Remarks to the Winter Roundtable of the Pacific Pension Institute
It’s a pleasure to be back among friends at a Pacific Pension Institute roundtable. The last time we were together was in July 2011, when PPI met in Vancouver. I spoke then about the shifting strategic geometry of Asia and its impact on the world order.
A few days ago, I reread what I said in 2011. I’m not sure whether to be happy or distressed that most of the trends I identified have continued to play out. A Sino-centric Asian order is upon us. China is both the largest trading partner and greatest politico-military obsession of every nation in the Indo-Pacific region. To a greater extent than I feared and to the dismay of most countries within it, the region looks as if it is beginning to divide itself into spheres of influence, with one sphere looking to Beijing, and one to Washington and — possibly — Tokyo.
New leaders have just taken office in China, Japan, and both south and north Korea. Before they can consider compromise, politicians must show themselves to be tough custodians of the interests in their charge. This is all the more the case when many of those they lead are in an assertively nationalistic frame of mind. So Xi Jinping, Abe Shinzo, Park Geun-hye, and Kim Jong-Un are all striking defiantly uncompromising poses with respect to a growing array of issues and disputes. The world is hearing much more than it ever wanted to hear about the Diaoyu / Senkaku archipelago, Takeshima / Dokdo, the Kuriles, the Spratleys, Yeonpyeong Do, Huangyan Dao / Scarborough Shoal, Hoang Sa / the Paracels, Arunachal Pradesh / Tawang, the Aksai Chin, and other places almost no one can find on a map. And now we are having to learn the names of north Korean missile and nuclear test sites as well.
One-eighth of the way through the 21st century, Asia is not just Sino-centric, it is in transition and less harmonious. Asia’s disharmonies have broadening international impact. There is a sense that armed conflict between the region’s great and lesser powers could be in the offing. If tensions continue to rise, Asian quarrels will have profound effects on the global political economy, which is already in many ways unhealthy, unstable, in unguided transition, and vulnerable to political-economic setbacks.
In some but not all of the territorial disputes that now threaten the peace of Asia, China is a key actor. China has a strategic interest but no direct involvement in others. The United States, by contrast, has explicit or implicit security commitments that to one degree or another entangle it in all these disputes. In the absence of a clearer drawing of lines than America has so far put forward, allies and partners will challenge Washington to fulfill its undertakings as they choose to interpret them rather than as Americans may have conceived them. If conflict erupts, except where China is directly involved, Beijing can decide to remain on the sidelines. The United States is essentially hostage to all who have become accustomed to relying on its post-World War II dominance of the Asia-Pacific region. In no dispute is the initiative with Washington; in none can it easily stand aside.
It is this element of automaticity in American military entanglement that, more than anything else, led former Australian prime minister Kevin Rudd to liken the current situation in the Western Pacific to that in the Balkans a century ago. In 1914, apparently trivial events in a then deservedly obscure corner of Europe set off a great war that no one wanted or expected. Aside from the huge butcher’s bill it entailed, World War I ended four decades of prosperity through advancing globalization. It overthrew the established political, economic, and financial orders. It redistributed the world’s wealth and power and ushered in a seventy-five-year period of great power contention for worldwide military dominance.
Let us hope that, in recalling the events of ninety-nine years ago, Mr. Rudd proves to be a better historian than futurologist. Still, he is right to be greatly concerned about what might be at stake as Asia’s great and lesser powers squabble and posture over barren islands, rocks, and shoals in the Sea of Japan and the East and South China Seas.
Of course, unlike comparable powers in 1914, the parties to these contests are mostly mobilizing coast guards and other civilian agencies rather than armies. They are careful to keep their armed forces in the rear, even as they boost their military budgets and force structures and prepare for battle. They understand that combat over piddling places of little but symbolic importance could prove catastrophic for much larger and more concrete national interests. It is reassuring that they give every sign of determination to manage their disputes without resorting to force, despite pressure to do so from their publics.
But the focus on managing rather than resolving the causes of current tensions — though understandable — is making the risk of accidental conflict a permanent feature of the Indo-Pacific landscape. Despite the desire of both Americans and Chinese to avoid a fight, this increases the danger that the two countries could become embroiled in a trans-Pacific war. The rising tensions in Asia matter not just to the parties directly concerned. They affect all who derive their prosperity from the global economy. In this era of globalization, that means everybody everywhere.
After a couple of centuries of eclipse, the Indo-Pacific region has again become the world’s economic center of gravity — the major driver of its growth. Unstable political relationships between China and its neighbors and in the Indo-Pacific’s core northeast Asian region could reverse the process of economic integration in Asia that has been central to the success of globalization. If that happens, the livelihoods and prosperity of people everywhere will suffer. The global economic outlook is already doubtful. There is prolonged recession in the industrial democracies. Political constipation, budgetary bloat, and fiscal fibrillations are enfeebling the United States. The demise of effective global governance is allowing a lengthening list of serious problems to accumulate.
Substitutes for fiscal policy like quantitative easing, competitive devaluation, and other techniques of monetary stimulus risk triggering ruinous currency and trade wars. Contingencies ranging from a collapse of confidence in the dollar-based international monetary system to global warming are going unaddressed. The deterioration of political and economic ties between China and Japan, Japan and Korea, and China and some ASEAN nations adds significantly to the possibility that Asia will contribute to rather than cure the current global malaise.
The economic fallout from the Sino-Japanese dispute over the Senkaku or Diaoyu archipelago has already been substantial. Over the past half year, anti-Japan backlash in China has reduced the market for Japanese goods and services and cut Japan’s already anemic growth rate by at least one percent. It is one reason Japan is now back in recession. The new Abe administration faces major economic policy decisions amidst security challenges on Japan’s maritime frontiers.
Tokyo has before it four major opportunities to expand Japan’s access to overseas markets through new free-trade agreements. One is with the European Union. Japanese companies lack the advantages that their south Korean competitors have wrested from the EU. A similar Japanese arrangement could add a bit over one-fourth of one percent to Japan’s growth. There is no real debate in Japan about the desirability of trade negotiations with the EU. It is a “no brainer.”
By contrast, the other potential agreements represent major decisions about Japan’s future strategic orientation. Two would link Japan firmly to rising prosperity in Asia. The Regional Comprehensive Economic Partnership (RCEP) would unite the ten members of ASEAN in a vast free-trade area with Australia, China, India, Japan, south Korea, and New Zealand. Joining the RCEP could boost Japan’s growth rate by over one percent. The conclusion of a trilateral Japan-China-Korea free-trade agreement alone would add three-quarters of one percent to the Japanese growth rate. Neither the pan-Asian RCEP nor the more circumscribed northeast Asian trilateral agreement has yet fallen victim to recent tensions between China, Japan, and their neighbors. It is particularly encouraging that trilateral discussions are continuing between China, Japan, and south Korea despite bilateral tensions among them.
The fourth potential agreement would enlist Japan in a project to develop an Asia-Pacific free-trade area that excludes China. The Trans-Pacific Partnership (TPP) was originally an arrangement between Brunei, Chile, New Zealand, and Singapore. Washington’s belated decision to get behind the TPP was more political than economic. The TPP is a key component of America’s “pivot” to offset and constrain Chinese influence in Asia.
China is the region’s economic center and its biggest and fastest growing market. It is poised to overtake the United States as the world’s largest economy and the EU as its largest importer of goods and services in a few years time. A free-trade arrangement without China does not make sense in purely economic terms. Still, joining the TPP could boost Japan’s growth by a bit over one-half of one percent.
None of these agreements is likely to come easily, but Japan must decide very soon where to place its bets. Despite the huge stake of Japanese business in developing Asian markets, Tokyo’s choice now seems more likely to be shaped by political nationalism than by economic self-interest, even though the latter is self-evident. Japan has a wealth of intellectual property and high-quality, branded products, while China and other Asian countries have rapidly growing middle classes with rising purchasing power.
Over the coming fifteen years, China alone is expected to account for nearly one-fourth of the total expansion in global consumption, adding about $6.2 trillion to current levels. If Japanese products are unwelcome in Chinese markets, Japanese companies and the well-being of ordinary Japanese will both suffer. But, in current Japanese politics, the economic arguments for focusing on developing Japan’s markets in China have less traction than before.
After nearly seven decades of cautious deference to the United States, Japan has only recently resumed making its own strategic decisions. Only Tokyo can now decide what sort of relationship with Beijing is in its interest. Its decision will have considerable — perhaps decisive — impact on U.S.-China relations as well as on Japan’s relations with the United States, and on the strategic orientations of other Asian nations trying to come to grips with the reality of China’s rise.
At present, Sino-American relations are characterized by broad economic interdependence and selective political cooperation. These positive elements of the relationship contrast with mutually suspicious and increasingly hostile military interaction. Ironically, the Taiwan issue, once the only plausible cause of possible conflict between China and the United States, has become much less salient and dangerous, as Taipei and Beijing ratchet up cross-Strait rapprochement. But, mindful that Japan’s, the Philippines’, and Vietnam’s quarrels with China could set off a Sino-American war, both the United States and China now openly seek to deter such a war by preparing to fight one.
In current circumstances, there is a substantial risk that the much-heralded “Asian century” could feature a cold war between the United States and China. That is not a happy prospect even if fear of triggering a nuclear exchange effectively inhibits risk-taking by both sides. The world cannot prosper in peace if the relationship between its two largest economies and most comprehensively capable military powers is uncooperative, verging on hostile.
Sino-American cooperation on global governance and the mutually beneficial management of trans-Pacific economic interaction are essential for global peace and prosperity. So is cooperation between China, Japan, and south Korea. Progress is incompatible with intensifying military tensions and rivalry. No one wants such antagonism, but it is now a real possibility. Statesmen on both sides of the Pacific must strive to preclude it.
Asian nationalism has always been a strong undertow along Asia’s poorly demarcated frontiers. But, since the Korean War, only India and Pakistan have been swept into full-scale wars. For different reasons, China, Japan, and the two parts of Korea have each, however, exhibited the passive-aggressive demeanor of nations that see themselves as perennial victims of the outside world. In this context, Japanese statements and actions evidencing a lack of contrition for the actions of the Imperial war machine in the first half of the last century easily become a regional problem.
Chinese condemnations of Japan’s denials of its past behavior have in turn empowered Japan’s rightists to push an ever-more overtly anti-China agenda. Sino-Japanese frictions over territorial issues have inflamed nationalist passions in both countries. Previously latent territorial disputes between Japan, Korea, and China have been reactivated. Northeast Asia is caught in a feedback loop that reinforces animosity and reduces willingness to cooperate.
Contested memories of past cruelties have become a particular, self-perpetuated burden on Japan’s relations with its neighbors. Japan’s political autism aggravates the problem. How could even the most ethnocentric of Japanese politicians fail to anticipate the international consequences of renewed denial of the abuse of Korean and other Asian women in Imperial Japanese field brothels during World War II? Such revisionism enrages other Asians — not to mention the world’s women. It raises questions about whether Japan has truly changed. I believe it has, but no one in Asia is going to take my word or that of any other American on this.
Similarly, Chinese statements and actions asserting claims to the murkily drawn borders of Imperial China remind Asians of past Chinese hegemonic behavior. This is all the more the case when the People’s Republic speaks in haughtily self-righteous language echoing that of the Qing Dynasty. No one, not even Chinese, recalls the Qing Empire or its arrogance with favor. When joined to stepped up patrols of previously unsecured Chinese boundaries, China’s evocation of its imperial past alarms its neighbors and impels them to seek the support of both the United States and other Asians against China.
For its part, if Japan seeks international support for its sovereignty and territorial integrity, the practice of unrepentant nationalism is no way to secure this. After more than six decades of exemplary behavior in foreign affairs, today’s Japanese leaders risk overwriting widespread admiration of their country with revived images of the mass murders, rapes, enslavements, and other war crimes carried out by previous generations of Japanese. Japan needs at last to show other Asians that its nationalism can be respectful of theirs.
Nowhere is Japan’s task more urgent than in its relations with Korea. By its own reckoning, in the course of its very long history, Korea has been invaded more than seventy times, mostly from what is now China. But Korean suspicions of China pale before the bitterness aroused by three centuries of Japanese efforts to conquer Korea and the harsh rule of the Imperial Japanese Army in the peninsula from 1905 to 1945.
Last Friday, as Prime Minister Abe met with President Obama in Washington (just three days before the inauguration of Park Geun-hye as the new south Korean president), Mr. Abe sent a senior official to represent him at local celebrations of Japan’s claim to what it calls Takeshima — the islets that Koreans know as Dokdo. These barren rocks were annexed by Japan in 1905, reclaimed by Korea in 1945, and garrisoned by it over sixty years ago — in 1952. Japan’s reassertion of its claim predictably evokes Korean memories of past Japanese aggression and domination. Japan’s actions and the Korean reactions to them illustrate that, in northeast Asia, there is plenty of shortsightedness to go around.
Until recently, the burgeoning cooperation among Japan, south Korea, and China was the linchpin of Asian financial and economic integration. Last summer, however, as Sino-Japanese tensions hit their peak and amidst a Korean-Japanese war of words over Dokdo / Takeshima, Japan and Korea called off an agreement to share intelligence. The South Korean president dramatized Korea’s control of the islands by landing on them. The two nations withdrew their ambassadors from each other’s capitals and ended a currency swap agreement that had been widely seen as a centerpiece of progress toward Asian financial integration. Still, Japanese cooperation with south Korea remains a real possibility, especially if it includes China. Notwithstanding all the irritations that divide China, Japan, and Korea, the first formal negotiating session on a tripartite free trade area is due to convene in Seoul in about a month.
Even without such an agreement, south Korea’s economic integration with China is proceeding apace. Almost five million south Koreans visited China last year. South Koreans are the largest single group of foreign students in Chinese universities and Chinese students outnumber all other nationalities studying in south Korea. In December, the two countries concluded a currency-swap arrangement that will boost trade settlement in their currencies, bypassing the dollar. China is south Korea’s largest trading partner, with two-way trade amounting to about $240 billion last year. By contrast, although China accounts for over 70 percent of north Korea’s foreign trade, this amounts to less than $6 billion annually.
North Korea represents a huge U.S. policy failure, rooted in decades of diplomacy-free military confrontation and sanctioneering. (The policies that helped to produce the angrily isolated and strategically dangerous nuclear nightmare that is today’s Democratic People’s Republic of Korea are now being applied with cookie-cutter mindlessness to Iran, where they promise in time to yield similar results.)
North Korea is also both a major Chinese policy failure and an instructive insight into the limitations of Chinese statecraft. North Korea is overwhelmingly dependent on China. There is almost nothing that Chinese like about it — its dynastic system, its ideology of self-reliant self-starvation, its paranoid belligerence and nonsensical bombast, its provocative and often criminal international behavior, its ingratitude for China’s support, or its nuclear weapons and missile programs. Yet China has not been able to influence north Korean behavior in any important respect.
To some, this might seem an embarrassing demonstration of the limits of China’s power over a dependent, if churlish neighbor. It certainly devalues Chinese prestige. Yet China’s other, far more mannerly neighbors should find China’s unwillingness to bully north Korea into following its dictates reassuring. It suggests that, in the updated version of the traditional Sino-centric order that is emerging in Asia, China will demand respect but not obedience and deference rather than submission. This conjecture is not invalidated by China’s current quarrels with neighbors over its maritime frontiers.
The narrative here and in much of Asia blames an inexplicable surge of “Chinese assertiveness” for these quarrels. Certainly, China has been both imperious in its handling of them and obtusely slow to square its claims with the U.N. Convention on the Law of the Sea. Yet the origins of these ruckuses lie less in Chinese initiatives than in the new capacity of all claimants, not just China, to exercise jurisdiction in what were previously no-man’s lands. A comparison of the situation in the East and South China Seas forty years ago with that today shows a much expanded presence by Japan, the Philippines, and Vietnam but only a limited growth in that of China. Be that as it may, the efforts of all sides to colonize or police islands in these seas have now ignited nationalist passions on all sides.
China is far from the only country to require a peaceful international environment to get on with enhancing its prosperity through continued regional integration and globalization. China can ill afford the mobilization against it by neighbors that continuing tensions over otherwise inconsequential rocks and reefs will breed. Other claimants must expect their bargaining positions to weaken as China’s strength continues to rise. So the earlier a resolution, the better for all sides.
At this point, unfortunately, there is no obvious path to such resolution. The United States has made itself part of the problem. Washington cannot mediate. ASEAN cannot act multilaterally to solve bilateral disputes in the South China Sea when these disputes are themselves multilateral disputes within ASEAN. For varying reasons, the parties are disinclined to resort to international arbitration. Even as it protests Japan’s claim, Seoul insists there is no dispute about its ownership of Dokdo and refuses to talk to Tokyo. Ironically, Tokyo similarly denies to Beijing that there is any dispute over the Senkakus. This has galvanized Beijing into actions that contest Japan’s de facto control of the islands in order to demonstrate that there is in fact a dispute. In an apparent attempt to remake the Peter Sellers film “The Mouse that Roared,” Kim Jong-un has meanwhile produced a video musing about a north Korean attack on New York. If it weren’t so dangerous, such a muddle of childish posturing would be entertaining.
But it is dangerous and, as I have suggested, a serious risk not just to the parties but to the global economy and to Sino-American relations. We must all hope for statesmanship from Xi Jinping, Abe Shinzo, and Park Geun-hye. No one outside their region can manage the exceedingly difficult politics of promoting a reduction in recent tensions and a return to a modus vivendi between them. Meanwhile, it is time for new thinking about the problems posed by an unstable and bellicose north Korea. Sixty years after the armistice that suspended fighting in the still unfinished Korean War, it may be time to replace those makeshift arrangements with a peace treaty in Korea.
It is a measure of how much the world has changed that the global financial community cannot afford not to mount a watching brief on events in northeast and southeast Asia. The United States sees itself as the balancer and lubricator of regional relationships. But current U.S. policies, including the much ballyhooed “pivot to Asia” are either irrelevant or aggravating factors in these regional disputes. The American Lone Ranger is still brave, fast, and heavily armed but this will not help solve these disputes.
It seems that answers can come only from within the region. Perhaps they will emerge from the second coming of Prime Minister Abe or the radical reorganization of the Chinese government and the redirection of its policies promised by General Secretary Xi Jinping at the current Communist Party plenum in Beijing. Maybe they will emerge from an initiative by south Korea’s new president. Few countries have as much to lose as Korea from the current trend toward the division of Asia into spheres of influence. President Park is an able and imaginative woman. Conceivably, Indonesia, ASEAN’s greatest power, could take the lead in composing Asian differences.
We are in the midst of an uncomfortable initial demonstration of the new centrality of Asia in world affairs. Asian states, great and small, are working out new relationships among themselves and with the United States and the world. The Indo-Pacific region is transforming itself from the world’s factory floor into its greatest consumer market. Its currencies are broadening their global reach. Asia is where the growth and the money both are. And Asia is where, for better or ill, the future of the global economy and the course of the twenty-first century will be decided.