In my last post I mentioned how China was encountering resistance to its rising power.  Now, via Kindred Winecoff, I see a whole mess of reportage about China's mounting internal difficulties.  In no particular order: 

1)  Nouriel Roubini has focused his Dr. Doom-O-Vision on the Middle Kingdom, and doesn't like what he sees:

China’s economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossible – most likely after 2013 – China is poised for a sharp slowdown. Instead of focusing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit in the second half of the quinquennium....

[N]o country can be productive enough to reinvest 50% of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem. China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

Commercial and high-end residential investment has been excessive, automobile capacity has outstripped even the recent surge in sales, and overcapacity in steel, cement, and other manufacturing sectors is increasing further. In the short run, the investment boom will fuel inflation, owing to the highly resource-intensive character of growth. But overcapacity will lead inevitably to serious deflationary pressures, starting with the manufacturing and real-estate sectors.

Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990’s – have ended with a financial crisis and/or a long period of slow growth. To avoid this fate, China needs to save less, reduce fixed investment, cut net exports as a share of GDP, and boost the share of consumption.

The trouble is that the reasons the Chinese save so much and consume so little are structural. It will take two decades of reforms to change the incentive to overinvest.

Now, Roubini is enough of a persistent doomsayer that it would be easy to discount this argument -- if it wasn't for the fact that this jibes with the opinion  of other China economy-watchers.  This coming-bust prophesizing comes on top of arguments made by Barry Eichengreen, Donghyun Park and Kwanho Shin that as China hits middle-income status, it will hit a "middle income trap" of slower growth.  (One interesting question is whether, as China encounters rampant inflation, its eventual decision to let the RMB appreciate will help ease some of these pressures). 

2)  Meanwhile, China's political leadership appears to be engaged in a full-fledged freakout over the Arab revolutions and any whisper of a similar phenomenon happening in China.  Rising food prices are leading to price controls and an anxious government monitoring if/when more expensive staple goods lead to political unrest.   That said, Chinese authorities seem to be on top of the whole crushing dissent thing: 

According to Chinese Human Rights Defenders, an NGO, by April 4th some 30 people had been detained and faced criminal charges relating to the so-called “jasmine revolution”—an inchoate internet campaign to emulate in China recent upheavals in the Middle East and north Africa. Human Rights Watch, another NGO, reports that a further 100-200 people have suffered repressive measures, from police summonses to house arrest. This has been accompanied by tighter censorship of the internet, the ousting of some liberal newspaper editors, and new curbs on foreign reporters in China, some of whom have been roughed up....

Even more worrying, however, is the increasing resort to informal detentions, punishments and disappearances. These are outside the law, offering the victim no protection at all. The government now dismisses the idea that one function of the law is to defend people against the arbitrary exercise of state power. On March 3rd a Chinese foreign-ministry spokeswoman told foreign journalists: “Don’t use the law as a shield.” Some people, she said, want to make trouble in China and “for people with these kinds of motives, I think no law can protect them.”

3)  As for China's assessment of its external security situation, the  State Council released its 2010 White Paper on defense last month.   As this East Asia Forum summary suggests, there's a slight change in tone from the 2008 white paper:

The introductory assessment of the ‘security situation’ section notes that the ‘international balance of power is changing,’ that ‘international strategic competition centring on international order, comprehensive national strength and geopolitics has intensified,’ and that ‘international military competition remains fierce.’  Despite this sense of turbulence, and as was the case in 2008, the 2010 paper assesses that ‘the Asia Pacific security situation is generally stable.’ But the additional observation in the 2008 paper, namely, ‘that China’s security situation has improved steadily’ does not appear in 2010. One possible reason is that the 2010 paper reports that ‘suspicion about China, interference and countering moves against China from the outside are on the increase.’ 

In light of all these developments, yesterday's Economist editorial should come as no surprise:

The view from Beijing, thus, is different to the view from abroad. Whereas the outside world regards China’s rulers as all-powerful, the rulers themselves detect threats at every turn. The roots of this repression lie not in the leaders’ overweening confidence but in their nervousness. Their response to threats is to threaten others.

Now, as someone who's pointed out these problems on occasion on this blog, you might think I'm pleased as punch about these developments.  Nope.  First, from an economic standpoint, a recessionary China eliminates a vital engine of global economic growth.  Second, as I wrote back in January: 

Exaggerating Chinese power has consequences. Inside the Beltway, attitudes about American hegemony have shifted from complacency to panic. Fearful politicians representing scared voters have an incentive to scapegoat or lash out against a rising power -- to the detriment of all. Hysteria about Chinese power also provokes confusion and anger in China as Beijing is being asked to accept a burden it is not yet prepared to shoulder. China, after all, ranks 89th in the 2010 U.N. Human Development Index, just behind Turkmenistan and the Dominican Republic (the United States is fourth). Treating Beijing as more powerful than it is feeds Chinese bravado and insecurity at the same time. That is almost as dangerous a political cocktail as fear and panic. 

Developing.... in very disturbing ways. 

Over at The National Interest, Ted Galen Carpenter blogs that America's militarized focus on the Middle East is providing a huge strategic opening for China: 

Members of China’s political elite who are eager for the Middle Kingdom to displace the United States as the world’s leading power probably can’t believe their good fortune. America has so many natural advantages that such a displacement would normally take several generations, if it occurred at all. Yet clumsy, counterproductive U.S. policies may be shortening that time frame dramatically....

Global meddling is also damaging the American brand with respect to political values and even popular culture. That is especially apparent in the Muslim world, where public opinion surveys reveal that positive views of the United States now sometimes languish in the single digits. But America’s popularity has waned even in Europe and other formerly very friendly regions. Even as Washington’s aggressive behavior alienates populations, especially in Asia, Africa, and Latin America, China is cultivating countries in those regions, portraying itself as a less intrusive, more cooperative political and economic partner.

Um, Ted?  2006 called, and it wants the hackneyed geopolitical analysis back.... and sent via MySpace. 

Seriously, this blog post reads like it's five years old.  It either ignores or elides the following facts: 

1)  America's popularity in the rest of the world has rebounded quite  nicely since 2006

2)  Contrary to Carpenter's claims, the Libya intervention has gone down rather well on the Arab street.

3)  China committed a series of foreign policy blunders in 2009 and 2010 that increased regional and global wariness about the Middle Kingdom and (according to China experts who talk to me) forced Beijing to rethink its grand strategy. 

4)  Chinese authorities are currently occupied with trying to censor news about the Arab revolutions, play hide and seek with its dissidents, get a grip on its real estate bubble, and avoid populist blowback for its Africa investments.  I'm not seeing a lot of successful efforts by Beijing to push the "less intrusive" line elsewhere in the globe. 

These are pretty important facts that get in the way of Carpenter's analysis.  Now, there is a glimmer of truth to this kind of realpolitik argument.  Saudi Arabia, for example, is less than thrilled with how the Obama administration is handling the Arab revolutions, and it might cozy up more to Beijing as a result.  That said, if we're really witnessing a fouth wave of democratization in the Middle East, does Carpenter seriously think that these regimes will automatically be more sympathetic to China than the United States?  That would be the realist argument, but I think this is one of those situaions when realists don't sound terribly grounded in reality. 

There are a lot of good critiques that can be levied against American grand strategy and the Obama administration's foreign policy in the Middle East.  The notion that China has gained a strategic advantage in recent months ain't one of them. 

Colin Bradford has written a lot of useful and interesting material on global economic governance.  I say this because I'm not really sure that his latest FP contribution meets the high standard of his prior work. 

In "Seven New Laws of the G-20 Era," Bradford seems to be arguing that even if there are disagreements within the G-20, it's still an effective public policy forum.  Here's a sample "law":

1. Visible disagreements can have positive side effects

Some commentators have argued that, because the G-20 reveals differences and divisions, the group itself must be a failure. Yet gone are the days when we could categorize a summit as a success or a failure based on the outcome document. Dichotomous thinking doesn't really work anymore. So if G-20 meetings display more tension than consensus, that might actually be a good thing. In its discord, the G-20 merely reflects the landscape of this dynamic 21st century. There is order and disorder in our world today, competition and coordination, conflict and consensus -- all going on at the same time. The G-20 is flushing those issues up not only for leaders to deal with but for publics to deal with as well. Unlike the G-8, the G-20 is creating stronger linkages between leaders and publics, because -- not in spite of -- the fact that the conflicts are visible.

Hmmmm..... nope, not buying this spin.  Bradford's basic argument is that the G-20 exposes the fundamental disagreements  so that the global public sphere can better understand the fundamental faultlines of global economic governance.  The publicist that resides inside my brain can appreciate the virtue of this spin, but it's just that. 

It's true that governance structures can serve as arenas of contestation.  The problem with this logic is threefiold, however. 

First, as a general rule, mass publics don't pay too much attention to high-falutin' economic summits.  The issues are too arcane and the remove from daily life seems to large.  So the only thing the public will digest from G-20 deadlock is that leaders can't agree on something. 

Which leads to the second point -- in the end, publics usually want to see outputs from governance structures.  There can be virtues from policy deadlock, but I'm thinking that if an issue makes it to the G-20 agendas it's because a lot of people want concrete policy action rather than additioonal bloviation.   Continued disagreement will lead to mounting public frustration.

Which leads to the third point -- many national governments can endure long-lasting policy deadlocks because their domestic legitimacy is unquesioned.  In the United States, for example, despite mounting frustration with a sclerotic policy process, there's not a huge groundswell for amending the Constitution to make it easier to pass laws.  That's because both the Constitution and the U.S. government have been around for a while. 

The G-20 doesn't have this legitimacy "cushion" to fall back on.  It's not a national government with a monopoly on authority within its bailiwick.  It's not a treaty body like the WTO or IMF.  Unlike even the G-8, it can't point to decades of existence as a justification for its continued relevance.  The G-20 rises and falls with its perceived effectiveness.  While the forum had a good 2008 and a decent 2009, last year was a friggin' disaster.  If the trend of policy gridlock continues, it won't matter what Nicolas Sarkozy proposes, the G-20 will be a dead forum walking. 

Unfortunately, Bradford's essay sounds like a marriage counselor telling a troubled couple to "own your problems... embrace the discord."  Sorry, not buying it. 

Am I missing anything? 

Last week Reuters' Emily Flitter filed quite the story, entitled "China flexed its muscles using U.S. Treasuries ," about China's financial power over the United States.  Here's the opening: 

Confidential diplomatic cables from the U.S. embassies in Beijing and Hong Kong lay bare China's growing influence as America's largest creditor.

As the U.S. Federal Reserve grappled with the aftershocks of financial crisis, the Chinese, like many others, suffered huge losses from their investments in American financial firms -- from Lehman Brothers to the Primary Reserve Fund, the money market fund that broke the buck.

The cables, obtained by WikiLeaks, show that escalating Chinese pressure prompted a procession of soothing visits from the U.S.Treasury Department. In one striking instance, a top Chinese money manager directly asked U.S. Treasury Secretary Timothy Geithner for a favor.

This story generated a lot of interest across the mediasphere.  FT Alphaville called it "Diplomacy by US Treasuries."  AFP reports that the "sensitive cables show just how much influence Beijing has and how keen Washington is to address its rival's concerns." 

As someone who's published on this question, you'd think I'd be very happy at the attention this issue is receiving.  And Flitter deserves kudos for going through the cables to find clear efforts by Chinese officials to use its financial muscle to get what it wanted from the United States. 

The thing is, the reportage is framed to suggest that China not only asked for concessions, but the United States granted them.  And Flitter's own story suggests that very little in the way of concessions actually happened. 

Here are the portions of Flitter's story that discusses U.S. responses to Chinese pressure: 

On Chinese requests to halt/restrict arms sales to Taiwan:  Flitter records no response.  These concerns were voiced in late 2008 and the arms sales went ahead in early 2010, so there doesn't appear to be much influence here.  AFP suggests that this pressure led the U.S. to not sell F-16's to Taiwan, but I don't think that option was ever in the cards. 

On Chinese demands that they be provided guarantees for Chinese re-entry into the U.S. repo market:

The U.S. government does not appear to have offered the Chinese a special setup guaranteeing U.S. banks. Instead, the cables show, American diplomats reassured the Chinese by pointing out that Washington had infused banks' balance sheets with $700 billion in fresh capital, effectively propping up the banking system.

On Chinese demands for providing explicit U.S. government guarantees of Fannie Mae and Freddie Mac debt: 

To defuse the situation, the Treasury Department sent Undersecretary for International Affairs David McCormick to Beijing for two days in October 2008. The gesture went over well.

"All of Undersecretary McCormick's counterparts appeared to appreciate his willingness to come to Beijing in the midst of a financial crisis," Piccuta wrote in a cable dated October 29, 2008. "Interlocutors stressed that unless leaders' concerns about the viability of banks and U.S. government-sponsored enterprises (GSEs) are assuaged, lower-level officials will be constrained from taking on greater counter-party risks."

The cables show McCormick trying to reassure the Chinese. "In each meeting, Undersecretary McCormick emphasized that even though the U.S. government did not explicitly guarantee GSE debt, it effectively did so by committing to inject up to $100 billion of equity in each institution to avoid insolvency and that this contractual commitment would remain for the life of these institutions," [Deputy Chief of Mission at the U.S. Embassy in Beijing Dan] Piccuta wrote.

On Chinese protests regarding Federal Reserve purchases of Treasuries and agencies in March 2009:  Flitter has no response, though the fact that the Fed went ahead with QE2 suggersts that Chinese pressure didn't deter the Federal Reserve.

On responses to Chinese requests that CIC be allowed to participate in bidding on Morgan Stanley's new equity issuance:

There's no record in the cable of how Geithner responded, but it was only a day later, on June 3, that CIC announced plans to purchase $1.2 billion in Morgan Stanley shares.

A spokesperson for the Fed said in the instance of the June 3 CIC investment, no application for an exemption was made to the Federal Reserve Board.

On the general dynamic of Chinese financial pressure:

The cables also indicate a high level of confidence among the Americans that China can't entirely stop buying U.S. debt, a sentiment shared by most economists who describe the dynamic as a form of mutually assured financial destruction. 

So, to sum up, the Chinese maybe got a small break on being able to particupate in the Morgan Stanley auction.  Beyond that, all of these efforts led to the dilomatiic equivalent of hand-holding and not much else.  And, hey, what do you know, that's pretty much consistent with what I wrote about this back in late 2009.  So, contrary to some deep-seated fears of mine, the Wikiliaks cables appears to buttress rather than contradict prior scholarship. 

Flitter deserves credit for making explicit what had only been inferred, but I'm worried that commentators are drawing the wrong lessons from her article.  The big reveal here is not that China tried to exercise its financial muscle.  The big reveal is that these efforts generated next to nothing in the way of U.S. concessions.  China's financial might does give it the ability to deter U.S. pressure -- but to China's growing frustration, it doesn't yield much else. 

While I was obsessing about Egypt last week, I see that John Quiggin, William Winecoff and others have been having a rollicking debate about the status of American hegemony, the fungibility of military power, and Boeing/Airbus subsidies.  OK, that last one is less interesting, but I strongly encourage readers to go through the comment thread to that blog post. 

Essentially, Quiggin contends that:

[T]he decline of the US from its 1945 position of global pre-eminence has already happened. The US is now a fairly typical advanced/developed country, distinguished primarily by its large population. 

Ergo, other large market jurisdictions, like the European Union, are equal to the U.S. in terms of relative power. 

This cheesed off Winecoff and others into pointing out the myriad ways in which the U.S. power profile is a) still outsized; and b) largely shaped the current global order we live in; and c) allowed entities like the EU to focus on welfare maximization rather than security.   

Dan Nexon, in a comment to Quiggin's last rejoinder, gets at one nub of the debate:

John’s pointing out, quite rightly, that military power isn’t necessarily fungible. He’s doing so in the context of economic and regulatory power, which is the most “multipolar” dimension of global power right now. His IR critics are pointing out that the US still has outsized influence across a number of domains, and that some of those domains involve international (economic) institutions. They’re both onto something.

I pretty much agree with Dan here.  In the military sphere, the U.S. remains a hegemonic power.  In the economic and regulatory realms, well, I wrote a whole book arguing that until recently we lived in a bipolar world, so I'll side with Quiggin on that score. 

There's something missing from this debate that is worth raising, however -- a proper definition of power.  For example, in his first post, Quiggin noted that "[advanced industrialized countries] might be said to have declined in relative terms. But this doesn’t seem to me to constitute 'decline' in any important sense."  This is heresy to an international relations scholar, in that power is viewed as a zero-sum commodity. 

Beyond that, however, it is useful to think about the power to deter change from the status quo vs, the power to compel change in the status quo.  In a deterrence scenario, countries use their capabilities to ward off pressure from other actors, or from structural pressures.   In a compellence scenario, a powerful government threatens to use statecraft to extract concessions from other actors, or use power to alter the rules of the global game. 

Deterring pressure by others is different than applying such pressure to others.  With military or economic statecraft, it is generally easier to defend than attack.  Many IR scholars argue that the ability to deter is a necessary condition of the power to compel.  Only after an actor has the ability to resist pressure from others will they contemplate whether they can be the actor to generate pressure.  Countries possessing sufficient reservoirs of power should therefore have both greater autonomy of action and be better placed to apply pressure on other actors. 

What the past few years have demonstrated is the relative decline of U.S. compellence power and the rise of other countries deterrence power.  Certainly the recent uses of U.S. military force haven't yielded the expected results.  In the economic realm, countries like India and Brazil can veto WTO negotiation rounds in a way that simply wasn't possible 15 years ago.  Similarly, China can resist U.S. jawboning on its exchange rate policy far more than in the past. 

On the other hand, neither U.S. deterrent power nor other countries' compellence power has changed all that much, even in the economic realm.  The rest of the G-20 can scream as loud as they want, but  quantitative easing is going to continue.  China has tried to find ways to use its newly found financial muscle to force changes in the international system, to little avail.  To be sure, Russia, China and others can compel countries on their immediate periphery, but even a glance at the 2008 Russian-Georgian war suggests that even modest efforts like these are expensive and messy. 

So... we live in a world in which more actors have vetoes over systemic change but no actor has the ability to truly compel change.  This leads to lots of talk about "G-zero worlds" and so forth. 

Just to be provocative, however, I wonder if what's truly changed is the extinction of compellence power as we know it.  The primary, ne plus ultra  tools of compellence require a willingness to kill, jail or starve a lot of people.  Recent flare-ups like Iran in 2009 and Egypt right now suggests that such actions are possible at the domestic level, but pretty damn costly; even authoritarian countries flinch at using brute force on a domestic population.  Cross-border efforts are even more expensive in terms of both material and reputational costs. 

This isn't the end of power, but it might be the end of one particular dimension of power.  I'm not entirely convinced that this supposition is true, and am willing/eager to hear counterarguments.  That said, I still hereby claim The End of Power as my title, so everyone else just back off, OK? 

More seriously, am I missing anything? 

Foreign Policy asked many smart people, and then me, for some nuggets of unconventional wisdom heading into 2011.  My contribution is on how China isn't all that and a bag of chips. 

My closing paragraph: 

Exaggerating Chinese power has consequences. Inside the Beltway, attitudes about American hegemony have shifted from complacency to panic. Fearful politicians representing scared voters have an incentive to scapegoat or lash out against a rising power -- to the detriment of all. Hysteria about Chinese power also provokes confusion and anger in China as Beijing is being asked to accept a burden it is not yet prepared to shoulder. China, after all, ranks 89th in the 2010 U.N. Human Development Index, just behind Turkmenistan and the Dominican Republic (the United States is fourth). Treating Beijing as more powerful than it is feeds Chinese bravado and insecurity at the same time. That is almost as dangerous a political cocktail as fear and panic.

 Be sure to read the rest of them -- really, the other contributors are all smarter than me. 

As I'm typing this very sentence, it looks like the New START treaty will be passed.  This happened even though GOP arms control pointman Senator Jon Kyl acted like a petulant child for the last month came out in opposition to the treaty (along with Mitch McConnell). 

Slate's David Weigel Fred Kaplan has an excellent summary of why the GOP leadership failed to halt ratification, even though the threshold for blocking it was only 34 senators: 

If a Republican were president, the accord would have excited no controversy and at most a handful of diehard nays. As even most of its critics conceded, the treaty's text contains nothing objectionable in substance.

There were two kinds of opponents in this debate. The first had concerns that President Barack Obama would use the treaty as an excuse to ease up on missile defense and the programs to maintain the nuclear arsenal. In recent weeks, Obama and his team did as much to allay these concerns as any hawk could have hoped—and more than many doves preferred.

So that left the second kind of opponent: those who simply wanted to deny Obama any kind of victory. The latter motive was clearly dominant in this debate (emphasis added)

Let's step back here for a second and contemplate the truth and meaning of that last sentence.  Is it true?  Kevin Drum and Greg Sargent clearly think the answer is yes, and they've got some damning quotes to back up their argument.  Rich Lowry is particularly revealing on this point: 

As the sense builds that ratification is inevitable, Republicans are lining up to get on the “right side.” Lamar Alexander’s support, noted below, is a crucial sign of which way the wind is blowing, although he’ll probably be the only member of the Republican leadership to vote for it. At least Jon Kyl was able to get more money for modernization and that letter from President Obama making assurances on missile defense. Otherwise, this is a dismaying rout (emphasis added)

Um... at best, this is a dismaying rout for the GOP, not the USA.   As Weigel Kaplan points out, however, it's not elements of the GOP didn't favor the treaty:  

The task of Obama and the Democratic floor managers, Sens. Harry Reid and John Kerry, was to convince enough Republicans to view the issue not as political gamesmanship but as an urgent matter of national security. Hence their rallying of every retired general, former defense secretary, and other security specialist—Republican and Democrat—that anyone had ever heard of. (At one point, Sen. Susan Collins, R-Maine, said she might vote for the treaty if former President George H.W. Bush endorsed it. A few days later, Bush released a statement doing just that.)

A few other things happened as well.  Beyond the U.S. foreign policy establishment, the Eastern European foreign policy establishment got behind the treaty.  There's also the fact that some GOP senators are still nursing a grudge against other GOP senators.  Josh Rogin also points out that the treaty always had GOP supporters.  And, finally, the Obama administration wisely decided to go to the mat on what was a rather unobjectionable treaty, no matter how hard John Bolton bloviates on the matter.  

What does this mean going forward?  In my bloggingheads with Matthew Yglesias last week, I was optimistic that Kyl's blatant obstructionism was a step too far, and that maybe this will lead to a little less needless obstructionism when it comes foreign policy.  There's also the fact that the American people seems to really like what's happened during the lane duck session.  Perhaps the GOP legislators that want to get re-elected will take note of that fact and decide that some cooperaion with the Obama administration on things like KORUS and arms control are a decent idea (there's also the fact that more GOP legislators from Democrat-friendly territory means more moderate Republicans). 

That said, the nuclear negotiations with Russia only get harder from here.  Plus, my gut tells me that the GOP leadership will become even more obsteperous going forward in order to bolster their reputation as the really tough bargaining party and eliminate the bitter aftertaste they're feeling from the lame duck session. 

What do you think? 

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.

So I see that Jackson Diehl's Washington Post column attracted a lot of eyeballs yesterday.  He argued that Obama thinks that the same things that were important 25 years ago are important now.  Diehl closes with the following:

[T]his administration is notable for its lack of grand strategy - or strategists. Its top foreign-policy makers are a former senator, a Washington lawyer and a former Senate staffer. There is no Henry Kissinger, no Zbigniew Brzezinski, no Condoleezza Rice; no foreign policy scholar.

Instead there is Obama, who likes to believe that he knows as much or more about policy than any of his aides - and who has been conspicuous in driving the strategies on nuclear disarmament and Israeli settlements. "I personally came of age during the Reagan presidency," Obama wrote in "The Audacity of Hope." Yes, and it shows.

Oh, snap.

I'm shocked, shocked to discover that conservatives think this critique is really spot-on and liberals find it absurd.   Four thoughts on this:

1)  If one takes Diehl's list of grand strategists as given, I'd have to conclude that presidents do much better without one.  If you reflect on the Nixon, Carter and Bush 43 administrations, only one of them had a grand strategy that looks even semi-respectable at the present moment.  Maybe grand strategists don't lead to great foreign policy (then again, I'm not sure I'd take Diehl's list as given -- Condi Rice is many things, but no one thought of her as a grand strategist.  Even if she was, I don't think the Buswh administration's foreign policy followed this blueprint at all.  And, let's face it, the word "strategist" is already in mortal danger of being demeaned into nothingness). 

2)  Having edited a book on the subject, I've become more and more dubious of those who complain about grand strategy in foreign policy.  Bemoaning the lack of a grand strategy is the first refuge of the foreign policy critic.  Often, it's not that the president in question lacks a strategic vision, it's that the president has a grand strategy that the critic doesn't like.   If the last decade has taught us anything, it's that it is possible to have a coherent, well-articulated grand strategy that is nevertheless completely counterproductive in advancing the national interest. 

3)  Even though it's possible to nitpick Diehl's op-ed to death, there's a grain of truth buried in those last few paragraphs.  No one disputes that Obama has a White House-centric foreign policymaking process, but I'm not sure Obama's White House staff merits that allocation of power.  The recent shifts in foreign policy personnel have narrowed the foreign policy circle even more than before.  And there are real mismatches between the Obama administration's grand strategy and its current foreign policy priorities. 

4)  Ordinarily, none of this would matter.  So long as really stupid policies are avoided, I don't think that grand strategies matter for most  countries most of the time -- what matters are good fundamentals like a robust economy.  The thing is, this is one of those rare moments when strategy does matter.  Any time you have a systemic shock -- like a great power war or a massive global recession -- you get massive uncertainty about the future direction of world politics.  Add on the fact that there's now a potential challenger to the most powerful state in the world, and there are a lot of key actors in the world wondering what's going to happen next. 

These are moments when a well-articulated and executed gramd strategy can reassure allies and signal possible rivals about a country's future course of action.  And I'm unconvinced that the Obama administration's existing strategy documents provide any kind of clear signal at all. 

What do you think? 

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.

Keith Bradsher reports on the latest move in Chinese economic statecraft:

China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted some shipments of those materials to the United States and Europe, three industry officials said this week.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle.

"The embargo is expanding" beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.

They said Chinese customs officials imposed the broader restrictions on Monday morning, hours after a top Chinese official summoned international news media Sunday night to denounce United States trade actions....

The signals of a tougher Chinese trade stance come after American trade officials announced on Friday that they would investigate whether China was violating World Trade Organization rules by subsidizing its clean energy exports and limiting clean energy imports. The inquiry includes whether China's steady reductions in rare earth export quotas since 2005, along with steep export taxes on rare earths, are illegal attempts to force multinational companies to produce more of their high-technology goods in China.

Despite a widely confirmed suspension of rare earth shipments from China to Japan, now nearly a month old, Beijing has continued to deny that any embargo exists.

Industry executives and analysts have interpreted that official denial as a way to wield an undeclared trade weapon without creating a policy trail that could make it easier for other countries to bring a case against China at the World Trade Organization.

So far, China seems to be taking a similar approach in expanding the embargo to the West.

Hat tip to Will Winecoff, who asks, quite reasonably, "What in samhell is China thinking?"

Assuming that the New York Times story is accurate, there are three ways to think about what Beijing is doing. First, this could just be all about domestic politics. Bradsher notes that the decision was made after a Central Committee meeting. It's possible that as the currency wars heat up, and as the U.S. starts complaining to the WTO, there was a need to assuage some nationalist outrage. Of course, no one really knows what Chinese domestic politics looks like, so who the hell knows how much validity to give to this argument.

The second way to look at it is that China's leaders have been reading The Sanctions Paradox. I argued in that book that high expectations of future conflict between the sanctioning and the sanctioned state would lead to frequent episodes of economic coercion, but each attempt would yield only minimal concessions. So far, this model holds up: the past month of China's rare earth export controls have yielded them exactly one returned fishing boat captain. Maybe they are hoping that extending the ban to the United States will force Washington to back down in their WTO complaints. Given rising conflict expectations, that's about the most they're going to get from this action.

The third way to think about it is that China is being ridiculously short-sighted in their use of economic coercion. As Patrick Chovanec notes at Seeking Alpha:

[China] really shot itself in the foot. By flexing its muscles so eagerly, over a relatively minor incident, it alarmed its customers and possibly frightened them off, when a softer approach might have lulled them into continued and deepening dependence. There's no question that China can extract rare earths at the cheapest price, in purely monetary terms. But now China's trading partners must be seriously wondering, what could the real price amount to, when the bill eventually comes due?

China's foreign economic policies with respect to raw materials suggests that Beijing doesn't think market forces matter all that much -- what matters is physical control over the resources. This is a pretty stupid way of thinking about how raw materials markets function, and it's going to encourage some obvious policy responses by the rest of the world. Non-Chinese production of rare earths will explode over the next five years as countries throw subsidy after subsidy at spurring production. Given China's behavior, not even the most ardent free-market advocate will be in a position to argue otherwise.

More importantly, China's perception of how economic power is wielded in the global political economy is going to have ripple effects across other capitals. If enough governments start reacting to China's economic statecraft by taking similar steps to reduce interdependence with that country, then China will have created a self-fulfilling prophecy in which geopolitics trumps economics. Another possibility is that the rest of the world will operate as before in dealing with each other, but treat China differently, developing CoCom-like structures and fostering the creation of explicit economic blocs.

That really would be the worst of both worlds for Beijing. China is growing, but the economic weight of countries that prefer market-oriented ways of doing business is still much, much larger.

In going for the short-term gain, China is inviting a long-term containment policy. That might allow for some rally-round-the-flag support at home, but it's going to be a massive net loss for their economy.

Today's Tom Friedman column on China's future is a pretty good one, in that it demonstrates how and why Friedman excels at a craft that flummoxes the best essayists. First, he asks a great question: 

[O]ne of the most intriguing political science questions in the world today is: Can China continue to prosper, while censoring the Internet, controlling its news media and insisting on a monopoly of political power by the Chinese Communist Party? 

Then, he makes a coherent argument in less than 800 words that the most populous nation in the world will have no choice but to liberalize and democratize. Friedman's thesis:

The “Beijing Consensus,” of economic liberty without political liberty, may have been a great strategy for takeoff, but it won’t get you to the next level....

My reason for believing China will have to open up sooner than its leadership thinks has to do with its basic challenge: It has to get rich before it gets old....

The only stable way to handle that is to raise incomes by moving more Chinese from low-wage manufacturing jobs to more knowledge- and services-based jobs, as Hong Kong did. But, and here’s the rub, today’s knowledge industries are all being built on social networks that enable open collaboration, the free sharing of ideas and the formation of productive relationships — both within companies and around the globe. The logic is that all of us are smarter than one of us, and the unique feature of today’s flat world is that you can actually tap the brains and skills of all of us, or at least more people in more places. Companies and countries that enable that will thrive more than those that don’t.

This argument is clear enough for the average New York Times reader to get it. It's also clear enough for us foreign policy bloggers in pajamas online analysts to point out where and how he's wrong. In particular, Friedman makes two large errors:

1) It's not clear that China has to get to "the next level" of economic development in order to become the most powerful country in the world. China's GDP could be larger than America's while still possessing only 1/3  the per capita income of the United States. If the rest of China were to enjoy the infrastructure and living standards or, say, Shenzhen, China would be doing quite well for itself. And as Chinese consumers demand more goods and services, the domestic jobs that power the rise of middle-class professionals -- teachers, lawyers, consultants , environmental engineers, travel agents, etc. -- will start to emerge in large numbers. 

Just to be clear here -- Friedman is right to say that greater liberty is likely to lead to more innovative growth. My point is that a population of a billion plus people allows the government to focus on intensive growth for an awfully long time and still prosper an amazing amount. 

2) In a world of network technologies and externalities, the best and most innovative technology does not always win -- the technology used by the most customers develops the lock-in. China doesn't have to have a technological edge, it just has to ensure that the largest market in the world embraces China-friendly technologies. Hey, come to think of it, you know what institution could ensure that occurrence? The Chinese Communist Party.

[Still, you hope Friedman is right and you're wrong.... right? --ed. Well, in theory yes, but...... after reading this SPIRI paper on China's new foreign policy actors, I'm not so sure. The common thread in that paper is that the more pluralist actors were also the most nationalist. It's entirely possible that a freer China is also a more reckless China.]

A few days ago Brazil's finance minister mentioned the phrase "international currency war." The Financial Times' Jonathan Wheatley and Peter Garnham are all over it. 

An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.

Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.

“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies.

A weaker exchange rate makes a country’s exports cheaper, potentially boosting a key source of growth for economies battling to find growth as they emerge from the global downturn.

The proliferation of countries trying to manage their exchange rates down is also making it difficult to co-ordinate the issue in global economic forums.

South Korea, the host of the upcoming G20 meeting in November, is reluctant to highlight the issue on the gathering’s agenda, also partly out of fear of offending China, its neighbour and main trading partner.

On the other hand, South Korea is putting together an awesome ice sculpture for the summit. Seriously. 

The FT's Alan Beattie details the abject lack of policy coordination and its implications in further detail: 

Aside from China, whose intervention is one of the main causes of the global currency battle, several big economies have been intervening for some time. Switzerland started unilateral intervention against the Swiss franc last year for the first time since 2002 and did not sterilise it by buying back in the domestic money markets what it had sold across the foreign exchanges.

In common with several east Asian countries, South Korea, host of the Group of 20 summit, has been intervening intermittently to hold down the won during the course of this year. Deliberately weakening a currency while running a strong current account surplus has raised eyebrows in Washington.

Recently it was revealed that Brazil itself, which has been expressing concern since last year about inflows of hot money pushing up the real and unbalancing the economy, had given authority to its sovereign wealth fund to sell the real on its behalf.

The resort to unilateralism bodes ill for US hopes of assembling an international coalition of countries at the forthcoming G20 meeting to put pressure on China over its interventions to prevent the renminbi rising. While most of the countries currently intervening would be likely to welcome a revaluation of the renminbi, few emerging market governments seem to want to stand up to China publicly – barring sporadic criticism such as that from Brazilian and Indian central bankers earlier this year.

Last week Celso Amorim, Brazil’s foreign minister, said that he did not want to become part of an organised campaign. Following a meeting of the Brics countries – Brazil, Russia, India and China – in New York, he told Reuters: “I believe that this idea of putting pressure on a country is not the right way for finding solutions.”

Mr Amorim 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.” Brazil exports commodities to China. (emphasis added)

It's also possible that Brazil and others fear a security dilemma kind of response from China. Either way,  this demonstrates that, on the economic front, China's deterrent power is formidable (even if its compellence power has been exaggerated).

Now, there are some who argue that this kind of beggar-thy-neighbor policy could be a blessing in disguise, because it might amount to massive monetary easing. I tend to side with Michael Pettis, however:

[W]e know how that game ends. In 1930, following France’s very successful 1928 devaluation and Britain’s tightening of trade conditions within the Commonwealth, the world’s leading trade-surplus nation passed the Smoot-Hawley tariffs in a transparent attempt to gain a greater share of dwindling global demand. This would have been a great strategy for the US had no one noticed or retaliated, but of course the rest of world certainly noticed, and all Smoot-Hawley did was accelerate a collapse in global trade which, not surprisingly, hurt trade surplus countries like the US most.

We seem to be following the same path, and in a beggar-thy-neighbor world any country that does not participate in retaliatory policies will suffer. The only question is which retaliatory policy. I suspect that countries that can intervene in the currency and manipulate domestic interest rates will select those polices as the most efficient way of intervening in trade. Countries that cannot will almost certainly resort to trade tariffs. And it is probably too late for global policy coordination to make much of a difference.

To be fair, the demand for global policy coordination since 2008 has been much higher than normal. That said, it seems that on this issue, the G-20 has fallen flat on its face. 

Developing … in a very depressing way. Literally. 

There's been a lot of oh-my-God-China-is-eating-America's-lunch-have-you-seen-how-pretty-their-infrastructure-is?-kind of blather among the commentariat. And, to be sure, China has had a good Great Recession. But one of the points I've been making on this blog repeatedly is that, for all of China's supposed deftness, "China's continued rise seems to be occurring in spite of strategic miscalculations, not because of them."

Now, I had also assumed that China's leadership would quickly move down the learning curve and practice a more subtle form of statecraft. After reading Keith Bradsher in the New York Times today, however, I guess I was wrong:

Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, win turbines and guided missiles.

Chinese customs officials are halting shipments to Japan of so-called rare earth elements, preventing them from being loaded aboard ships this week at Chinese ports, three industry officials said Thursday.

On Tuesday, Prime Minister Wen Jiabao personally called for Japan’s release of the captain, who was detained after his vessel collided with two Japanese Coast Guard ships about 40 minutes apart as he tried to fish in waters controlled by Japan but long claimed by China. Mr. Wen threatened unspecified further actions if Japan did not comply.

Is this effort at economic statecraft going to accomplish Beijing's objectives? In a word, no. True, according to Bradsher, "China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths." 

It's also true, however, that Japan has been stockpiling supplies of rare earths. Furthermore, this kind of action is just going to lead to massive subsidies to produce rare earths elsewherein the world (including the United States) and/or develop rare earth substitutes. Oh, and one other thing -- given the spate of flare-ups between Japan and China as of late, the last thing Tokyo will want to do is back down in the face of Chinese economic coercion. 

Don't get me wrong -- if China persists in this ban, there will be come economic costs to the rest of the world. Those costs just won't translate into any political concessions. [UPDATE: The Wall Street Journal has an excellent follow-up story suggesting that China is not imposing a ban.] 

It is hardly surprising that (reported) actions like these are leading the entire Pacific Rim right to Washington's door: 

[R]ising frictions between China and its neighbors in recent weeks over security issues have handed the United States an opportunity to reassert itself — one the Obama administration has been keen to take advantage of.

Washington is leaping into the middle of heated territorial disputes between China and Southeast Asian nations despite stern Chinese warnings that it mind its own business. The United States is carrying out naval exercises with South Korea in order to help Seoul rebuff threats from North Korea even though China is denouncing those exercises, saying that they intrude on areas where the Chinese military operates.

Meanwhile, China’s increasingly tense standoff with Japan over a Chinese fishing trawler captured by Japanese ships in disputed waters is pushing Japan back under the American security umbrella....

“The U.S. has been smart,” said Carlyle A. Thayer, a professor at the Australian Defense Force Academy who studies security issues in Asia. “It has done well by coming to the assistance of countries in the region.”

“All across the board, China is seeing the atmospherics change tremendously,” he added. “The idea of the China threat, thanks to its own efforts, is being revived.”

Asserting Chinese sovereignty over borderlands in contention — everywhere from Tibet to Taiwan to the South China Sea — has long been the top priority for Chinese nationalists, an obsession that overrides all other concerns. But this complicates China’s attempts to present the country’s rise as a boon for the whole region and creates wedges between China and its neighbors. 

This latest rare earth ban is just going to accelerate this trend. The ironic thing about this is that it's not like U.S. grand strategy has been especially brilliant. The U.S., however, has two big advantages at the moment. First, it's further away from these countries than China. Second, Washington's actions and rhetoric have been far more innocuous than Beijing's.

In yet another New York Times story, David Sanger provides a small clue as to whether Beijing either knows or cares about the blowback from its recent actions:

Early this month Mr. Obama quietly sent to Beijing Thomas E. Donilon, his deputy national security adviser and by many accounts the White House official with the greatest influence on the day-to-day workings of national security policy, and Lawrence H. Summers, who announced Tuesday that he would leave by the end of the year as the director of the National Economic Council....

[O]fficials familiar with the meetings said they were intended to try to get the two countries focused on some common long-term goals. The Chinese sounded more cooperative themes than in the spring, when two other administration officials were told, as one senior official put it, that “it was the Obama administration that caused this mess, and it’s the Obama administration that has to clean it up.”

Well, that is learning, but it's of a very modest kind. 

Now, it is possible that Beijing has simply decided that its internal growth is so big that it can afford the friction that comes with a rising power. My assessment, however, is that they're vastly overestimating their current power vis-a-vis the United States, and they're significantly undererstimating the effect of pushing the rest of the Pacific Rim into closer ties with the United States (and India).  

More significantly, and to repeat a theme, China is overestimating its ability to translate the economic interdependence of the Asia/Pacific economy into political leverage. With these misperceptions, however, China is risking some serious conflicts down the road.

Am I missing anything? I'm serious -- this problem ain't going away anytime soon.