Government and governance, Trade and industry, International relations | Asia, East Asia, The World

25 January 2017

Could the mantle of global economic leadership pass to China as the US retreats behind a protectionist wall under President Trump? Simon Reich assesses the new President’s assumptions as he begins ripping orthodox foreign policy positions to shreds.

Former President Obama was repeatedly criticised for either having the wrong grand strategy or none at all. He was widely castigated at home for negotiating an agreement with the Iranians, not intervening forcefully in Syria, not confronting the Chinese for what many Americans regard as its confrontational behaviour in the South China Sea and, most recently, remaining passive in the face of presumed Russian meddling in the 2016 presidential election.

Obama did not retreat from many of these criticisms. Instead, he often seemed to embrace them, calling for ‘strategic patience.’ It is a concept inherently at odds with America’s muscular foreign policy culture, where inactivity is often characterised as tantamount to being docile at best and submissive at worst.

Famously, in a 2016 interview in The Atlantic, Obama questioned a set of orthodox assumptions about American foreign policy. He labelled them ‘the Washington playbook.’

That orthodoxy had dominated the thinking of American political elites since 1945.

It was predicated on three legs of a stool. The first was forceful American intervention during the Cold War to stop the spread of Communism and then, at its conclusion, maintain global stability as ‘the indispensable nation.’ Second, the promotion of a liberal form of capitalism – through both global institutions such as the IMF, World Bank or World Trade Organization and an aggressive liberalisation of trade and finance that was famously labelled ‘the Washington Consensus.’ And the final leg was the promotion of democracy, albeit a specific liberal form of democracy that emphasised citizenship through the growth of vibrant societal organisations rather than through the state.

The playbook included an unending national commitment to employ America’s resources to sustain this project – albeit increasingly financed by American debt subsidised by China and Japan. The dominant assumption of this playbook is that America’s broader, enlightened self-interest is best served by a system where peace rules and free trade flourishes.

Together, American elites argued that the material lives of the many could be substantially improved. Collectively, these elements took on a rubric – one that became known as ‘globalisation.’

More on this: Will Trump deliver for those kicking out against globalisation?

One could – and no doubt some readers would – argue that many of these American efforts were misguided, driven by America’s self-interest, and were an overt contemporary form of imperialism, rather than being benign as its advocates claim. But, there is no denying the benefits of these policies to Asia: tens of millions of people have escaped extreme poverty; there have been no major wars – at least between great powers; Asia has become the epicentre of global trade; and, democracy has flourished from Japan to India. These developments may not have all been the result of America’s efforts, but it would be churlish to deny that it played any contributory role.

Obama said in his interview with The Atlantic that he wanted to resist the orthodoxy of the Washington playbook. He certainly began the process of reorienting America’s global role. But newly inaugurated President Donald Trump is, by contrast, busy shredding that playbook – as his comments at his inaugural address made clear.

Invoking language not employed in the United States since the 1930s, Trump declared categorically that it is all about putting America’s interests first. So, multilateral trade agreements should be replaced by bilateral ones. And putting that theme into practice, one of his first moves has been to abandon America’s involvement in the Trans-Pacific Partnership, Obama’s signature regional trade agreement.

Trump has two underlying assumptions. The first is that the long-held position that America is inevitably moving from a labour-intensive manufacturing based economy to one built on services and industrial automation is wrong – and can be reversed. The second is that America has – and will no longer – underwrite the costs of global stability through the positioning of its military forces.

Trump made these beliefs clear in his inaugural address. In a plaintive appeal to his core constituents, he referred dramatically to the ‘carnage’ that deindustrialisation has wrought on the US. Most pointedly, in a barb erroneously aimed at American allies stretching from Asia to Europe, Trump obliquely commented in his inaugural address that “for many decades” America has “subsidized the armies of other countries while allowing for the very sad depletion of our military.”

More on this: America is unlikely to ever see a return of manufacturing jobs

The claim that America can again become a 19th Century-style economy based on labour-intensive, mass industrial production is, at best, dubious. It is the subject of another article. The claim that America massively underwrites the security of its Asian partners is simply wrong.

This is not, of course, the first time that Trump got his facts wrong. Japan, for example, paid about US$4 billion towards the cost of hosting 54,000 US military personnel in Asia last year – an amount approaching 45 per cent of the total cost. The South Koreans pay about 40 per cent of the cost of housing 28,500 US troops. The US has indeed borne a substantial proportion of those costs. But it has also significantly gained from what proponents refer to as America’s deep engagement – both in terms of power and trade.

Where does this leave the region? I believe there are three main takeaways at this stage.

First, Trump has signalled his clear preference for pursuing a bilateral set of agreements where the US can dominate the negotiations. In historical terms, this shift to bilateralism and protectionism is reminiscent of Britain’s retreat into a Sterling Bloc. It is one that began with the creation of the Tariff Reform League of 1903 led by Joseph Chamberlain and took three decades to mature into the Import Duties Act of 1932.

Rhetoric about Ronald Reagan aside, the US retreat from open trade into protectionism began with his administration’s introduction of Voluntary Export Restraint agreements against Japanese producers in the 1980s, it was evident in George W Bush’s attempts to impose a steel tariff in the early years of this century and is now flourishing under Trump.

Second, this choice will undoubtedly create an economic vacuum in the region (and beyond) for China to fill. President Xi Jinping made comments at Davos, positioning China as the champion of free trade. They were subsequently echoed by Zhang Jun, director general of the Chinese Foreign Ministry’s international economics department. He noted that “If anyone were to say China is playing a leadership role in the world I would say it’s not China rushing to the front but rather the front runners have stepped back leaving the place to China.”

More on this: China's game is global, and all the world’s a stage

This process has been unfolding for several years. The Chinese played a major role as a stabiliser during the Great Recession and began to lay the foundation for a position of greater global economic leadership through projects such as the Silk Road Fund and related Asian Infrastructure Investment Bank. While I wouldn’t want to overreach, current events feel as if the mantle of global economic leadership is being passed – as it was from Britain to the United States in 1944.

Finally, however, the United States is not leaving the region in terms of its security architecture. Trump’s questioning of the One China policy and complaints about Chinese inaction over North Korea, coupled with his overtures to Russia, offer the prospect of a new concord that isolates China. It is doubtful whether the strategy will be successful. Putin is unlikely to hedge against China. But this all reflects Trump’s far more confrontational posture towards China, evident in the comments of Rex Tillerson, his nominee for Secretary of State, over China’s activities in the South China Sea. There are likely to be more, not fewer, US Naval vessels in the region.

Nothing is yet written in stone. American critics suggest Trump’s ‘transactional’ approach – rather than an ideological one – means that no course of policy is irreversible. Everything is simply a negotiation. Still, the slim evidence we have suggests that significant change is at hand.

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