For the past decade, Stephen Roach has been the Eeyore of global economic analysis -- gloomy about the U.S. economy, gloomy about Chinese economic policy, and in yesterday's Financial Times, very, very gloomy about what would happen to the Sino-American relationship if Mitt Romney became president. Here's how he closes:
By the autumn of 2013 there was little doubt of the severity of renewed recession in the US. Trade sanctions on China had backfired. Beleaguered American workers paid the highest price of all, as the unemployment rate shot back up above 10 per cent. A horrific policy blunder had confirmed that there was no bilateral fix for the multilateral trade imbalance of a savings-starved U.S. economy.
In China, growth had slipped below the dreaded 6 percent threshold and the new leadership was rolling out yet another investment stimulus for a still unbalanced and unstable Chinese economy. As the global economy slipped back into recession, the Great Crisis of 2008-09 suddenly looked like child’s play. Globalisation itself hung in the balance.
History warns us never to say never. We need only look at the legacy of U.S. Senator Reed Smoot and Representative Willis Hawley, who sponsored the infamous Tariff Act of 1930 – America’s worst economic policy blunder. Bad dreams can – and have – become reality.
Like Roach, I think Romney's stated policies towards China have been a wee bit over the top. And it's certainly true that China hasn't reacted terribly well to Romney. The key word here is "stated," however. In Roach's analysis, this is how things escalate:
Feeling the heat from [plummeting] financial markets, Washington turned up the heat on China. Mr Romney called Congress back from its Independence Day holiday into a special session. By unanimous consent, Congress passed an amendment to [a 20 percent tariff on Chinese products] – upping the tariffs on China by another 10 percentage points.
Call me crazy, but if a brewing trade war triggers economic contraction, which then triggers rising financial discontent, I don't see any president responding by accelerating the trade war. I certainly don't see bipartisan support for such a trade war.
If the 2008 financial crisis failed to spark a renaissance in protectionism, then Mitt Romney ain't gonna be able to do it all on his own. Stephen Roach's yarn is entertaining but not persuasive.
Am I missing anything?
Jason Kempin/Getty Images
FP's Josh Rogin ably summarizes the State Department's rollout of the first-ever Quadrennial Diplomacy and Development Review (QDDR), an exercise that was clearly inspired by the Defense Department's Quadrennial Defense Review. This was Anne-Marie Slaughter's signal achievement during her tenure as Director of Policy Planning,* which leads to the obvious question of whether it really matters.
The QDDR is dedicated to Rickard Holbrooke, who passed away earlier this week. In a revealing Financial Times article, Brain Katulis of the Center for American Progress makes a particularly telling point about the arc of Holbrooke's career:
"If you compare Holbrooke's tenure in his job as representative for Afghanistan and Pakistan and compare it to what he was able to do in the 1990s on Bosnia, you really see that the balance of power in the interim had shifted from the state department to the Pentagon," said Brian Katulis at the Centre for American Progress in Washington.
Katulis hits upon a theme that has been a source of concern here at this blog for a good long while. For at least a decade, there's been a vicious feedback loop: State loses operational authority and capabilities because of poor funding, which leads to more tasks for Defense, which leads to even more lopsided funding between the two bureaucracies, which leads to an even greater disparity in responsibilities, and so forth.
Will the QDDR change that? That's sorta the point of the whole exercise -- the phrase "civilian power" appears 281 times in the QDDR. I'm dubious -- the only way this works is through greater staffing and greater funding for U.S. foreign aid, and in this Age of Austerity, the first things that get cut are.... diplomats and foreign aid funding.
I'd love to see Hillary Clinton make the case to Congress than an extra $50 billion for State would improve American foreign policy enough to cut, say, $100 billion for DoD. I'd love a free pony too, for all the likelihood that this will happen.
I'm not the only one who's dubious. The Christian Science Monitor's Howard LaFranchi ends his story on the QDDR as follows:
[E]xperts, as well as some military officials, have pointed out that the concept of "civilian power" sounds good, but that the US diplomatic corps is not prepared and doesn't have the numbers to take over many tasks from the military.
Clinton acknowledges that the shift in priorities and organization is "a work in progress," but she also emphasizes that someone will be designated at both the State Department and at USAID to oversee implementation. "I am determined that this report will not merely gather dust, like so many others," she said. And she wants Congress to approve making the QDDR a regular and required State Department policy-review process.
Slaughter echoed those words in a humorous sum-up with reporters. "I'm pretty sure you're thinking, 'I've heard this before,' " she said - a big plan to change the way a government agency works. "But this is different."
The big difference, she insisted, is that Clinton has given the reorganization top priority: "She knows ... we can't afford to continue working in the way we have been."
Reading the QDDR, it's clear that there's a hope that Foggy Bottom will scrape together more resources through wringing greater efficiencies out of the current budget. This is certainly possible -- no one is going to label the State Department a lean, mean fighting bureaucratic machine -- but color me skeptical that there's all that much savings of "government waste" in them thar hills.
To be fair, however, one report is not going to change a dynamic that's been building for more than a decade. It's only a first step. Still first steps are better than no steps. We'll see if this remains Clinton's top priority.
*I have no inside knowledge about this, but am simply assuming that Slaughter will be returning to her academic haunts after the standard two-year leave has expired -- in other words, in early 2011.
Gideon Rachman correctly points out the Wikileaks cables do reveal some interesting stuff. One of the oddities that intrigues him:
The sheer bleakness of America's view of Russia -- and this despite all the happy talk of improved relations and a "reset." It is also interesting that the Americans seem to semi-endorse the popular theory that Putin is personally very wealthy, and even name the oil-trading company that could be being used as a siphon.
Yeah, if Wikileaks reveals that the U.S. thinks Russia is such a kleptocratic basket case, why is the Obama administration so intent on resetting the relationship?
Well, first, you could have divined the administration's opinion of Russia without needing Wikileaks.
Second, I suspect the reset was chosen precisely because Russia is such a kleptocratic basket case. For once, I'm ahead of the curve, as I made this point in a paper for the American Academy of Arts and Sciences earlier this year. The key section:
I characterize current U.S. policy toward the Russian Federation as a form of "realist internationalism," By realist internationalism, I am referring to the kind of foreign policy doctrine espoused during the George H.W. Bush administration. This approach recognizes Russia's great-power status and the utility of a great-power concert in dealing with global trouble spots. Rather than prioritizing human rights, democratization, or even economic interests in the bilateral relationship, this policy position prioritizes great-power cooperation on matters of high politics, such as nuclear nonproliferation and the containment of rogue states that transgress global norms....
Russia's demographic situation is a nightmare: the country's population has been shrinking since 1992. The country has experienced positive economic growth over the past decade, but it has been due almost entirely to the run-up in energy prices. The price spike also had a "Dutch Disease" effect on the Russian economy, with an ever greater share devoted to natural resource extraction in general and oil and natural gas in particular. Over the past year, President Medvedev has lamented multiple times that "trading gas and oil is our drug." Russia's other great-power capability is its nuclear arsenal, but because it has failed to modernize the arsenal that is also a deteriorating asset....
At present, Russia's geography, natural resources nuclear stockpile and global governance prerogatives mean that Moscow is still a great power. Compared to the other BRIC (Brazil, Russia, India, and China) economies, however, Russia's future trajectory is far from promising. This assessment appears to reflect the consensus view of the U.S. intelligence community as well.
Given this state of play, it is not surprising that U.S. foreign policy has reverted to the "equilibrium position" of realist internationalism; over time, the distribution of power between Russia and the United States will trend in America's direction. A pragmatic approach that alleviates Russian concerns about its relative decline echoes the George H.W. Bush administration's approach to a fading Soviet Union.
I'd be happy to hear alternative explanations for the reset in the comments section.
You know, as insults go, this one is pretty bush league:
China's credit-rating agency on Tuesday downgraded its rating for U.S. sovereign debt and warned of further cuts, in a pointed move ahead of this week's Group of 20 major economies meeting.
Dagong Global Credit Rating Co. Ltd., the only wholly Chinese-owned rating agency, cut its rating on U.S. debt to A from AA, citing the Federal Reserve's move last week to initiate another round of asset buying, worth $600 billion. It also placed the U.S. sovereign credit rating on negative watch.
"The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar and the continuation and deepening of credit crisis in the U.S.," Dagong said.
"Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government's intention of debt repayment," the agency said.
Sounds very, very serious, until we get to this part of the story:
The downgrade of the U.S. rating by Dagong comes just over a month after the U.S. Securities and Exchange Commission denied the firm's application to officially rate bonds in the U.S.
At that time, Dagong called the SEC's move discriminatory and said it was considering legal action.
The SEC said in denying the application that "it does not appear possible at this time for Dagong to comply with the record keeping, production and examination requirements of the federal securities laws."
Indeed, even the New York Times' now-thrice-weekly story about rising Sino-American tensions observes:
In the rest of the world, the United States is still the strongest of credit risks, and the Chinese downgrade is not expected to have much real impact....
[T]hose critics, mostly countries that fear that recent American policy will devalue the dollar and undercut their competitiveness, do not appear poised to offer an alternative to an economic order that has been led by the United States since the end of World War II, or to the role the dollar has played for decades as the de facto world gold standard.
The Chinese, who have protested that the Federal Reserve is trying to unilaterally manipulate the dollar for the purpose of creating jobs at home, have been accused of doing exactly that for years - the root of many of the world's economic tensions today, in the eyes of Mr. Obama and his economic aides.
Look, clearly China is suffering from... an insult gap. Americans have been leading the world in trash-talking for decades now. China is trying hard to catch up, but I think the authorities in Beijing need some assistance in their game of catch-up.
I hereby call on all readers to offer, in the comments, ways that Chinese authorities can really sharpen their rhetorical jabs at the United States. In the spirit of kicking off the conversation, here are a few suggestions:
"Chinese Halitosis Institute Downgrades American Fresh Breath Index to BB: 'Seriously, What's The Deal With All The BBQ,' Asks Agency Head"
"Chinese Election Monitors Accuse Obama Administration of Rampant Ballot Fraud During Midterm Elections: 'It's No Myanmar, I'll Say That' According to Chief Monitor"
"Chinese Dietary Institute says American Food Leaves Them Hungry After Only 12 Hours"
Go to it.
I also know that even if this turns out to be a big "wave" election, things aren't really going to change all that much on the foreign policy front. This is for the following two reasons:
1) Congress doesn't have too much sway over foreign policy. Sure, things like foreign aid and treaty ratification rely on the legislature, and the election results will affect those dimensions of foreign policy. But think back to 1994 and 2006, in which both houses of Congress turned over to the opposition party. Was there any real change in U.S. foreign and security policy? The Clinton administration was still able to send troops to Bosnia, and the Bush administration was able to launch its "surge" strategy.
Foreign economic policy might be an exception. After both of those elections, the president found it harder to get trade deals through Congress. Given that this president hasn't been all that keen about trade anyway, I don't think the midterms will matter all that much -- though the South Korea-United States Free Trade Agreement (KORUS) might finally be put to a vote with the hope of securing GOP support.
2) In a sour economy, presidents don't get much of a bump for foreign policy successes. The best foreign-policy president of the past four decades was George H.W. Bush. How many terms did he serve? [Hey, this sounds familiar! -- Ed. Click here to see why. The only things that have changed since that post simply reinforce my thesis.] See Aaron David Miller's FP essay for more on this point.
Enjoy watching the returns, poll-watchers -- I'll be going to bed early, secure in the knowledge that U.S. foreign policy will persist in its current form.
The past week has seen an escalating series of news stories about a looming "currency war," as country after country tries to drive their currency downward, the United States blames China as the source of original sin on this, and China
pisses off yet another country responds by digging in its heels, and the IMF wrings its hands.
If you need to read one article on why things are going down the way they are, it's Alan Beattie's excellent survey in the Financial Times of how countries as responding to this situation:
Washington is looking for allies -- particularly among the emerging economies, who complain about their own competitiveness and volatility problems -- in its campaign for exchange rate flexibility. Trying to take on Beijing single-handed makes the US vulnerable to the charge that it is a lone complainant blaming its own profligate shortcomings on the country that is kind enough to lend it money, holding the best part of $1,000bn in U.S. Treasury bonds…
Yet despite U.S. claims of broad support, backing appears sporadic…
[S]ome U.S. policymakers privately complain that European backing is patchy and tends to go up and down with the euro. In the first half of the year the euro was pushed lower by the gathering Greek crisis, by early summer falling 17 per cent below its January level. Focused on local difficulties, and with the German export machine powering ahead, European officials saw little need to take on Beijing over currencies and had little energy to do so…
Across the emerging economies, the plan of attack seems to be to keep quiet and pass the ammunition. Despite widespread recognition of the distortions China’s exchange rate policy appear to be causing, governments have generally preferred unilateral intervention to a public slanging match.
True, in April the governors of the Reserve Bank of India and the Central Bank of Brazil complained that Beijing was hurting their exporters.
But recently Celso Amorim, Brazil’s foreign minister, told Reuters: "I believe that this idea of putting pressure on a country is not the right way for finding solutions." Significantly, he added: "We have good co-ordination with China and we’ve been talking to them. We can’t forget that China is currently our main customer…"
With the prospect of diplomatic progress limited, currency policy in the U.S. and Europe may end up being conducted through domestic monetary policy. If, as seems possible, the U.S. Federal Reserve, the Bank of Japan and the European Central Bank return to quantitative easing in order to boost growth, their currencies are likely to weaken -- as the yen briefly did after the Bank of Japan’s announcement of looser monetary policy this week.
So, to sum up:
1) Every country is free-riding/buckpassing on this issue, hoping that the United States can dislodge China on its own.
2) The international regimes designed to prevent free-riding like this -- namely the G-20 and the IMF -- are not up to this task. [What about the WTO? -- ed. Fuggedaboutit.]
3) The source of China's rising power is not its hard currency reserves or its command over scarce rare earths, but its burgeoning domestic market.
4) Ironically, the United States and other countries want China to accelerate the growth of its domestic market, which would in turn give it more power. Even more ironically, China doesn't want to do this right now.
5) The sum effect of all of this will be a series of uncoordinated interventions into currency markets that will increase market volatility, political posturing, and eventually lead to the erection of capital and/or trade controls.
Developing… in a very disturbing manner.
MANDEL NGAN/AFP/Getty Images
FP's own Steve LeVine has an essay at The New Republic that notes the Obama administration's efforts to dial down U.S. intervention in Central Asia. LeVine is clearly ambivalent about this policy shift:
President Obama's public rationale for this shift is clear. He wants arms control agreements, victory in
Afghanistan, and the denuclearization of Iran -- and Russia has a role to play in all three. Reset has lubricated new agreements with Russia that enable, for example, the speedy overflight of U.S. military planes across the North Pole and on to Kyrgyzstan, in support of the war in Afghanistan; the sale of Russian military helicopters, to be paid for by the Pentagon, to the Afghan government; and a tighter financial squeeze on Iran. Meanwhile, on the domestic front, absent any other fulfillment of Obama’s campaign vow to win hearts and minds abroad through civility, the "reset" is Exhibit Number One that good manners work.
In addition, Obama officials believe that, while the great-power-rivalry strain of geopolitics in the region may have been necessary in the 1990s, it is now obsolete. When Heslin's policy was initially drawn up, its concrete objective was to provide the Caucasian and Central Asian states with a financial channel independent of
Moscow's grip. That meant the construction of energy pipelines to alternative markets, especially the Baku-Ceyhan oil pipeline from the Caucasus to Turkey. But that policy has largely succeeded: The full flow of oil Baku-Ceyhan began in 2006. The Central Asian states of Kazakhstan and Turkmenistan are not linked in -- and given their cautious nature, they are unlikely to risk Russia’s ire by agreeing to be connected by pipeline with the West -- but they have also developed alternate export routes through China, which has constructed its own pipelines that serve precisely the same function....
President Obama must realize that his new policy ultimately represents a trade-off. While the geopolitical gains from deemphasizing the Great Game have been substantial, the local costs of
America's hands-off approach have been quite high. In Kyrgyzstan, which is still embroiled in ethnic strife, deferring to Russia has meant leaving a largely powerless government to its own devices. Azerbaijan has nervously struck up negotiations over natural-gas with Russia’s Gazprom in order to forestall any possible trouble of its own with Moscow. And the United States has adopted a far different approach toward local leaders, swallowing Kazakhstan's backsliding on what they believed was the country's private commitment to release imprisoned opposition political activist Yevgeny Zhovtis, and deepening relations with Uzbekistan's President Islam Karimov, probably the most brutal leader in the former Soviet Union. In other words, the reset has a serious downside: By deciding that the politics of Central Asia are what they are, Washington risks losing its justly earned reputation as the region's protector of political and economic independence.
From a U.S. perspective, this is fine. Let Russia and China jockey for influence. Geographic proximity and the 'stans' own geopolitical interests will prevent either great power from establishing hegemony over the region. This will allow them to maintain as much political autonomy as possible when bordering two civilizational entities.
I can't get too worked up about this. First, Central Asia is about as far away from the United States as one can get -- if there was any region in which a low U.S. profile was called for, this is the region.
Second, Central Asia is not being left to Russian hegemony. Indeed, my official U.S. sources tell me that the Russians don't care about the U.S. influence in the region. What freaks them out is China's growing regional influence. That's understandable. With a rapidly growing and energy-thirsty economy, China has a compelling interest in the 'stans.
Third, I'm not sure that the U.S. is sacrificing all that much. LeVine argues that the U.S. has played a constructive role by fostering human rights and political autonomy. I don't think the latter is going away. As for the former, to be blunt, the U.S. doesn't have all that shiny a track record. With the partial exception of Kyrgyzstan, the countries in this region have ranged from mildly authoritarian (Kazakstan) to wacky totalitarian (Turkmenistan). U.S. human rights interventions accomplished little in the 1990s, and have been even less effective since 9/11 -- indeed, Kyrgyzstan has backslid pretty dramatically.
There are a lot of regions in the world where I think a robust U.S. presence is a good idea. Central Asia is no longer one of them.
Scott Olson/Getty Images
Yesterday, Arthur Brooks (head of AEI), Edwin Feulner (head of Heritage) and William Kristol (official badass of the neoconservative movement) launched their "Defending Defense" initiative with a Wall Street Journal op-ed.
As FP's Josh Rogin has observed, this effort is aimed at the libertartian wing of the conservative movement just as much as the Obama administration. It also comes on the heels of Danielle Pletka and Tom Donnelly's Washington Post op-ed that explicitly took on the small-government right.
The core of Brooks, Feulner and Kristol's justification for more robust defense spending:
It is unrealistic to imagine a return to long-term prosperity if we face instability around the globe because of a hollowed-out U.S. military lacking the size and strength to defend American interests around the world.
Global prosperity requires commerce and trade, and this requires peace. But the peace does not keep itself. The Global Trends 2025 report, which reflects the consensus of the U.S. intelligence community, anticipates the rise of new powers -- some hostile -- and projects a demand for continued American military power. Meanwhile we face many nonstate threats such as terrorism, and piracy in sea lanes around the world. Strength, not weakness, brings the true peace dividend in a global economy.
We have not done enough to help our military preserve the peace and deter (and if necessary, defeat) our enemies. Americans have fought superbly in Iraq and Afghanistan, and have prevented any further terrorist attacks on the scale of 9/11. But faced with a nuclear Iran, or a Chinese People's Liberation Army that can deny access to U.S. ships or aircraft in the Asian-Pacific region, there are many missions ahead.
Yet we face those challenges with a baseline defense budget—defense spending minus the cost of the wars—that is 3.6% of GDP, significantly less than the Reagan-era peak of 6.2%. Our active-duty military is two-thirds its size in the 1980s.
Really? That's the best this trio could come up with in the way of security threats? Meh.
Terrorism and piracy are certainly security concerns -- but they don't compare to the Cold War. A nuclear Iran is a major regional headache, but it's not the Cold War. A generation from now, maybe China poses as serious a threat as the Cold War Soviet Union. Maybe. That's a generation away, however.
There's a reason for that Reagan-era peak in defense spending that Brooks, Fuelner and Kristol elided: the Cold War tensions of the early 1980's.
I'm about to say something that might be controversial for people under the age of 25, but here goes. You know the threats posed to the United States by a rising China, a nuclear Iran, terrorists and piracy? You could put all of them together and they don't equal the perceived threat posed by the Soviet Union during the Cold War. And until I see another hostile country in the world that poses a military threat in Europe, the Middle East and Asia at the same time, I'm thinking that current defense spending should be lower than Cold War levels by a fair amount.
As I was reading Paul Wolfowitz's essay on Obama and realism, I kept thinking, "there's realism and then there's Realism."
Small "r" realism consists of a recognition that there are some unpleasant truths in world politics that must be acknowledged if one is going to pursue a prudent foreign policy. If a government amasses significant capabilities or acts aggressively, it will tend to trigger balancing coalitions. International institutions are often feckless and hypocritical. Forcible regime change is really, really hard. Implacable hostility to powerful actors with different ideologies won't work terribly well. Power is a relative measure and a resource that should be husbanded for important matters of state. You get the idea.
Big "R" Realism is a theoretical paradigm that makes certain assumptions about what drives powerful actors in world politics, and derives interesting predictions (and occasional prescriptions) from those assumptions. Many of these predictions match up with small "r" realism (balancing behavior, useless international institutions, etc.). Many go beyond them, however. According to Realism, regime type is unimportant in explaining world politics. The democratic peace is a mirage. Strong states are better at foreign policy. Not all Realists agree on everything, but they agree on some big and not obvious things, and they all seem to publish in International Security an awful lot (don't aske me to parse out the difference between defensive realists, neoclassical realists, structural realists, and offensive realists; if you do, well, I'm going to have this kind of reaction).
The difference between the two "realisms" is one of purpose. Small "r" realism is a set of guidelines for real, live policymakers, and is intended to foster prudence. Big "R" Realism is intended to be more provocative to the point of caricature -- i.e., to the point where Realists might have little difficulty incorporating zombies into their paradigm. It is certainly possible to be both. Behind closed doors, I have heard big "R" Realists proffer small "r" realist prescriptions that might contradict the academic paradigm. In public, it's funny how Realists who believe that anarchy and the distribution of power are the only things that matter nevertheless rail against the pernicious influence of ethnic lobbies.
Brendan Smialowski/Getty Images
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.