FOR all the hand-wringing about China remaking Asia in its image – as evidenced in the recent controversy over Beijing’s new investment bank, the Asian Infrastructure Investment Bank (AIIB) – reports of a US retreat are greatly exaggerated.
Congress’ recent approval of Trade Promotion Authority (TPA) and the likely approval of the Trans-Pacific Partnership (TPP), the Obama administration’s legacy trade deal, is the sort of economic statecraft that can update and sustain the open, ruled-based order. Yet as the pending demise of the Exim Bank illustrates, such efforts have been all too rare.
Yes, a global diffusion of power from West to East is unfolding with potentially profound challenges to the international system under which the global economy has flourished since 1945. And yes, a shift in the center of economic gravity to the Asia-Pacific region has occurred.
China’s re-emergence is raising questions about the underlying bipartisan premise in the United States that as rising powers like China integrated into the global system, they would develop a stake in the stability of the international system and its norms, and would advance their interests within established institutions, rather than challenge its structures or seek to create alternative institutions.
China’s pursuit of the AIIB, efforts to make its currency, the renminbi a global reserve currency, and pursuit of other parallel institutions like the BRICS Bank are calling those assumptions into question. Yet the problem is as much a reflection of inertia in the international system as it is Beijing’s hope of a Sino-centric world.
In fact, no nation has benefited more from the current economic order than China has: Its economy grew from $202 billion in 1980 to $10.3 trillion in 2014. China’ new assertiveness under President Xi Jinping is more a grievance-driven desire to be treated respectfully as a great power than it is a blueprint for a Sino-centric world.
China has accepted many aspects of the existing order – the International Monetary Fund (IMF), World Bank, World Trade Organization – but seeks to expand its influence globally and regionally while also hedging its bets by trying to gin up new, more Sino-centric institutions.
No small part of the problem is a dearth of US foresight and proactive leadership. Five years after the Group of 20 agreed to IMF reform, giving China and other emerging economies a larger voting share, the US Congress has yet to approve it. China has the same number of voting shares in the IMF as France, though its economy is four times larger. Neither has the Asian Development Bank boosted China’s role. So it should not have been a surprise that China, with $4 trillion in foreign reserves and a chip on its shoulder over past humiliations, would go out and start its own multilateral bank.
Based on dozens of discussions with leading Chinese analysts and policymakers, my conclusion is that the fundamental operating principles and tools designed to advance both US interests and global prosperity in the post-WWII period are durable.
But to enhance the long-term economic prosperity of the Asia-Pacific area, the institutions of the region must have broad support among the countries of the region; otherwise these structures will be unstable. The US should be prepared to accept new institutional frameworks that operate on standards compatible with those in place and are inclusive. The US does not need to participate in all regional arrangements: After all, we have North America Free Trade Agreement and Europe, the European Union. Institutional initiatives of high standards should be welcomed, and the US should seek to align those that are not with global norms and best practices.
The major established multilateral economic and financial institutions are reasonably strong. They have proven track records, have been the basis for growth and development the past 70 years and reliance on them continues. The system has shown the ability to make adjustments in policy and country representation, the failure of Congress yet to approve the 2010 IMF reform package notwithstanding. The Bretton Woods institutions have the flexibility to be further remodeled to better reflect geo-economic realities if proactive US leadership is exercised.
The prospect remains that the United States, China, and other major countries, such as Japan and South Korea and the Association of Southeast Asian Nation states, can find common ground within an inclusive and open rules-based economic order. As China implements its economic reforms, it will benefit from the higher standards of TPP and should be welcomed to join – whenever it is ready.
To avoid a creeping erosion of the open, rules-based economic order, the US needs to articulate and proactively shape the contours of change in the governance of the world financial system, and the regional and global trade framework.
Adapting US leadership to a world in the midst of historic transformation is no easy task. However, it is both necessary and possible. Asians are fearful that the wheels of history are turning, and that the US role is unlikely to continue – at least in its current form. They are concerned about safeguarding their interests and avoiding future shocks like the 1997-98 financial crisis.
While Asians seek to configure the system to better reflect regional interdependence, and China may hedge its position by supporting new institutions, there is little appetite to overturn the system and roll the dice with alternative arrangements. Nor do Asians want to be forced to choose between the United States and China.
This requires that both US and Chinese leaders understand the difference between what they would like to have and what they need to have. To adapt an open regional and global trade and financial system to the 21st century requires modernizing the Bretton Woods system so that it gives emerging economies a stronger sense of participation. This necessarily entails accepting a larger footprint for China, India, Brazil and others, often at the expense of entrenched interests. US leadership will be an essential ingredient in achieving this transition.
The author is a senior fellow of the Brent Scowcroft Center for International Security at the Atlantic Council and its Strategic Foresight Initiative and co-author of a new report on the future of the Asia-Pacific economic architecture. He served as a senior counselor to the Under Secretary of State for Global Affairs from 2001 to 2004, as a member of the US Department of State Policy Planning Staff from 2004 to 2008, and on the National Intelligence Council Strategic Futures Group, 2008-2012 tweet: @RManning4