The Obama administration has been trying to road-test the National Security Strategy.  Last month is was NSC Advisor James Jones' address to the Washington Institute for Near East Policy -- which is now remembered more for a politically incorrect joke than anything else. 

This weekend it was the president's turn in his commencement address at West Point.  Is there anythng of interest to note?  Some are focusing on what he said about Iraq (victory + withdrawal of combat troops this year).  Let's focus on Obama's bigthink, which I'd label realist internationalism. 

Here's the realist sections:

[W]e must first recognize that our strength and influence abroad begins with steps we take at home. We must educate our children to compete in an age where knowledge is capital, and the marketplace is global. We must develop clean energy that can power new industry and unbound us from foreign oil and preserve our planet. We have to pursue science and research that unlocks wonders as unforeseen to us today as the microchip and the surface of the moon were a century ago.

Simply put, American innovation must be the foundation of American power - because at no time in human history has a nation of diminished economic vitality maintained its military and political primacy. And so that means that the civilians among us, as parents and community leaders, elected officials, business leaders, we have a role to play. We cannot leave it to those in uniform to defend this country - we have to make sure that America is building on its strengths....

And so a fundamental part of our strategy for our security has to be America's support for those universal rights that formed the creed of our founding. And we will promote these values above all by living them - through our fidelity to the rule of law and our Constitution, even when it's hard; even when we're being attacked; even when we're in the midst of war.

Seriously, that last paragraph could have been the mash-up version of John Quincy Adams' 1821 July 4th speech. 

Here's the internationalist part:

Yes, we are clear-eyed about the shortfalls of our international system. But America has not succeeded by stepping out of the currents of cooperation - we have succeeded by steering those currents in the direction of liberty and justice, so nations thrive by meeting their responsibilities and face consequences when they don't.

So we have to shape an international order that can meet the challenges of our generation. We will be steadfast in strengthening those old alliances that have served us so well, including those who will serve by your side in Afghanistan and around the globe. As influence extends to more countries and capitals, we also have to build new partnerships, and shape stronger international standards and institutions.

Now, realism and multilateralism don't go hand in hand terribly well -- here's the key paragraph where Obama tries to link them:

The burdens of this century cannot fall on our soldiers alone. It also cannot fall on American shoulders alone. Our adversaries would like to see America sap its strength by overextending our power. And in the past, we've always had the foresight to avoid acting alone. We were part of the most powerful wartime coalition in human history through World War II. We stitched together a community of free nations and institutions to endure and ultimately prevail during a Cold War.

Essentially, the administration will try to argue that multilateralism serves as a force multiplier, allowing America to extend its reach while burden-sharing with supporters who benefot from an American-led international order.

Does this formulation work?  I like the emphasis on internal renewal, and I tend to think that the United States does retrenchment strategies better than most countries.  That said, one problem with multilateralism is that burden-sharing often turns into free-riding. 

Another p;roblem is that without an animating idea, it's difficult to retain multilateral solidarity.  "Multilateralism for multilateralism's sake" doesn't work unless you live in Brussels -- and even then it's a bit dodgy.  "All for one, and one for keeping order" has its virtues, but emotionsal resonance isn't one of them.  

There has to be a purpose beyond order to rally allies to a cause.  We'll see if the Obama team has one when the NSS rolls out. 

Developing....

There's been a spate of stories over the past few days suggesting that China is about to shift its policy on the yuan, allowing the currency to appreciate against the dollar.  Keith Bradsher's latest in the New York Times has the most detail, so let's look at his story: 

The Chinese government is set to announce a revision of its currency policy in the coming days that will allow greater variation in the value of its currency combined with a small but immediate jump in its value against the dollar, people with knowledge of the consensus emerging in Beijing said Thursday....

The model for the upcoming shift in currency policy is China’s move in 2005, when the leadership allowed the renminbi to jump 2 percent overnight against the dollar and then trade in a wider daily range, but with a trend toward further strengthening against the dollar. For the upcoming announcement, however, China is likely to emphasize that the value of the renminbi can fall as well as rise on any given day, so as to discourage a flood of speculative investment into China betting on rapid further appreciation, they said.

The emerging consensus within the Chinese leadership comes as Treasury Secretary Timothy F. Geithner held meetings on Thursday with senior Hong Kong officials and prepared to fly on Thursday evening to Beijing for a meeting with Vice Premier Wang Qishan. 

Now, given the degree of hostility between China and the United States as late as last month, we have to ask the question:  what caused the shift in China's policy?  Bradsher provides multiple answers: 

China’s commerce ministry, which is very close to the country’s exporters, has strenuously and publicly opposed a rise in the value of China’s currency over the past month. But it appears to have lost the struggle in Beijing as other interest groups have argued that China is too dependent on the dollar, that a more flexible currency would make it easier to manage the Chinese economy and that China is becoming increasingly isolated on the world stage because of its steadfast opposition to any appreciation of the renminbi since July, 2008....

People with knowledge of the policy deliberations in Beijing said that Chinese officials had made the decision to shift the country’s currency policy mainly in response to an assessment of economic conditions in China, and less in response to growing pressure from the United States and, less publicly, from the European Union and from developing countries.

So, what's going on?  First, it's possible that the policy shift will just be a token move.  I'm confident that China won't appreciate as much as, say, Chuck Schumer wants.  That said,  this doesn't sound like a token-y move. 

If China's shift is a real one, there appear to be three possible sources of change:

1)  Domestic factors and actors convinced China's leadership that diminishing marginal returns for keeping the yuan fixed and masively undervalued had kicked in;

2)  China responded to mounting multilateral pressure and feared being isolated at the upcoming G-20 meetings. 

3)  China responded to threats of unilateral U.S. action, such as being named as a currency manipulator, and/or calls for a trade war;

These are not mutually exclusive arguments, and we might never know exactly what caused China's .  But for the record, I think (1) and (2) maqttered a hell of a lot more than (3).  That said, I can't rule out the possiblity that their antics helped scare China into action. 

Yuan hawks like Paul Krugman and Fred Bergsten have been very silent as of late.  I'll be veeeery curious to read their reactions to this latest turn of events. 

Am I missing anything? 

So I see Paul Krugman has thrown his lot in with the neoconservatives who disdain multilateral institutions and prefer bellicose unilateralism when they confront a frustrating international situation. 

His op-ed today is about China's currency manipulation. ...  again. After explaining that China has less leverage than is commonly understood on the foreign economic policy front (gee, where have I heard that before), he closes with the following: 

In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent. 

Whoa there, big fella!!  That's a nice but very selective reading of international economic history you have there. 

It's certainly true that the dollar was overvalued back in 1971.  What Krugman forgets to mention -- and see if this sounds familiar -- is that the Johnson and Nixon administrations contributed to this problem via a guns-and-butter fiscal policy.  They pursued the Vietnam War, approved massive increases in social spending, and refused to raise taxes to pay for it.  This macroeconomic policy created inflationary expectations and a "dollar glut."  Foreign exchange markets to expect the dollar to depreciate over time. Other countries intervened to maintain the dollar's value -- not because they wanted to, but because they were complying with the Bretton Woods system of fixed exchange rates. Nixon only went off the dollar after the British Treasury came to the U.S. and wanted to convert all their dollar holdings into gold.  

In other words, the United States was the rogue economic actor in 1971 -- not Japan or Germany.   

So, how about acting multilaterally first before engaging in unilateral action that alienates America's friends and allies alike? 

To be fair to Krugman, many of the multilateral processes appear to be stymied, as Keith Bradsher explains in this NYT front-pager: 

Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions....

Last September, Presidennt Obama, President Hu Jintao of China and other leaders of the Group of 20 industrialized and developing countries agreed in Pittsburgh that all the G-20 countries would begin sharing their economic plans by November. The goal was to coordinate their exits from stimulus programs and prevent the world from lurching from recession straight into inflation.

The G-20 leaders agreed that the I.M.F. would act as intermediary.

But two people familiar with China’s response said that the Chinese government missed the November deadline and then submitted a vague document containing mostly historical data. These people said that China feared giving ammunition to critics of its currency policies at the monetary fund and beyond. Both people asked for anonymity because of China’s attitudes about its economic policies.

That last part oabout the G-20 process is particularly disturbing, given that this was supposed to be the venue through which macroeconomic imbalances were supposed to be addressed.  So maybe Krugman is right and unilateral is the way to go? 

I don't think so.  The big difference between the end of the Bretton Woods era and the current Bretton Woods II situation is the distribution of interests.  In 1971, everyone was opposed to a continuation of U.S. policies.  This time around, there appears to be a growing consensus that China is the rogue economic actor. 

If Krugman gets to repeat himself, then so do I:   

[T]he United States is not the country that's hurt the most by this tactic.  It's the rest of the world -- particularly Europe and the Pacific Rim -- that are getting royally screwed by China's policy.  These countries are seeing their currencies appreciating against both the dollar and the renminbi, which means their products are less competitive in the U.S. market compared to domestic production and Chinese exports. 

So why should the U.S. act unilaterally?  Why not activate an international regime that does not include China but does include a lot of other actors hurt by China's currency policy?    

Am I missing anything? 

UPDATE:  Well, Brad DeLong clearly thinks I've missed a great deal.  Response to him -- and Krugman -- here. 

Wise and benevolent overlord of the entire foreign policy realm FP editor-in-chief Moises Naim has an essay in the latest issue of Foreign Policy about the need for "minilateralism" in global governance. 

The pattern is clear: Since the early 1990s, the need for effective multicountry collaboration has soared, but at the same time multilateral talks have inevitably failed; deadlines have been missed; financial commitments and promises have not been honored; execution has stalled; and international collective action has fallen far short of what was offered and, more importantly, needed. These failures represent not only the perpetual lack of international consensus, but also a flawed obsession with multilateralism as the panacea for all the world's ills.

So what is to be done? To start, let's forget about trying to get the planet's nearly 200 countries to agree. We need to abandon that fool's errand in favor of a new idea: minilateralism.

By minilateralism, I mean a smarter, more targeted approach: We should bring to the table the smallest possible number of countries needed to have the largest possible impact on solving a particular problem. Think of this as minilateralism's magic number."

It's hard for me to disagree with my master someone making global governance arguments similar to my own, but agreement is boring, so here goes: 

• Even though Naim sets it up this way, I don't think this is an either/or question. There can be minilateralism within multilateralism. Indeed, there has to be a more exclusive club inside universal global governance structures for any decision-making of consequence to take place. The IMF and World Bank have their decision-making bodies, and the WTO has its own green room. 
• Naim might be underselling the benefits of multilateral organizations.  They are cumbersome and slow, but they do confer legitimacy benefits that are real even if very difficult to measure. 
• Fortunately, minilateral and multilateral approaches often complement each other -- or, rather, minilateral approaches generate attractors, which leads to multilateralism. See: the GATT/WTO system, origins of. 
• Whether they have benefits or not however is kind of besides the point. The thing is, they're not going away.  As hard as the Bush administration tried, they couldn't wish away the U.N. process on global warming. As much as China and Russia would like to rejigger global economic governance, they can't make the IMF disappear. 
• One last point, which Moises acknowledges but needs to be stressed again -- the best governance design in the world does not amount to anything if the great powers have radically different preferences.  Institutions matter, but so do power and ideas.