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41 responses to “Power shifts East?”

  1. dylwah

    nice post Mark, “This could be the way the hegemon ends, not with a bang but with a Tea Party.” bags being the dormouse.

    there was a lot of talk about Imperial America with references to Rome a few years back. I don’t recall any mentions of the Roman Mob, who could be as violent as that crowd in Tottenham are being now, but they also engaged in the political process in more considered ways. I’ve been thinking about the Tea Party as a yankee equivalent lately.

  2. Tyro Rex

    I think the topos of the decline of American power is overrated.

  3. Tyro Rex

    Mark, I am not so sure about that. They have managed to fight two long and incredibly wasteful wars and they are still the biggest economy in the world and their military is still the 900 lb gorilla. Their twelve aircraft carriers still sail with impunity where ever they damn well please. Their economy is still huge and diverse. The Chinese pump their money into it because there is just no equivalent safe way to stash cash inside China itself, and anyway, there is no Chinese Miracle without the American Consumer. China is no where near replacing American and European consumption with internal consumption. Their biggest cities don’t even have safe drinking water!

    I don’t think that China is politically that stable. Daily strikes and riots. Growth keeps a lid on the turbulent peasants and workers, if unemployment rises too much, the place is in serious danger. It’s stopped from flying apart by a huge inertia created by a massively repressive regime. Its banking system is a joke … far worse debt on their books than even the graspers of Wall St. It is surrounded by potential enemies and trade competitors. It doesn’t even have clear oceanic access – its trade routes are almost totally dependent on the U.S 7th Fleet keeping the Malacca Straights open. Their own navy is no chance of this for something like a generation … 200 Indonesian pirates could probably shut down half their economy (and 70% of ours, it’s worth noting).

  4. Tyro Rex

    Also remember, if America sinks it takes all that Chinese gold to the bottom with it. The Chinese have no wish to supplant America at this point in time – simply they cannot. And American failure is just as disastrous to the Chinese as the Americans.

  5. Paul

    It’s quite likely, that the era of the Pax Americana is over. However, I don’t believe this will lead to a shift of global power to the East. Far from it.

    As Tyro has pointed out China is near-crippled by (hidden) debt and internal struggles. It is also feared and distrusted by its neighbours (Japan, the Phillipines and South Korea) who all look to America to balance the power in SE Asia.

    India is struggling to cope with corruption, poverty and demographic issues and is, besides that, locked into a death-spiral with Pakistan from which it seems unable to escape.

    Neither nation will rival American hard or soft power in our lifetimes.

    What is becoming more likely though is a multi-polar world where a wide variety of nations have their ‘spheres of influence’. Certainly the Asian nations will be very major players in this new world but predictions of America’s demise are vastly exagerrated. It still has a young and growing population, vast resources and enormous soft power. The US will still be a very, very important nation in 100 years.

  6. MH

    Yes, geo-politics is a zero sum game, and US decline is relative to Asian strength. But I would note another centre of power that is often forgotten, and that is Europe. How much of the rise of Asia over the 20th and 21st century is the decline of European power and global influence over the same time, as well as the ascendance of the US.

  7. Mercurius

    @8, yes, Europe. No, stop laughing, this is serious.

    I’ve heard the analogy put that “unified” Europe today is like the early “United” States of America in the first quarter of the nineteenth century. An apparently weak federation of weak states of dubious provenance and even dubiouser financial strength; the prospect of it having a standing army and projecting power abroad was a joke, and there were serious doubts the whole thing could hang together longer than a generation or two. And of course, it did in effect disintegrate before emerging from its own ashes. And yet, and yet…

    19th Century USA built railroads, what will be the railroad of 21st century Europe, one wonders?

  8. derrida derider

    There is, as Adam Smith noted, an awful lot of ruination in a nation (ironically he was replying to a companion who was telling him that his country would be ruined by the loss of the American colonies) . The US will certainly recover from all this, just slightly poorer and weaker than it was.

    It’s just another bump down in a slow relative decline. Paul is right that we’ll have a multi-polar world but I wonder if he’s thought through what that means for peripheral players such as ourselves. Bluntly, America will be easily able to defend itself but there’s no way it will be able to afford the very high price of maintaining its empire – err, sorry, “helping its friends”. Direct military cost aside, it will lose control over international finance (a rigged game, rigged primarily in US interests) and the cultural dominance that gives it soft power (as well as hard cash – Hollywood is lucrative) will also fade.

  9. Steve at the Pub

    Tyro Rex gives us a lot of comfort.

  10. Russell

    The amusing part of China’s rebuke:

    “Xinhua said the U.S. must slash its “gigantic military expenditure and bloated social welfare costs”

    Does this mean it’s OK to be a communist now? Even communists want cut backs to welfare??

    What about the prospects for significant unrest in the U.S.? How much more will those without a chance take, when some persuasive character comes along and explains how so many of them have been shafted, and gives them an agenda for action?

  11. sjk

    @9 The EU has created a mechanism which allows other states to escape the present anarchical system. For some states, who for one reason or another, would like access to the EU, this is a very tempting offer. Perhaps this is your 21st century railroad?

    Looking locally, Australia, as a client of the US, is flourishing under the current system.

    However, if we move to a multi-polar system that leaves Australia with a choice to make, then one option could be to join the EU and bring a few friends with us.

  12. Chris in Perth

    The editor of Xinhua is taking the piss. China is one country that is well aware that 1) a state that is sovereign in its own currency cannot run out of money and 2) further pro-cyclic cuts in US spending will worsen its economic outlook, endangering Chinese investments there.

    I think somone is having a joke at the expense of gullible US readers. Then again, after the “debt limit” clowning in congress recently, there may be people in high places in the US who are silly enough to fall for it.

    As for the relative strengh of China, I agree that it is in many ways overstated. The US is stronger, and China weaker, than the media spin would make one think. That said, I also wouldn’t have any confidence in predicting where the two nations will stand in 20 years, let alone 100. A heck of a lot can happen in 100 years. Imagine describing the Britain of today to someone in 1910.

  13. Tyro Rex

    @ SATP #11, well comfort you may take from it, I certainly don’t. American-induced global recession (with a little help from the Europeans too) is still a possibility. The material point is that China (and therefore Australia) will not escape it if that’s what it comes to.

  14. John D

    At the moment the Asian (and by extension, the Australian) is based on a situation where their wealth continues to depend on the US growing its debt at an unsustainable rate to buy Asian goodies that the US could make for itself by using idle human and manufacturing resources. So far a key part of this arrangement has been that countries like China have simply accumulated surplus’s of $US or fed them into the questionable loans that fed the GFC.
    The problem has been made worse by the crazies at the WTO who don’t seem to have come to grips with the idea that countries suffering from large trade deficits destabilize the world’s economic system. These problem countries should be allowed/required to restrict imports to the extent necessary to bring trade imbalances under control. At the moment all we seem to be getting from institutions like the IMF are demands that countries suffering from high international debt should reduce their imports by drastically slowing their economy.
    If China is seriously concerned, the most logical thing for them to do would be to use their surplus of $US to directly or indirectly buy US goods. It should be a win/win that creates jobs in the US, helps the US and world economy while improving the standard of living of the average Chinese. The long term problem with this approach is that other countries would take up the destabilizing role that China currently fills.
    In the longer term we need to have a hard look at the way free trade globalization operates. If nothing else, the WTO rules should be changed to recognize that countries with large trade deficits should be able to take direct action to restrict imports to a level the country can afford. The key question is: “how does the world get the benefits of free trade globalization while minimizing some of the potential problems?”

  15. sg

    Why does Australia need to make a choice in a multi-polar world?

  16. sjk

    A multi-polar world will present us with multiple policy options. Stick with the US? Go with China? Create a regional body? Join a non-aligned group? Act as a balancer?

    Join the EU?

    The current unipolar system means the choice is simple: Political support for the US. Trade with everyone.

  17. sg

    What do those phrases mean though? “Stick with the US” “Go with China”. You mean we can’t trade with both? We are now.

    I don’t understand what this “choice” is that we have to make.

  18. PinkyOz

    I’m sort of with the idea of the multiple ‘spheres of influence’ theory (regardless of how imperial that actually sounds). Australia’s role in that will be quite divided, and there is a good chance that war between major state actors will continue low influence/High value countries. Not exactly fun days ahead.

    Mark, this is the second time I have seen a ‘China as world leader’ post from you and its quite baffling, because usually you’re pretty spot on with these things. Are you suggesting it as a warning against what is a quite brutal, centralised and authoritarian government gaining quite a bit of power over the economics and sovereignty of other nations?

  19. Dr_Tad

    To get a sense of the current humiliation of the United States, it is worth looking at the original text of the Chinese commentary, which starts with this haughty put-down:

    The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered as its triple A-credit rating was slashed by Standard & Poor’s (S&P) for the first time on Friday.

    Though the U.S. Treasury promptly challenged the unprecedented downgrade, many outside the United States believe the credit rating cut is an overdue bill that America has to pay for its own debt addition and the short-sighted political wrangling in Washington.

    Dagong Global, a fledgling Chinese rating agency, degraded the U.S. treasury bonds late last year, yet its move was met then with a sense of arrogance and cynicism from some Western commentators. Now S&P has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth.

    The question is how on earth can the US ruling class can be allowing such suicidal policies to dominate Washington? Recall this is a capitalist class that has skilfully manoeuvred its way around its relative economic decline, a hollowing out of its manufacturing base, a chronically massive government debt, and moving (in a single generation) from being the world’s biggest creditor nation to being its biggest debtor, to still be at the top of the heap… until now.

    I agree with those here who suggest that China is not a clear winner because of its own domestic contradictions, and the Eurozone has hardly been economically blessed since the GFC (although certain core nations are trying to make the best of it at the expense of the periphery).

    My reading is that the era of neoliberalism, which was never more than a process of successive restructurings in favour of capital in an attempt to overcome the relative stagnation that emerged at the end of the post-WWII boom, is entering a final phase. Whereas before it was a serious strategy aimed at driving up the rate of exploitation to overcome weak profit rates across whole economies, now it is simply a policy of “take the money and run”, based around slash-and-burn as the policy of last resort. That it might drive the United States even deeper into recession seems to be a secondary consideration compared with the notion that ordinary people must pay for the crisis.

    The head of S&P called for getting rid of the Bush tax cuts for the super-wealthy (worth almost a trillion dollars) on CNN on the weekend. Hardly a radical policy coming from someone like him. But both sides in Washington have not even seriously considered that option because that would challenge their real core constituency’s wealth and power.

  20. sg

    Dr_Tad, I think your analysis is overly simplistic and falling again into the trap of being unfalsifiable (?). If the ruling oligarchs of the US had agreed to a raise in taxes (that we all know they can afford) and improved welfare, you’d just dismiss it as their attempt to delay the inevitable. No matter what they do, you think it’s all part of some grand scheme.

    Much more likely is they’re running around like chickens with their heads cut off, watching their economic power draining away and incapable of doing fuck all about it; and finally the contradictions between the ideals they’ve been spouting and getting americans to believe in (i.e. the Tea Party) and their actual practice (the deficit) are finally becoming too big to reconcile: hence, the chaos of the debt ceiling debate.

    Cock-up over conspiracy!

  21. wilful

    “May you live in interesting times”.

    Whatever happens, it’s clear that the unipolar world is, if not defunct yet, on its way out. Broken in good part by US economic lunacy and military profligacy.

  22. Adrien

    This could be the way the hegemon ends, not with a bang but with a Tea Party.

    So if the Tea Party hadn’t forced ‘austerity’ on Obama the Chinese wouldn’t be saying this? I think they’d be saying it louder. This credit card situation has existed for a long time I’m certain that the PRC has factored this in to their strategies. True, right now they need the US market to keep functioning. But the Chinese economy is increasingly becoming self-reliant, geared to domestic markets.

    China has imperial ambitions. And reducing the reach of US hegemony is something that must be accomplished in aid of this. Given the increasing chauvinism apparent in Chinese discourse in our region this has geopolitical consequences for this country.

    The US imperium can’t be maintained at current levels. They have structural economic problems which are hard to solve because of the interests that wield power in the DC halls. They have a cultural problem which is also hard to resolve because of the increasing gap between the prosperous coasts and the burnt out centre. The PRC knows all this and plots accordingly.

  23. Down and Out of Sài Gòn

    I think it’s more systematic failure than cock-up or conspiracy, sg. Both a majority of the US public and a sizable minority of Wall Street are in favor of raising taxes on the 1%. But their electoral system throws up politicians that are dead against it, and for the stupidest reasons imaginable.

    Their system’s gone workable to flawed to broken in my lifetime, I’m sad to say.

  24. Dr_Tad

    sg @22

    If the ruling oligarchs of the US had agreed to a raise in taxes (that we all know they can afford) and improved welfare, you’d just dismiss it as their attempt to delay the inevitable.

    Er, that’s a pretty unfalsifiable statement in itself.

    I was trying to make the point that the US ruling class is acting like it believes it’s run out of options; that the crisis is systemic and deep and they’re just rushing to save their fortunes by any means necessary.

    If this was a conspiracy it wouldn’t look like such a trainwreck.

  25. Katz

    Meanwhile, the US governing classes exhibit unmistakable signs of terminal denialism. Alan Greenspan:

    Former Federal Reserve Chairman Alan Greenspan on Sunday ruled out the chance of a US default following S&P’s decision to downgrade America’s credit rating.

    “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default” said Greenspan on NBC’s Meet the Press.

    In a narrow sense this method of paying debts is available to the US government, which raises the question, why didn’t they crank up the printing presses long ago?

    There is a childishly simple answer to that question. If the US government pulled that stunt, no one would lend to it again for a long time.

    Greenspan, of course, knows this to be true, yet chooses to tell consoling lies rather than to give complacent US punters upsetting news.

    The corruption of public discourse in the US is breathtaking. These folks are still in the world’s driver’s seat and we passengers watch helplessly as the bus heads for a cliff.

  26. Down and Out of Sài Gòn

    Any link for that Greenspan quote, Katz? I believe you, but I’m thinking “Say it ain’t so”.

    This gives the Chinese some leverage over the Americans. Who else is going to make the wheelbarrows for carrying all the greenbacks to the shop?

  27. sjk

    @19, “I don’t understand what this “choice” is that we have to make”.

    Today we trade with everyone because the US, as hegemon, believes it’s in its interests to maintain something like an open market.

    In a multi-polar world, it’s not necesarily true that open markets will be the default. What if China, as one pole, demands preferential access to our resources? And the EU responds similarly? We’ll have a choice to make then …

    Trade is only one aspect. Take defence policy. Today we can outsource it to the US. In a multi-polar world will we continue to outsource it to the US? to someone else? to build up our own capabilities? Something else?

    A multi-polar world introduces plenty of new options, hence choices.

  28. Katz
  29. Fran Barlow

    The Chinese pretty much have to lend to the US Katz, if they want to trade with them. Right now they have, IIRC, about $US1.6t in T-notes, and swapping them in a hurry for something else isn’t all that practicable. What would one trade them for and who would be happy to be on the other side of the trade?

    That largely reflects the huge trade surplus that China is running with the US. It can stop “lending” when it stops running a trade surplus and using this to leverage growth. So up to a point, Greenspan is right. More accurately though, in a global trafing system the fortunes of every jurisdiction depend to a large extent on the fortunes of all of the other major jurisdictions, which is why however absurd it all becomes, when push comes to shove, the boss classes of the world prefer to paper over problems and pretend that everyone trusts everyone else to do the right thing. The alternative for them is not simply worse but unthinkable.

  30. Katz

    FB, in the doomsday scenario that you are outlining, the Chinese government would have to choose between pretending that Greenspan’s funny money is actually really money that confers spending power or calling the US bluff by insisting that they will not accept Greenspan’s funny money as settlement for purchases of imports or for settlement of old debts.

    Both courses of action lead to repudiation because few other political or commercial entities will accept Greenspan’s funny money, because they don’t have to. Neither China nor the US can afford to pretend that there are only two economic actors in the world.

    In short, the US is in zugswang and China is in an acutely embarrassing, though not terminal, condition.

  31. Nickws

    All this talk of Chinese industry being able to replace its Western markets with sales to domestic consumers, is there any evidence of that being true?

    A quick google tells me that current estimates of the size of China’s middle class is of figures still far below the combined populations of America and the EU.

    sjk @ 29: Today we trade with everyone because the US, as hegemon, believes it’s in its interests to maintain something like an open market.

    In a multi-polar world, it’s not necesarily true that open markets will be the default. What if China, as one pole, demands preferential access to our resources? And the EU responds similarly? We’ll have a choice to make then …

    If it comes down to a fight between this (non-Washingtonian) Kissinger realism versus the power of Nike Air Jordan I put my money on footwear, i.e. global consumer capitalism.

  32. Adrien

    All this talk of Chinese industry being able to replace its Western markets with sales to domestic consumers, is there any evidence of that being true?

    You want to look at the trends. The Chinese consumer market is still miniscule compared to that of the developed world for obvious reasons. But it is growing and it’s not unreasonable to imagine a geopolitical forecast in which China replaces the US as the globe’s largest consumer market.

    Obviously access to resources, acquiring the status of #1 valued customer if you like, is important, and here the United States military prowess could prove an obstacle. Since the hegemony cannot be challenged directly, you drain it of life another way. By feeding an addiction.

    The Chinese pretty much have to lend to the US Katz, if they want to trade with them.

    Yes for as long as they do.

    the boss classes of the world

    I wonder what actually defines these ‘boss classes’. I’m not being sarcastic, I’d really like some definition as to ‘ruling class’ for the 21st century.

  33. Tyro Rex

    “The Chinese consumer market is still miniscule compared to that of the developed world for obvious reasons.”

    It might be minuscule now but if American & European consumers stop buying Chinese made crap it will be nonexistent.

  34. Brian

    Nickws @ 33, I heard an estimate recently that the Chinese middle class comprised about 60m people, or about the population of France, with an average income of about US$20k. IIRC they have over a billion on less than $6 per day.

  35. Nickws

    Adrien @ 34: You want to look at the trends.

    I love trendlines, but the question is ‘Do those ruthless crony capitalists at Shanghai do business according to projected longterm socio-economic change? And if not, can Beijing force them to do so?’

    Brian @ 36, one estimate (really guesstimate) I saw was that the PRC middle class is somewhere between 100 and 300 million strong. Nothing to sneeze at, but weirdly imprecise. Maybe China has a subprime-mortgage-type problem brewing when it comes to stability for the middlingly affluent?

  36. Adrien

    It might be minuscule now but if American & European consumers stop buying Chinese made crap it will be nonexistent.

    Given that China is the manufacturing centre of the world I have my doubts that the market for their goods is going to disappear any time soon.

    Do those ruthless crony capitalists at Shanghai do business according to projected longterm socio-economic change?

    No.

    And if not, can Beijing force them to do so?’

    At the moment, yes. But there’s tension of course because the government can and does disrupt the business of entrepreneurs for various reasons. It’s one of the faultlines that could lead to insurrection. However, given that the PRC is not a democracy, the deployment of long-term strategies is easier than it might otherwise be. Also Chinese political culture is geared toward long-term foresight. More than here anyway.

  37. Tyro Rex

    “Given that China is the manufacturing centre of the world I have my doubts that the market for their goods is going to disappear any time soon.”

    This does not make any sense to me.

    Manufactured goods need customers. Otherwise it’s just landfill.

  38. Adrien

    Manufactured goods need customers. Otherwise it’s just landfill.

    And customers need manufactured goods. You think that people are going to stop buying socks and underwear from China anytime soon?

  39. Nickws

    However, given that the PRC is not a democracy, the deployment of long-term strategies is easier than it might otherwise be.

    And their lack of democratic openness also happens to make all of our speculation, well, speculative.

    Sure, the PRC has a bureau of statistics website, but I wouldn’t hold my breath waiting for them to let Western researchers have the run of their raw data (`Average Price of Food in 50 Cities’—exactly which fifty cities?)

    I have to admit I look at Chinese futurist economics like you look at Australian statistical arguments about the KRudd stimulus of 20 months ago, Adrien, i.e. “Who can say with any certainty what’s going on here, there’s just no observable evidence to draw any definitive conclusions from. None at all. It’s all anyone’s guess.”