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How Japan Can Support America's Pivot: TPP and a Strong Economy

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The most important and often overlooked thing Japan can do to support the U.S. pivot and the long-term strength of the U.S.-Japan alliance is to fix its economy and, in turn, further deepen and broaden U.S.-Japan economic ties. So says Dr. Satu Limaye, Director of the East West Center in Washington D.C. Success in that area, combined with further defense collaboration with the U.S. and improved Japanese relations with its neighbors, will be what Limaye calls the ‘triple crown’ of the continued centrality of the U.S.-Japan relationship to the U.S. rebalance to Asia.

According to Limaye, Japan needs to become again an engine for economic growth in the region. Without successfully addressing its economic problems, “Japan won’t be able to afford to fund its defense programs or respond to its major demographic challenges,” which include an ageing and declining population.

While the state of Japan’s economy might not be as bad as some say, Japan does have serious economic problems. Entrenched deflation resulting in weakened demand, slow growth, government debt more than twice GDP and structural problems are all issues the Abe administration is seeking to address. Limaye hopes that Japan will find the solution to its economic troubles through Prime Minister Shinzo Abe’s ‘Abenomics’.

Abenomics, which includes a loose monetary stance, fiscal stimulus and structural reforms, was launched following Abe’s election at the end of 2012. After almost a year and a half, is Abenomics working? The short answer is yes: immediate GDP growth (from 0.9 to 1.7 %), an increase in the stock market and yen depreciation leading to a hike in wages and potentially higher spending are all seen as signs that Abenomics is making progress. But the hesitation to deem Abenomics a success at this early stage is captured by Justin Wolfers of the Brookings Institute. Referring to the recent improvements in the Japanese economy, Wolfers asks whether this is evidence of a “slow adjustment to a policy that will have large long-run effects or a small initial effect because there is only going to be a small long-run effect.” Whether Abenomics will bring long-term benefits for Japan and allow it to respond to its demographic challenges and commit more to defense and foreign policy initiatives is yet to be seen. Improvements to the Japanese economy won’t happen quickly.

Part of the structural reform necessary to improve Japan’s economy includes reaching agreement with the U.S. on the Trans-Pacific Partnership (TPP), a potential economic pact among 12 nations. The TPP, which has become the economic component of the U.S. rebalance to Asia, has faced delays and the chance to clinch the deal with Japan was missed during Obama’s recent trip to Tokyo.

Speaking at an event in Washington earlier this month, former White House adviser on Asia Dr. Victor Cha asserted that, should the TPP come off, “it will be by far the most important aspect of the pivot.” Like Limaye, Cha views Japan’s economic decisions as the major area in which Japan could support the US pivot: “The best thing Japan could do is to come to an agreement on the TPP. The US has no other real demands of Japan other than that.” But as Abe campaigned on the promise to protect Japan’s agricultural sector and farming lobbies continue to exert pressure, Abe will have to renege on his promise or further petition the U.S. to exempt key Japanese goods—and Obama has his own challenges coming from Congress. With no future TPP negotiations scheduled and an elapsed 2014 deadline, the TPP looks far away.

In Washington, experts hold slightly different views on how the success or failure of the TPP would impact the overall pivot. According to Limaye, if the TPP doesn’t come to fruition it wouldn’t signal the death knell of rebalance, but it would leave a gaping hole for China to fill with its regional economic initiative, the Regional Comprehensive Economic Partnership (RCEP). A failed TPP, Limaye contends, would “be a missed opportunity to take full advantage of Asia’s rising middle class.” Cha believes similarly that if the TPP fails, “it doesn’t mean the pivot has failed: the military aspect of the pivot has reaffirmed US staying power in the region.” And, if the TPP succeeds, “the strategic balance in the region would tilt in favor of the United States.”

Other Washington-based experts are more pessimistic. One analyst said that, should the TPP fail, it would be extremely bad for the rebalance and for America. There’d be a loss of confidence in America regionally, and domestically the US would lack the capacity to reform the structure of the economy.

If Japan wants to support the pivot and revitalize its economy Abe will need to convince the US to allow Japan concessions in the TPP or he’ll need to make some difficult —and unpopular—domestic choices. On Abenomics, close attention should and will continue to be paid to its progress. But the Abe administration must be willing to withstand public discontent if the reforms cause discomfort over the longer term. In short, Japanese support for the rebalance will take both careful maneuvering and courage from the Abe administration.

Hayley Channer is an analyst at ASPI. She is currently a visiting scholar at the East-West Center, Washington D.C. This article originally appeared in ASPI’s The Strategist website here.

Image: White House Flickr.

TopicsEconomics RegionsJapan

Back to Balancing? Ukraine, the Status Quo, and American Grand Strategy in 2014

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Those responsible for crafting U.S. grand strategy grapple with a central dilemma when it comes to lofty questions of international order.  On the one hand, U.S. foreign policy is engineered towards promoting a broad diffusion of power in the international system.  Burden-sharing is both cost-effective and chimes with America’s political culture of accepting only limited liability for what happens globally.  On the other hand, American statesmen are discerning, keen to ensure that members of the Great Power club are of the correct sort.

This basic challenge of “global gatekeeping” comprises two halves.  First, how can the diffusion of influence in world politics be made to proceed in a way that guarantees that agitators and outright revisionists will be held in abeyance?  Second, how can it be ensured that today’s “responsible stakeholders” do not morph into tomorrow’s spoilers?  When friends in, say, Germany, Japan and Brazil tell U.S. leaders that their nations will maintain the international status quo, how can leaders in Washington believe that such policies will not be reversed by future generations of foreign leaders?  In short, what guarantees are there that states will continue to abide by American-made rules of the road?

One obvious way in which states can be made to “get along” in world politics is through facing a shared geopolitical threat.  Under such conditions, both sides can be sure that each will not deviate from a broad arc of commonly agreed foreign policy goals, at least vis-à-vis their mutual foe.  When national security is at stake, states are less likely to abandon their allies and renege on their commitments.  On the contrary, fear or hatred of a looming geopolitical threat will breed cooperation among those who live in its shadow.

It is not easy to predict how foreign leaders will perceive threat, however.  Allegiances are a matter of shrewd international diplomacy as much as pressing international structure.  Today, the problem for U.S. policy-makers is that they may be losing the fight for reliable allies in the next phase of world politics.  Relatively secure in their own borders, self-interested budding Great Powers appear reluctant to throw their lot in with Washington.  This bodes ill for the future of U.S. global preeminence.

Consider, for example, reactions to Russia’s transgressions against Ukraine.  If Moscow’s actions have drawn stiff criticism from NATO, the non-western geopolitical powerhouses of the future have been markedly less willing to align themselves with the United States.  China and Brazil have sat on the fence while Indian officials even voiced sympathy for Russia’s interests in Crimea.  The implication is that the U.S. cannot count on the world’s largest rising states to defend the current international order.  Beijing, Brasília and New Delhi simply do not view Russia’s assault on global rules as synonymous with an attack on their own national interests.

Only those dependent upon the U.S. for security (Europe, Japan, the world’s smaller states) have lent their support to Washington’s efforts to buttress the status quo in Eastern Europe.  Thus, while talk of a new Cold War might be overplayed, the Ukraine crisis has highlighted the bifurcation of the international system between those who truly rely upon U.S. friendship and those that, quite frankly, do not.  Whether a critical mass of states can be brought into the U.S. camp will perhaps be the greatest foreign policy challenge of the twenty-first century.

The coming era will not be one of unbridled geopolitical harmony.  Yet if the coming global turn will be a story of “who against whom?” then Washington would be wise to be more vigorous at shaping the incipient battle lines.  Instead of seeking blanket integration of all Great Powers into an inclusive world order, hard-headed decisions will need to be made about who is to be conciliated and who is to be contained.  Balancing, out of fashion since the collapse of the Soviet Union, is back.

Image: Flickr.

TopicsGrand Strategy RegionsUnited States

China’s Achilles’ Heel in the South China Sea

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The recent anti-Chinese riots in Vietnam were catalyzed by China’s ongoing attempts to secure territory in the South China Sea that is claimed by both Beijing and Hanoi.  Such protests represent a new chapter in the longstanding Sino-Vietnamese dispute over this maritime region.   While the two countries have long been at loggerheads over the sovereign status of these ocean waters, this is the first time in recent memory that nationalist demonstrations have erupted over their status.

In light of this fact it is not surprising that media reports of the riots significance have been rather breathless, even hyperbolic. For example, some have suggested that they may create a pretext for Beijing to carry out a Russian-style annexation of the region.  Others have noted that China may engage in a “forced war” to teach Vietnam, and the region, a lesson.  As ominous as such observations appear, they are rather far-fetched, even misguided. 

Paradoxically, the riots are more likely to lead to a de-escalation of the current Sino-Vietnamese conflict, rather than serve as an accelerant for even more confrontation.

Such a stabilizing effect stems from that fact that the riots are less indicative of Chinese strengths in Southeast Asia, and more reflective of the underlying weakness of China’s position there. While Beijing governs only the People's Republic of China, it is increasingly seen by many of its citizens as being responsible for safety and well being of overseas Chinese as well.  China’s diaspora population is spread throughout Southeast Asia, including, obviously, Vietnam, yet the Chinese government is still ill equipped to provide such assistance to them. 

When this overseas Chinese population is endangered, as seems to be the case in Vietnam today, China looks weak. This was evident in 1998 when anti-Chinese rioting in Indonesia erupted and Beijing could do little to stop it. Such ineffectuality led to intense criticism within China of the leadership’s handling of the situation.  The memory of that critical chorus must be echoing within the minds of the Chinese leaders now when they look at what is happening in Vietnam.

Such a concern is all the more acute as this Achilles heel of the Chinese state has been amplified since 1998. Nationalist sentiments in segments of the Chinese public have hardened, and the advent of social media, such as weibo, has made the dissemination of such views all the easier. In such a caldron the attacks on Chinese nationals that have occurred within Vietnam are sure to elicit online Chinese demands for retribution.  However, as was the case over a decade ago in Indonesia, Beijing has very few real policy options at its disposal.  This is especially the case regarding military engagement with Vietnam as such an upping of the ante with Hanoi will only fuel even higher levels of anti-Chinese sentiment in the Southeast Asian nation, leading to more protests directed against overseas Chinese living there. Should such a situation develop it would create the need for even more reprisals from China, with the result being the construction of an unstable and widening spiral of conflict.

Such a scenario is possible, but not at all likely.  China’s leaders are still risk averse, thus they are unlikely to take actions that could lead to unpredictable outcomes, but at the same time they are likely to be unwilling to allow what is widely viewed within their country as a Vietnamese provocation to simply go unnoted.

In light of such realities it should be expected that during the coming days China will loudly denounce the Vietnamese actions.  However, over the longer term the riots will more likely lead to a cooling down of the conflict and a return to the uneasy status quo between the two Asian nations in which they continue to press their claims, but stop short of direct military engagement, in the South China Sea.

Allen R. Carlson is an Associate Professor of Government at Cornell University.

Image: Flickr/Creative Commons License.

TopicsSouth China Sea RegionsChina

China's Big Strategic Mistake in the South China Sea

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China on May 1 moved its giant indigenous oil rig, Hai Yang Shi You (HYSY) 981, southward in the South China Sea (SCS). The new location, only 120 miles from Vietnam's shore, is well within Vietnam's continental shelf and its Exclusive Economic Zone (EEZ). To support and protect this oil drilling structure, China dispatched over 80 vessels, a number that continues to rise. Foreign ships are warned to stay away from the rig for security and safety.

This move exhibits a new and dangerous escalation by China. Since 2007, Beijing has been increasingly assertive and aggressive in defending its territorial ambitions in the SCS. Chinese authorities attacked and captured foreign fishermen working traditional fishing zones in the area. Petroleum companies were pressured to withdraw from contracts with Southeast Asian claimants for fear of China's reprisal.

In 2009, Beijing officially stated its nine-dash line claim to over 80 percent of the SCS. This move was followed by the assertion in 2010 that the SCS was one of China's core interests. In 2012, China established Sansha City, the center of the local government of which was located in Woody Island, part of the Paracels and contested by Vietnam. A new garrison was formed and stationed on Woody Island. During this period, China's military capabilities have significantly improved, and it can now contest the U.S., both in the air and at sea, in the SCS.

China's newest escalation in the SCS represents a serious miscalculation by China's policy makers. They have made four strategic mistakes. First, the new development gives Vietnam no alternative but a bold and determined reaction. Article 56 of the United Nations Convention on the Law of the Sea in 1982 (UNCLOS) established that a coastal state has sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources in its EEZ. Therefore, no interpretation of the UNCLOS can explain China's intention to drill an oil well within Vietnam's EEZ.

Vietnam, like other countries, does not clearly explain its position regarding territorial disputes in the SCS. This strategic ambiguity gives states space to negotiate and maneuver. However, China's newest move has crossed the line drawn by Vietnam's top leaders. Hanoi, therefore, responded furiously. Vietnamese Vice Prime Minister cum Minister of Foreign Affairs Pham Binh Minh called Chinese Councilor Yang Jiechi to protest China's move and asserted that Hanoi will "apply all necessary and suitable measures to defend its rights and legitimate interests" in the seas. Vietnamese marine police and fishery protection ships have been dispatched to stop deployment of the rig. China countered this move by sending over 80 vessels to protect its property. Collisions have occurred between ships of the two sides and more incidents are expected. This development has pushed Vietnam further from China and strengthened its security relations with other powers, such as the US. If Hanoi considers opening Cam Ranh Bay to a US naval presence, Washington would be remiss to turn down the opportunity. Indeed, Washington quickly commented on the incident. In a press statement May 8, State Department spokeswomen asserted that the sovereignty of the Paracel Islands is disputed and China's decision to introduce the oil rig, accompanied by numerous warships and authority vessels, in Vietnam's EEZ is provocative and raises tension.

Second, China's action violates the principles of the Declaration of Conduct of Parties in the SCS and deepens suspicions among regional countries about its true intention. In addition to Vietnam and the Philippines, Singapore and Malaysia are increasingly concerned about China's behavior in the region. Indonesia, which once maintained strict neutrality toward territorial disputes in the SCS, has reversed its position, and is contesting China's claim in the SCS because it challenges Jakarta's rights in the Natuna waters. In fact, Chinese armed authority vessels have encountered Indonesian authority ships several times in the last few years in waters claimed by Jakarta.

If China manages to drill oil in Vietnam's EEZ, on top of taking control of Scarborough Shoal from the Philippines in 2012, it will go further southward and clashes would be expected with Malaysia and Indonesia. Given Indonesia's role in ASEAN, Jakarta's recent change in position toward China is a setback for Beijing. The more assertive it is in disputes in the SCS, the more its international prestige is damaged. The achievements of China's "charm offensive" toward Southeast Asia in the 1990s could be erased by a rising tide of anti-Chinese nationalism in Southeast Asia. Collectively, on May 10, ASEAN Foreign Ministers, during part of the 24th ASEAN Summit in Myanmar, issued a stand-alone joint statement on the tension in the SCS, expressing their serious concerns over the incident and reaffirming the importance of peace, stability, and freedom of navigation in the SCS. This is the first time since 1995 ASEAN has issued a separate joint statement on a development in the SCS acknowledging threats to the regional peace, stability, and navigational safety in the SCS. This represents diplomatic backlash against China in Southeast Asia.

Third, China loses its pretext for military modernization. Beijing claims that its military modernization is defensive in nature, and it will not undermine regional security. During the period of rising tension in the SCS from 2007 to 2013, China often refrained from using naval forces. Instead, advanced paramilitary forces, such as China's Maritime Surveillance, were often deployed to serve its territorial ambitions. In the Scarborough Shoal stand-off between China and the Philippines in 2012, no PRC naval ship was sent to the site, and Chinese paramilitary forces and fishing vessels managed to push those from the Philippines out of the area. However, to protect China's giant oil rig in Vietnam's EEZ, Beijing has sent seven naval vessels to join 33 maritime surveillance ships and dozens of maritime police, transportation, and fishing ships. For the first time in the last few years, Chinese naval vessels have taken part in a direct dispute in the SCS. Other countries, therefore, have reasons to worry about the true intentions behind China's military modernization program.

Finally, China's move may destabilize regional security, creating a hurdle to Beijing's efforts to restructure its economy and sustain its growth. Beijing is facing severe domestic challenges, among them deterioration of the environment, an aging population, and separatist movements in Tibet and Xinjiang. In the last few years, terrorist attacks by separatist forces have occurred in major cities, threatening China's social stability. In addition, Chinese economic growth has shown signs of slowing. Chinese leaders need a stable international environment to concentrate resources on internal challenges. Its actions in the SCS, however, may destabilize regional security and undermine efforts to sustain growth.

China's movement of the HYSY 981 to drill inside Vietnam's EEZ is a strategic miscalculation. Beijing has, for the first time in the recent period of tension in the SCS, employed seven naval vessels to accompany this giant oil rig. It leaves Hanoi with no choice but to match the action with "all necessary measures" to protect its rights established in international law. Given China's recent history of assertiveness and aggressiveness in the SCS, other Southeast Asian littoral states are also alarmed by this move. Beijing's efforts to win Southeast Asian hearts and minds after the Cold War have been undermined, and its military modernization program is again being questioned.

In response to China's behavior, Southeast Asian countries are building asymmetrical capabilities to protect their sovereignty against Beijing. They also explicitly welcome the involvement of extra-regional powers, such as the US, Japan, and India, in the management of disputes in the SCS. In other words, China's aggressive behavior has facilitated and speeded up the US pivot toward East Asia, which Chinese top leaders do not want to see.

Being aggressive and causing regional instability doesn't help China realize its goals of economic growth and social development. The best way for China to rise to a status of a global power is to work out a new way to rise, one in which the core principle for its foreign relations is to cooperate for mutual benefit, respect legitimate rights of other countries, and settle disputes via peaceful negotiations. Running fast does not guarantee that it will arrive at its destination.

Ha Anh Tuan is a Ph.D. Candidate in Politics and International Relations at the University of New South Wales, Australia, and a Pacific Forum CSIS Young Leader. This article first appeared in CSIS: PACNET newsletter here.

Image: Wikicommons.

TopicsSecurity RegionsChina

Thomas Piketty's Capital: What About Demographics?

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Prof. Piketty certainly has caused quite a stir – with a vivid description of income inequality over a long past and across several economies and with extreme recommendations on how to remedy the presumed injustice.  There is, however, a serious problem with the picture he paints and consequently his policy prescriptions.  Because his conclusions reflect only a particular historic period, they say nothing about the nature of capitalism, as he suggests they do, and little about a future in which aging demographics will create very different trends than he has found in the past.      

The signal feature of the long period he has analyzed was a surge in the world’s workforce.  It emerged initially from tremendous growth in the broad population.  The trend has accelerated during the last 30 years, not so much from general population growth but from the integration into the global system of former communist countries and what in the Cold War were called non-aligned nations, India most prominent of the group.  By some estimates, these more recent events increased the global workforce by as much as a third, even after considering differences in training and productivity. It was an overwhelming and perhaps unique development, and it colors all his conclusions.  The surge in the supply of labor could not help but hold back wages relatively.  Economics makes nothing so clear than that the lowest returns accrue to the basic economic resource – land, labor, or capital – in greatest relative abundance.  It is also hardly surprising that capital in this historic context would do comparatively well.  It increased but not nearly so fast as the supply of labor.

That period, however, is past.  For the future, decades of low birth rates, especially in the developed world, have slowed the flow of young workers into the labor force just as the retirement of baby boomers will remove a large percentage of the population from active production.  By 2030, the United States will have barely three people of working age for each retiree.  Japan will have barely two.  Europe will fall in between.  Labor will become the scarce resource.  Its relative returns cannot help but rise, especially compared to capital, which over this long past of superior gains has become comparatively abundant.  Whether these new trends will return the income and wealth gaps to some golden ideal remains an open question.  But the trends definitely are turning.  Now is most certainly not a time to implement radical policies to correct a problem that increasingly will lie in the past.         

Milton Ezrati is senior economist and market strategist for Lord, Abbett & Co. and an affiliate of the Center for the Study of Human Capitol at the State University of New York at Buffalo.  This comment is drawn from this recent book, Thirty Tomorrows.

Image: Wikicommons.

TopicsEconomics RegionsUnited States

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