to admit that making an entire air-sea, big-war battle concept out of the Taiwan Relations Act is going above and beyond the call of duty.  In my opinion, it goes beyond defense policy to a good share of foreign policy as well, cementing in something for the long haul that may not serve our overall purposes in our evolving bilateral relationship with China.  

Is this a step we debate as Americans?  No.  Is this something our president explains to us, or our Secretary of State?  Not really. It's just an inside-the-Beltway affair led by a think tank that results in some language here and there in various planning docs and ultimately finds its expression in the budget.  Would the Navy or Air Force protest?  Above their pay grade, as they say, although plenty of retired flags from both services will tell you openly they think this is an odd path to be on, given the larger picture.  But most, if not all, will readily admit, as I do in an upcoming China Security piece, that, once you accept the deterrence logic on Taiwan, America needs to make the AirSea Battle Concept happen as merely the next-step ante to stay in this poker game.  And frankly, given the shopping list ginned up, any protest would sound very much in the Brer Rabbit mode.  After all, these are tight budgetary times, and quite frankly, Gates' logic begins with the need to find synergistic savings.  So why target the best thing going (enshrined in law!)?  I mean, the Chinese do the same, do they not?

My point is this:  is this the best we can do at this point in history?  China doesn't need any help triggering a balancing response across Asia, as I've noted here many times; they do it brilliantly on their own.  Frankly, we don't need much of a hedging strategy as a result; the containment policy writes itself--again, thanks to Chinese heavy-handedness.  

But the larger effort isn't particularly being made:  we are not building a better, bigger positive relationship with China, especially in mil-mil relations, to supersede the legacy negative one.  You can tell me that the Pentagon is just doing its job--following Congressional orders, as it were.  I just want something more imaginative at this point in history, you know, something that preps the diplomatic "battlefield" a bit--something the navy does well throughout history.  

And I just don't see it happening.  Our offers of cooperation with China typically involve asking them to join our party on our terms, whatever the situation in question.  Will you do what we want you to do in Iran/Sudan/Myanmar/North Korea/South China Sea/etc.?  You know, show us you're responsible by giving us what we want.  [Then there's the awkward but oddly workable--if entirely unfair in burden sharing--"limited liability partnership," as I call it, in Iraq and Afghanistan, where our blood pays for Chinese treasure.]  

And big surprise, rising powers don't negotiate well on those terms.  America rarely did during its decades of rising. That sort of trajectory makes you arrogant and full of yourself, and China is definitely in that mode.  

And yes, while that sort of thing needs to be subtly resisted, we need to be preparing for the leaner years--as in, our leaner years and China post-some crash or inevitable slowdown.  We need to building something--again--positive, and mil-mil relations can be spectacularly positive in that way.

I don't think we've thought through, in any comprehensive sense, what our devotion to this blue law from from the Cold War is costing us--opportunity-wise, or the signals that it sends, or what we risk with it in a strategic sense.  I think it's simply on the books, so the bureaucracy grinds its answer, and when sanctuary from a scary budgetary climate is sought, that "requirement" is not just an oldie but a very goodie.

It's just not where we're going as a power or where this system is going.  We are steering by our wake, because it feels comfortable and good, and--damn it--it's the law!

And I don't see a lot of strategy in that.  I see people, like Galrahn, patting the Obama administration on the back for simply having foolish behavior fall into their laps and doing the right thing by it--again, because it feels good and it makes us seem more important than--quite frankly--we really are.  Our "cooperative strategy," as he calls it, is pretty much what it's always been in the Pacific:  make us the most important bilateral partner with as many states there as possible.  Again, with the Chinese playing the fools (i.e., old Soviet role) on this one, that's not a hard strategy to pursue, but it's one that retards the Asian integration process to a certain extent, in the name of hedging against, and somewhat containing, China.  

And if we were set to play global policeman with budgetary ease for the next couple of decades, I would be the first to say, fine and dandy.  Wait on these guys to grow up, and democratize, and a whole bunch of other requirements.  But I don't think our finances or globalization will wait on those evolutions, so I think we need to start thinking about making do with the landscape--and players therein--as they're presented to us.  Because keeping China in this retarded state of "pol-mil" development (and I use that term of art purposefully) isn't wise, in my opinion.  I think we need to do more--faster--than just keep them in their place until they demonstrate the preferred type of global following skills (I mean, leadership).  I think that attitude retards our own, much needed pol-mil development (yes, we actually have some things still to learn about this globalization of our making).

Unless you think U.S. military power is what makes us who we are. I've always thought it enables us to display leadership, but that it's not a substitute for it.  

And that worries me--this unstated, barely articulated strategic course we seem to be on.

I got accused a lot--and rightfully--of granting Bush-Cheney better rationales for their policies than they themselves had. I think Galrahn does the same here with Obama and Clinton.  I think Hillary is the shining star simply by default, because I see no great accomplishments, just well-worn reactions to a perceived rival's foolish behavior.  Remember, these guys came in with Jim Steinburg's "strategic reassurance," when "nice" China was having a good year (2008-09) and we were grateful for their saving the global economy (and let's admit it, no China, and things get a whole lot worse).  Now China is having a bad year, as Galrahn rightfully notes, and now we're all about overstating our interest in the South China Sea so as to match China's absurd claim of sovereignty.  If that's isn't chasing events or trends, than what is?

This is Schadenfreude masquerading as grand strategy--too much of it, actually, on both sides.  Mirror-imaging in this regard ("Look how popular we are in Asia right now!  Vietnam loves us! Take that, China!") isn't all that imaginative.  China's "charm offensive" got offensive, so now we've fallen into one by default.

And you know, hoping Brett self-destructs isn't the same as getting the Packers into the Super Bowl.

There are other paths and there are other voices.  If we want to get this future right, we should invent it ourselves.

11:18AM

Deng: Develop the place, then decide the sovereignty

Another John Milligan-Whyte & Dain Min piece, this time in China Daily.com.  They argue that China needs to stop standing on the sidelines fuming about joint US naval ops/exercises with locals and simply join them, which I think is brilliant.  If China wants to assert the normality of their naval ops in their local waters, then they need to exercise with everybody at every opportunity.  They need to make their presence a welcome, stabilizing thing, because right now, their own operations in their own waters ARE destabilizing, because they are perceived to be about establishing/claiming sovereignty in a way that trumps the diplomatic process.

The underlying logic of the piece is even smarter--right out of Deng's mouth:

What can China do about having jurisdictional disputes with its neighboring countries which have now been complicated by China and America asserting conflicting "vital national interests" in the South China Sea? How can China put jurisdictional disputes back into their normal peaceful mode? China and the nations that it has jurisdictional disputes with can form a joint development corporation called "South China Sea Joint Development Corporation" to economically develop the disputed areas peacefully. It is easier to negotiate the size of each participating nation's investments, responsibilities and share of the profits of such a corporation with multinational win-win policies. The joint development corporation approach avoids the zero sum game ownership disputes during which no nation can safely develop the economic benefits nor safe guard its national pride and interests in the disputed areas.

On February 22, 1984 Deng Xiaoping discussed what now for decades have been China's successful solutions to the Taiwan and Hong Kong sovereignty issues with the Center for Strategic and International Studies. He said, "I have also considered the possibility of resolving certain territorial disputes by having the countries concerned jointly develop the disputed areas before discussing the question of sovereignty. New approaches should be sought to solve such problems according to realities."

Smart stuff.

Make the development happen first, and then calmly divide the spoils, rather than get all huffy up front and suggest the only acceptable answer is that somebody wins and somebody must lose.  In the end, China will end up winning most of the time, NOT because of the supply of its military power, which will consistently backfire in its application, but because of the power of its domestic demand, which everyone will want to satisfy because there is good money to be made in doing so.

11:32AM

Another mention in People's Daily.com

Once again it is John Milligan-Whyte and his partner Dai Min, who write a weekly column for both People's Daily and China Daily.  If you recall, they mentioned my stuff once before, sent me a copy of one of their books, and I wrote a WPR column about it.  As I said in the WPR article, their stuff is clearly biased toward the Chinese case, much as mine is biased toward the U.S. case (they make no bones about it and neither do I), but it's the best, most straightforward counterparty example I have come across on the Chinese side for Sino-American alliance in this century, so you have to take it seriously if you take that goal seriously.

To remind from their byline:

John Milligan-Whyte has been called the "new Edgar Snow" and "21st century Kissinger" and is the winner of Social Responsibility Award from the 2010 Summit of China Business Leaders. John Milligan-Whyte and Dai Min are co-hosts of the Collaboration of Civilizations television series, founders of the Center for America-China Partnership, which has been recognized as "the first American think tank to combine and integrate American and Chinese perspectives providing a complete answer for the success of America and China's success in the 21st century," and the authors of the America-China Partnership Book Series that created a "New School of America-China Relations." 

I recently had a long Skype call with the two, because I wanted to check them out and get some sense of where they're coming from.  John has a long legal background as a lawyer in Bermuda for several decades.  He connects with Dai Min a few years back and makes the permanent leap to Beijing, sensing an historic opportunity for business dealmaking, especially as China's second-tier cities take off.  But what really drives these two is their unwavering commitment to fostering a better relationship between China and the U.S., which is what drew them to my stuff. 

I get asked a lot:  does anybody push for Sino-American strategic alliance in the US like you do?  And I always say, in terms of the strategic thinking community, no.  Some, like Niall Ferguson, speak about the symbiotic nature that already exists, but more as a symptom than as a basis for larger cooperation.  The reason why I push on this is that, like I argued in China Security (see just below) back in 2008, my logic of global integration and globalization's advance says this relationship must be or globalization essentially goes backward, something I don't think the planet could handle in many ways, because the sheer numbers involved in an emerging global middle class mean we've reached that all-sink-or-all-swim-together moment--resource- and cooperation-wise.  Knowing my timeline on the inevitability of political pluralism in China (I target a late 2020s/early 2030s as the rough half-century mark after Deng's initial revolutionary reforms), I then see the next two decades as perhaps the most crucial in human history--as in, get the big pieces right and all works out, but set the two biggest pieces against one another, and this can all go very badly--and backwards.

So I'm comfortable being perceived as too out-there and a bit naive on this subject, because I know I'll see the day when this logic comes to pass, and I'll be on the right side of history--betting on improvements and compromise and cooperation over degradation and ultimatums and conflict.

And so I do find these two thinkers awfully interesting, because they're tilting at the same windmill, but on the other side, where, quite frankly, I think the receptivity is much better at this point in history (a faltering #1 is more scared and thus more inflexible than a rising #2).  Thus I see a future collaborative effort between my work and what these two are seeking to accomplish via their center and foundation.  Collectively, we're a bit rag-tag compared to the powers-that-be, but I enjoy living and working primarily on the basis of the power of my ideas, and John and Dai Min are very similar in this regard (John, arguing like a lawyer in court, and Dai Min, possessing the mind of a business-developer/marketer).  Like most visionary types, they come as awfully self-promoting (John's theatrical way of speaking makes you realize this guy is ALWAYS in court), but being one myself (and long being accused of the same--to include the "entertaining" delivery), I don't have a problem with that. I enjoy working with people who really want to change the world and aren't shy about it (working with Steve DeAngelis is very similar, as he too is always about not just a business but a revolution in doing business).  I have no desire to live a life that does anything less.

Anyway, here's snippets of the piece (the start and the finish--where I am mentioned again):

President Obama announced he was launching a new era of partnership when he was in the process of recruiting the team of veteran China policymakers and advisors. Nonetheless, the positive approach he instinctively favored disappeared. Conventional and then hostile policies and actions began defining his administration's relationship with China. 

His policymakers are implementing an increasingly hostile approach referred to as hardball in the US press. It could be deliberately seeking to cause China to not continue Deng Xiaoping's successful policies of opening up economically to U.S. companies and of peaceful coexistence with America and or other nations. It could be simply disastrous U.S. policymaking responding poorly to the U.S. economic and national security crises. In any case, the hardball approach makes collaborative and therefore successful U.S. and Chinese policies hard to imagine or implement.

A U.S. president launching a new era of partnership with China is unconventional. It goes against the US policymakers' views and widespread U.S. feelings that China is a threat to Americans. But leading the changing of the direction of U.S. policies toward China is a presidential prerogative whether it begins covertly at the height of the United States' unsuccessful Vietnam War or covertly and then when private agreement is reached, it is changed once more overtly during the current U.S. economic, employment and other crises. 

A U.S. president cannot effectively begin to successfully establish a new era of partnership or solve economic and national security problems until he finds advisors and experts with policies able to achieve his goals. To do so, President Nixon reached out to Professor Kissinger at Harvard because Kissinger shared his worldview and goals and others did not. President Obama is currently overseeing the changing of many advisors who were key players in the first two years of his administration. He is looking for but not yet finding breakthroughs or new policies providing solutions to U.S. economic and national security problems. 

Neither America nor China can fully meet the economic and national security needs of their nation without the sincere, coordinated and constant help of the other. It is not possible in this century for one of the two largest economies in the world to fail, and the other to succeed. Because his administration is not finding the effective policies toward China needed to solve the U.S. crises, President Obama is open-minded and decisive. If China presents him with and supports solutions, he will grasp why they are solutions and lead in explaining them to U.S. policymakers and in implementing them. But until he finds solutions and has China's support in implementing them, he cannot take on the fear of China and hardball thinking policymakers in the US. Let's be clear about this, he needs Chinese policymakers to reach out to him with solutions because neither he nor his advisors have them today. Second, he can only act when a set of solutions has been privately negotiated and agreed, Kissinger style, and he is absolutely sure China will support the solutions when he announces his support for them . . .

...

. . . President Obama has pledged that he will double U.S. exports to China in an effort to increase U.S. competitiveness and stimulate its economy. To increase exports to China, the United States will need to remove policies that restrict trade with China and propose policies that are mutually beneficial for both nations. 

Increasing U.S. exports to China also requires preventing a trade or currency war. Nonetheless, economic and trade policymakers in President Obama's administration have implemented tariffs on steel, tires and other goods made in China, introduced more than 23 anti-dumping, anti-subsidy and special protectionist tariffs, and launched at least six Section 337 investigations against China for alleged unfair practices in export trade. At least a 53 percent increase in the number of cases involved 7.6 billion U.S. dollars worth of Chinese exports, which is 800 percent more than in the previous year. The U.S. is seeking to increase its exports to China while setting up trade barriers for China's exports. China is the world's largest importer, and currently China and the U.S. are each other's second largest trading partners. There are threats of new tariffs if China does not agree to the United States' proposed carbon emissions cap and trade proposals and lately talk of a currency war and tariffs over cap and trade. This is occurring in addition to longstanding U.S. trade restrictions on what can be sold to China because U.S. military strategy is traditionally preparing for war with China. 

This is not the optimum path for American policymaking. Or is it? Americans are suffering from relentless and unsuccessful wars, unsustainable global trade deficits and government debt, high unemployment and the worst economic crisis in a hundred years. To many U.S. policymakers who learned their craft in the Cold War, hard ball seems to be the realistic approach to the United States' most important bilateral and multilateral relationship. It is obvious to them that China, with its second largest and fastest growing economy, is an increasingly dangerous threat to U.S. economic and national security. Their zero sum game view of how global economics and geopolitics work assumes and acts as if for America to be successful, China must be unsuccessful. They are wrong. They do not realize that or they do realize that and are trying to engineering or blundering into a showdown. 

The key point is that until President Obama and the American people are presented with a plan for how America and China can both be successful in the 21st century, we are on the slippery slope. Chinese policymakers' safe response is to provide President Obama with a new grand strategy introduced for discussion in a white paper for the Presidents of American and China. China's leaders and President Obama should also read and discuss Thomas Barnett's "The Pentagon's New Map and Blueprint for Action: A Future Worth Creating." The Sino-U.S. relationship must be made profoundly better soon. Therefore it must be fundamentally different soon. The 20th century is over.

12:11AM

Blast from my past: "The Inevitable Alliance" (2008)

Debating China's Future

with 

Li Cheng, Thomas P.M. Barnett, Harry Harding, Cui Liru, John J. Mearsheimer, Joseph S. Nye Jr., Rob Gifford, Mao Yushi, Bates Gill, Tang Shiping, Zhao Tingyang, Robert J. Barnett, David Shambaugh, June Teufel Dreyer, Pan Zhenqiang, Dan Blumenthal, Shi Yinhong, Robert S. Ross, Kenneth Lieberthal, Zha Daojiong, John Hamre and Xiang Lanxin

CHINA SECURITY, VOL. 4, NO. 2, SPRING 2008

 

Thomas P.M. Barnett

The Inevitable Alliance

China’s main strategic vulnerability right now is that it possesses economic and network connectivity with the outside world that is unmatched by its political-military capacity to defend. This forces Beijing to “free ride” on Washington’s provision of global security services, a situation that makes China’s leaders uncomfortable today – as it should. American blood for Chinese oil is an untenable strategic transaction.

The United States faced a similar situation in its “rise” in the late 1800s and set about “rebranding” its military force over a several-decade period that culminated with a successful entry into World War I. Since World War II, the United States has maintained a primarily expeditionary force that is able to access international crises, and since the end of the Cold War has done so with unprecedented frequency. This too is an untenable strategic burden.

America needs to encourage China’s effective re-branding as an accepted worldwide provider of stability operations. The problem today is two-fold: 1) major portions of America’s military require China to remain in the enemy image to justify existing and new weapons and platforms; and 2) the Chinese military is hopelessly fixated on “access denial” strategies surrounding Taiwan, meaning it buys the wrong military for the strategic tasks that inevitably lie ahead.

So long as both nations insist on such mirror-imaging, their respective militaries will continue to buy one military while operating (or, in China’s case, needing to operate) another force that remains under-developed. Such strategic myopia serves neither great power’s long-term interests, which are clearly complimentary throughout the developing world.

The good news is that both China and the United States are within a decade’s time of seeing new generations emerge among their respective political and military leaderships. These future leaders view the potential for Sino-American strategic alliance far differently than do the current leadership generation. If Washington and Beijing can navigate the next dozen or so years without damaging current ties, I fully expect to see a Sino-American strategic alliance emerge.

I do not present this as a theoretical possibility, but as my professional judgment based on years of extensive contacts through both nations’ national security establishments.

Grand strategy often involves getting leaders to understand certain future inevitabilities. The global primacy of the Sino-American strategic alliance in the 21st century is one such future inevitability.

Thomas P.M. Barnett is the senior managing director of Enterra Solutions, and author of The Pentagon's New Map: War and Peace in the Twenty-First Century (New York: G.P. Putnam’s Sons, 2004).
9:00AM

Quick! Spot the resource war!

I know it's in there somewhere, just waiting to break out!

 

10:02AM

WPR's The New Rules: Defusing the Global Currency War

After having cooperated to an unprecedented degree -- on stimulus spending and new bank rules, for instance -- to avoid a global meltdown these past two years, the world's major economies now appear ready to turn on one another with truly self-destructive vengeance. Poorly informed Americans are increasingly convinced that free trade pacts -- and not our uniquely high corporate tax rates -- are responsible for sending jobs overseas, and they want to see China punished with tariffs on its imports for its undervalued currency. With China's neighbors intervening heavily to keep their own currencies from rising too high in response, global chatter about the unfolding "currency war" has reached a fever pitch. Is this any way to manage a tenuous global economic recovery?

Read the entire column at World Politics Review.

12:01AM

Drug war logic repeated on China currency question

Lemme see: inside every Chinese peasant is an American consumer just waiting to break free!

Stephen Roach piece in WSJ.  He's the former Asia head for Morgan Stanley now back to Yale.

Roach is one of those economists who points out that past experience with Japan says gets a revalued currency won't change our foreign trade deficit with China, which is really with Asia as a whole and has been consolidated by China over the past decade or more through its efforts to become the final assembler of note.

Some bits:

The currency fix won’t work. At best, it is a circuitous solution that would address only one of the many pressures shaping the imbalances between our two nations; at worst, it would lead to a trade war, or risk jeopardizing China’s understandable focus on financial and economic stability.

Besides, in a highly competitive world, there are no guarantees that currency shifts would be passed through to foreign customers in the form of price adjustments that might narrow trade imbalances. Similar fixes certainly didn’t work for Japan in the late 1980s, and haven’t worked for the United States in recent years . . . 

Contrary to accepted wisdom, America does not have a bilateral trade problem with China — it has a multilateral trade problem with a broad cross-section of countries.

And why do we have these deficits? Because Americans don’t save. Adjusted for depreciation, America’s net national saving rate — the sum of savings by individuals, businesses and the government sector — fell below zero in 2008 and hit -2.3 percent of national income in 2009. This is a truly astonishing development. No leading nation in modern history has ever had such a huge shortfall of saving. And to plug that gap, we’re left to borrow and to attract capital from lenders like China, Japan and Germany, which have surplus savings.

If Washington were to restrict trade with China — either by pushing the Chinese currency sharply higher or by imposing sanctions — it would only backfire. China could very well retaliate against American exporters, and buy goods from elsewhere (a worrisome development in what is now America’s third-largest export market). Or it could start to limit its purchase of Treasury securities.

The United States would then have to turn to some other nation or nations, at a higher cost, to finance our budget deficits and make up for our subpar domestic savings. The result would be an even weaker dollar and increased long-term interest rates. Worse still, as trade was redirected away from China, already hard-pressed American families would be forced to buy products that are noticeably more expensive than Chinese-made imports.

But Washington remains unwilling to address our unprecedented saving gap, and instead tries to duck responsibility by blaming China. Scapegoating may be good politics, but proposing a bilateral fix for a multilateral problem is just bad economics.

China should stay the course with its measured currency reforms, allowing the renminbi to continue to appreciate gradually and steadily over time. Contrary to the inflammatory rhetoric of China’s critics, this is not “manipulation.” It is a reasonable strategy to anchor the renminbi to the world’s reserve currency, the dollar, in an effort to maintain financial stability in an all-too-unstable world.

True, but by doing so (see reference #2), China is creating a beggar-thy-neighbor bandwagon effect, as Taiwan, Japan and South Korea all start intervening to keep their currencies cheaper, to the point where Brazil's finance minister declares that an "international currency war" has broken out.

Roach then goes on to talk about fixing China's low consumption rate (only 35% of GDP, or about half of the US), but here I think he falls into the trap that Michael Pettis warns about: there is no easy shifting from investment driving most growth to consumption stepping up.  In short, anything but a slow redirect gets a crash, and so long as the redirect is slow, it's unlike to effect a serious shift.  When you stack those two analyses one on top of the other, you get the feeling that China will go on as it does (addicted to exports) until a crash there forces otherwise.  It would seem we've taken sufficient lumps to force the necessary change here--one hopes, which is the big reason why we feel so down on ourselves right now while wildly elevating China in our minds.

But as I like to say, the China model is brilliant until the first big crash.

The thought that prompted the post was that, just like in the drug war, we want our "enemy" to stop exporting so much of that stuff to the U.S., when it's our demand for that stuff and our lack of self-control which is the real issue.  But as Roach points out, we don't like to deal with our own issues, and in a classic psychological trip, we transfer our anger over our lack of self-control by blaming our "dealer."

Not exactly the Opium Wars, but you get my drift.

8:53AM

WPR's The New Rules: Global Warming Shifts Focus to Friendly North

 

From the Arctic Council's website.

According to virtually all global warming projections, humanity faces significantly more conflict in the decades ahead as we fight over dwindling resources in climate-stressed lands. However, those reports typically overlook one likely outcome that could counterbalance the more negative impacts of global warming -- that of northern territories becoming significantly milder, more accessible, and, most intriguingly, more hospitable to immigration. This is the essential good news to be found in Laurence C. Smith's fascinating new book, "The World in 2050."

Read the entire column at World Politics Review.

Read about the book because of Smith's piece in the WSJ, which I blogged.  Asked Putnam for the book and got it pronto.  Like I hint at in the piece, Smith's survey of futurism was only average and didn't really add anything to the book.  I have no idea why he or his editors felt the need to promise "the world in 2050," because the text simply doesn't deliver. But the book-within-the-book on the "New North" was eye-popping. I would have loved to hear more about that and skip all the surveying.

12:07AM

USA-EU differences on role of PRC

FT piece on polling that says Euros take more pessimistic view of China possibly showing global leadership in years ahead than Americans do.  Oddly enough, the Germans were the most pessimistic.  Why odd?  Germany is doing so well economically WRT China.

Polling by German Marshall Fund.

Data says Americans to the tune of 91% predict China will exert strong leadership within next five years.  That may just be our ennui talking.  Only two-thirds of Euros think this.

I think the Euros are being more realistic, as I think China global leadership will be underwhelming for a long time.  Bluster will go up, as will hubris, but serious visionary leadership?  Not China's style nor comfort level--not yet.  In a single-party state, people who go out on ledges get pushed off.

12:01AM

Charts of the Day: World Economic Forum survey on US competitiveness

Annual WEF "most competitive country ranking," where US now drops to fourth after Switzerland, Sweden and Singapore.

Of course, my usual counter is to say we're comparing a multinational state of 50 members to unitary states, so just as reasonable to see where those three stack up against our 50 individuals members as the other way around, but I quibble.

What's interesting is checking out the details, as in, when you see where we're still near the very top (innovation, labor market, business sophistication, higher education, infrastructure, technology--almost all in the private realm) versus where we've fallen lowest (public spending, public debt, national savings rate--more in the political realm).

So the question begs: What is really "broken" in America?  Capitalism or the political system?

12:04AM

Why China will continue to disappoint as a "near-peer" rival

NYT's Keith Bradsher in early Sept regarding a visit by Larry Summers in Beijing:

Top Chinese officials are calling for quiet discussions instead of open friction with the United States, after a summer marked by bilateral disagreements over the value of China’s currency, American military exercises off the Korean Peninsula and American efforts to resolve territorial disputes in the South China Sea.

State media showed China’s president, Hu Jintao, meeting Wednesday with Lawrence H. Summers, the director of the National Economic Council, and Thomas E. Donilon, the deputy national security adviser. American and Chinese officials have been trying to lay the groundwork for a state visit to the United States this winter by the Chinese president.

Wednesday’s meeting with Mr. Hu followed earlier talks this week in Beijing by the two American officials that were aimed not at fashioning new pacts, but at maintaining a dialogue that had been strained at times in recent months.

“Strategic trust is the basis of China-U.S. cooperation,” said Dai Bingguo, a Chinese state councilor who met with them, the official Xinhua news agency reported.

Prime Minister Wen Jiabao told the two Americans that China and the United States should not view themselves as rivals, according to the Chinese state news media.

Part of the dynamic we witness in elite US circles right now is an attempt to redirect our fears away from non-state actors and back toward the rising "near-peer"--an old Pentagon code phrase for China.  It is seen as part and parcel of admitting our need to get our own economic house in order, pull back from "empire" and keep our powder dry for the real threat down the road.

For many, this is a highly tempting path.

But the problem with it is, the Chinese will continue to disappoint.  They simply will not maintain sufficient counter-party status to sustain a truly hardened competition.  There will never be an opportunity for a true American shove because the Chinese will always be careful enough to avoid the push necessary to trigger that. They simply have too many stakes in the fire to ever fully give themselves--and their future--over to America and its tendency to go overboard in "crusades." Yes, we can chase them around that block for quite some time, but it will not give us the economy nor the military power we need for the future; it will just give us familiar detours from the changes we ultimately must make.

Meanwhile, vast collective problems will remain poorly addressed, because so long as Sino-American strategic partnership remains stunted, a critical mass of great-power cooperation will remain out of reach.  And no, I'm not being unrealistic about what that partnership may entail.  China and the US have vastly different economic needs:  China has no choice but to shrink the Gap economically while the US has little choice but to continue working the Gap militarily.  There is vast strategic overlap there that provides both sides missing assets, so long as both sides can become far more realistic about what cooperation would entail and yield.

Both sides currently lack the leadership to make this happen, I fear, especially in combination with even more unrealistic and uninformed domestic constituencies standing behind them.  But the efforts to foster such links will and must continue, even if we're collectively just killing time.

There is no faster nor surer path for America and China to become second-tier powers than for rivalry to fester into conflict. That's the real lesson to take from Britain and German in the first half of the 20th century.

Our present success in fostering an American-style globalization vastly outpaces Britain's success in establishing its colonial-style globalization of the late 19th and early 20th centuries, so the strategic risks we face is sharing power are completely different, no matter how slowly China has evolved toward something more pluralistic in terms of their politics.  We have won all the major battles worth winning in getting China's buy-in on markets and globalization, securing a fifth-generation-warfare victory that--yes--may still take a good two decades to unfold.  

The greatest danger we face today is our own desire to self-sabotage that delayed win, primarily because we are led by too many people lacking the strategic imagination to see it in the distance.

But fear not, our numbers are growing--and not just in business circles.

12:03AM

The "great wall of America" masks boiling points on both sides

LA Times column via WPR's Media Roundup.

Whenever I feel the urge to criticize Israel's security fence, I usually put down my brick when I realize what a glass house we live in back here in the States.

The opening:

Between cynicism and hypocrisy lies the 2,000-mile U.S.-Mexico border. America is raising a wall in the desert to separate Mexican drug exporters from American drug consumers, to separate Latin American peasants who will work for low wages from the Americans who would hire them.

The Great Wall of America, straddling less than half the length of the border, descends into canyons and across the desert floor. For the Mexican, it represents a high hurdle. For the American, it is an attempt to stop the Roadrunner's progress with an Acme Border Sealing Kit.

In some places the wall is made of tennis-court-style cyclone fencing or dark mesh of the sort used for barbeque grills in public parks. In other places the wall is a palisade of 20-foot-tall bars that make a cage of both sides. The most emphatic segments are constructed of graffiti-ready slabs of steel.

Richard Rodriguez, the author, adeptly compares our fence to Israel's, but the larger point is that we should be expanding our definition of America, not contracting it.

On patriotism-for-profit talk radio and television, the illegal immigrant is, by definition, criminal. She comes to steal the American dream. But in my understanding, the dream belongs to the desperation of the poor and always has. The goddess of liberty in New York harbor still advertises for the tired and the poor, the wretched refuse. I tell you, there is an unlucky man in the Sonoran Desert today who will die for a chance to pluck dead chickens in Georgia or change diapers in a rest home in Nevada.

Great empires expand beyond their own borders. Empires in decline build walls.

Nicely stated.

I watched Robert Rodriguez's "Machete" last week.  It captures, glancingly, some of the intense, thoroughly righteous anger from the other side (albeit with rather fantastic expressions of gratifying violence), and when you examine the economic roots of that anger, it's not all that different from that of the Palestinians vis-a-vis Israel.

12:05AM

More natural counter-China balancing in Asia: Vietnam + US

AP story on growing mil-mil cooperation between US and Vietnam via Stewart Ross.

Cold War enemies the United States and Vietnam demonstrated their blossoming military relations Sunday as a U.S. nuclear supercarrier cruised in waters off the Southeast Asian nation's coast — sending a message that China is not the region's only big player.

The visit comes 35 years after the Vietnam War as Washington and Hanoi are cozying up in a number of areas, from negotiating a controversial deal to share civilian nuclear fuel and technology to agreeing that China needs to work with its neighbors to resolve territorial claims in the South China Sea.

But I say again, cannot the Assassin's Mace render this all asunder, with a flip of a button?

Yes, yes.  As the Pythons used to note, "No one expects the Spanish Inquisition!"

To which I now add, "Nyyyoooooobody eck-spects the Assassin's MaSSSSSSSSSSSS!"

[It's a fair blog.]

12:06AM

Sad commentary: the public resistance to mosque construction--in Lower Manhattan and elsewhere in America

NYT story on public resistance across America to mosque construction.

Not a new story:  public education in America took off in the 1830s in response to the rising influx of Irish Catholics and their parochial schools.  And whenever the middle class income takes a hit, resistance to foreigners swells.

But it's particularly galling to see Americans resist a group trying to organize themselves religiously in our midst, because freedom of religion brought so many of us to these shores.  Starting a church is such an American thing, and these people are declaring themselves openly and rooting themselves in our society--who doesn't want to see that sort of upfront behavior?

To me, the suspicious ones are the ones who don't want to build out in the open and declare themselves, so formal connectivity is always to be welcomed.

Sad state of affairs.  

When I first heard of the mosque proposal in Lower Manhattan, I thought it was perfect--very American.  But too many of us are reaching for the lowest common denominators, which usually are based on fear and ignorance.

No way to win a Long War, say I.

12:08AM

The GOP's "young guns"

Economist piece by Lexington highlighting the "young guns" Eric Cantor of VA, Paul Ryan from WI and Kevin McCarthy from CA.  All decent picks, but not a word about NJ's Chris Christie, who, to me, is the most interesting of the lot--despite being probably not experienced enough for 2012.

I read the piece less because I'm interested in the field than because I find myself running into such a strong consensus, wherever I travel, of Obama's profound weakness with the electorate.  I've read the analysis that says, all he has to do is win the same percentages with Hispanics (easy due to GOP stance on immigration) and African-Americans (hard to see how he's disappointed them) and get himself not more than a third of whites and he wins all over again.

And yet, you keep running into signals that say the GOP base is fired up and the Dems' is not.  We see Obama getting rougher--and rightly so--in his speeches, but you don't know how that's going to go over--as in, which side gets more fired up.

And so you have to consider these early profiles with all due seriousness.  I see somebody either young or a clear outsider--just like Obama presented himself, enjoying all the same we-pour-into-this-empty-vessel-all-our-hopes-and-dreams-and-fears dynamic that our man from IL did three years ago.

All pretty near idle fancy at this point, but the mind does wander. Where is the technocrat who feels--more?

12:06AM

Why is America doing worse than most of the Old Core?

The "race from the bottom," so sayeth The Economist, as the Old Core economies see who can recover with the least awkwardness.

Everybody we know seems to be enjoying better GDP growth and lower unemployment.  So what gives?

The main theories are unsurprising:  differences in fiscal policies, exchange rates and debt levels.

So Germany and the Brits are praised for being stingier with public money, but the mag says that doesn't explain sudden spurts in growth.  

Did the euro's dive limit our exports while helping Germany's? You bet.  Japan's rising yen a problem?  It would seem so.  But the mag says that theory with plenty of holes too.  Our exports rose with strength too, despite all our issues.

And the UK has high debt but not the same unemployment as we do, so the debt explanation doesn't seem to cut across.

And our unemployment, says The Economist, is making the rest of the world pessimistic about the future, figuring if old standby America isn't up for the strong recovery, then how can anyone else be?

After all that exploration, the mag says the real reason is that America's recovery is the most mature, meaning we restocked our shelves faster than anyone else, so I guess we're quasi-double-dipping earliest.

Oh well . . ..

12:01AM

Chart of the Day (4): Trimming the real fat in the U.S. economy

FT full-pager analysis.

The tale of the tape.

We're not way out of proportion (pun intended), but why should we lead on this one?

The weird factoids:  Rich men are more likely to be fat than poor men, but poor women are significantly more likely to be fat than rich women.

So the classic rich couple is the heavy-set man with the thin wife and the classic poor couple is the skinny guy with the chunky wife.

The second chart seems to explain the epidemic:  we've just changed our diet considerably since the 1960s, because when I was growing up, being overweight was really fairly uncommon.  Now, you walk around and its the skinny people who stick out--really a stunning turn in just a couple of generations (1970-2010).  

Gotta believe it can be reversed if it happened that fast.

I recently dropped 20 pounds and it feels great.  The biggest driver for me? I'm just getting bored with food, especially when I travel because so much of it is so tasteless that you just start wondering, "Why bother?"

12:02AM

The environmental cost of natural gas fraccing

Solid NYT piece that shows we're just beginning the Erin Brockovitch-style fights over the environmental impact of natural gas fracturing methods.  

I expect the news will get worse before it gets better, but that it'll be a good process of discovery that forces more careful extraction techniques and technologies.

So, bring on the lawyers, say I.

12:06AM

China's rise: it takes two to tango--and tangle

image here

FT op-ed by usually sensible Michael Pettis, who's unusually alarmist here (along with the headline of "The risk is rising of another global trade war"; did I miss the first one?).

Basic logic sound: the great imbalance is still there.  China still relies too much on exports and America's trade deficit is back up there. The kicker is rising unemployment + the election:

In the months ahead, the US will be forced to choose either protection or soaring trade deficits with rising unemployment.

Do we blame the American consumer?  No, says Pettis.  Blame it on the shift in global trade imbalances.

Five countries or regions have largely driven these imbalances in the past decade.   Three of them--China, Germany and Japan--run huge trade surpluses on which they are dependent for domestic employment growth.

Counterbalancing them have been the two trade-deficit champions--the US and trade-deficit Europe, dominated by Spain, Italy and Greece.

The financial crisis has undermined the precarious decade-long equilibrium between these blocs by forcing trade-deficit countries to reduce debt, especially household debt.  As they do, the excess demand they provide to the rest of the world must decline.  Trade-surplus countries have resisted this adjustment fiercely by trying to maintain or even increase their surpluses.

Which makes China lecturing America and Germany lecturing Greece all the more hypocritical.

Because we're such an open economy, we become absorber by default--until Congress steps in, argues Pettis. Currently we lack the industrial, currency intervention and interest-rate management policies that the trade-surplus state use at will.  So we're left with tariffs and import quotas.

Powerful argument.

Second cite, an FT op-ed by John Plender, makes similar points, with historical examples (the 1920s-1930s shift from British to US power) to scare one a bit more.

He sees two likely paths, both of which will increase US trade protectionism:  we go loose fiscally and rack up more debt, or the GOP prevents budget loosening while monetary policy stays lax. Either way, "creditor countries would ultimately see their chief market dry up."

12:07AM

You heard it here first: Hillary and Joe switch jobs in 2012

 

FT column by Clive Crook.

You remember my Esquire column of 7/31/09?  It ended thusly:

End Game: A Swap with Biden?

 

Say Clinton puts in her four years dutifully, achieving a reasonable fraction of her ambitions. So what's her reward? Four more years of President Obama, quite possibly. But will Hillary be happy enough with four more for herself at State? Or could a bigger compensation package be in the works?

Let me lay out for you a scenario I consider most worthy for all sides to consider: Remember Don Regan and James Baker switching jobs between Ronald Reagan's two terms, with Regan going to White House chief of staff and Baker assuming the Treasury's top spot?

Well, try this one on for size: Biden has no legit hopes for the top slot in 2016, but Clinton can't be ruled out. Why not have them switch jobs in concert with the 2012 campaign run? Biden can run out his string in the job he's always wanted (four years at No. 2 is enough time served for anybody with his ego, yes?), and Hillary can make history as the first elected female vice president. Obama is thus doubly credited for shattering one glass ceiling and generously setting Hillary up to crack the ultimate one.

You heard it here first.

Well, Crook makes the argument for Hillary as a better running mate for Obama in 2012 without going the extra step of job-swapping, which I think would make the deal work for Biden (recalling Baker-for-Regan in Reagan II).

Crook's larger argument:  if you want a more successful Obama II, this would be a great way to shift course and move more to the center.  Crook actually explores doing this prior to the full-up election (as in, why would Clinton automatically rule out running in 2012?), but I don't consider that to be anything but fantastic.

I think the swap-out could work for everybody--at virtually no risk to anybody.