Fooling ourselves, but not Asia

It was brave talk, and his American listeners might even have believed it (because they so much wanted to), but it fooled none of the Asians in the audience.

I am referring to U.S. Secretary of Defense Robert Gates’s speech last week to the IISS Shangri-La Asian Security Conference in Singapore. Gates told his listeners not to be concerned that coming cuts in the U.S. defense budget would in any way diminish America’s security commitments and presence in Asia. Indeed, he emphasized that the U.S. presence would actually be expanded by sharing facilities with Australia in the Indian Ocean and by the deployment of littoral combat ships (LCS) to Singapore, where the U.S. Navy has use of Singaporean facilities. Moreover, said Gates, the U.S. Navy would make more port calls and do more joint training with Asian allies than in the past.

These statements came in response to recent pleas and warnings from Asian leaders like Singapore’s founder Lee Kuan Yew that China’s rising presence and influence must be balanced by a continued strong U.S. presence. In effect, Gates was saying "We hear you, and don’t worry because we’re going to be with you."

I have no doubt that Gates was being sincere. But, much as I like and admire him as a no-nonsense defense secretary, I think that as a lifetime national security operative he doesn’t have a good understanding of the economic underpinnings of American geopolitical power and of the globalization currents that are rapidly eroding them. Nor does he grasp the logical contradictions between his statements of U.S. intent and the necessities for preserving America’s long-term health.

Lee Kuan Yew, of course, understands these things better, which explains why he has been calling on his Asian neighbors to make it easier for the United States to maintain its Asian presence and to remain economically competitive. Yet I wonder whether even he is a bit out of date when I hear him express confidence that America’s unparalleled resilience will enable it to bounce back from the economic crisis with new innovations that will renew its competitiveness and dynamism.

The most recent economic developments explain why Lee’s comments have a slight ring of whistling past the graveyard. Last week’s job and manufacturing data confirmed what most Americans have been feeling for some time. The U.S. economic recovery is in danger of reversing into a double-dip recession as unemployment, the trade deficit, and overall U.S. debt continue to rise. Moreover, the ability of Washington to respond to this with the traditional tools of fiscal stimulus and monetary easing is greatly constrained by concern over rising long-term debt and by the fact that interest rates are already about as low as they can go. The standard macroeconomic measures aren’t working as well as they used to because the drag on U.S. recovery is more structural and less cyclical than is commonly understood.

One of the difficulties here is that the mercantilist export-led growth strategies of most of the Asian countries are a prime force in the erosion of the U.S. productive base and its ability to compete in the global marketplace while creating jobs at home. Asia’s undervaluation of its currencies and its subsidization of investment and exports combined with subsidization of offshored U.S. investment and "buy national" policies tend to undermine American competitiveness.

These policies have been made possible and have succeeded over the past 60 years in large part because the extension of the American security umbrella over the Asia-Pacific region has maintained stability by muting intra-Asian conflicts. But the logic of the U.S. role here is increasingly unclear. In effect, Washington is making it safe for global companies to move investment and jobs out of the United States and Europe to Asia. Exactly what America is getting in return for its enormous investment in and commitment to the creation of an Asian community whose economic strategies tend to undermine U.S. wealth-creating capabilities is not clear. I suppose one could argue that America gets more security, but the problem with this argument is that there is simply no Asian threat to America’s security. Neither China nor Singapore is going to invade the United States.

And even if the logic were clear, the ability of the United States to continue playing the hegemonic role was increasingly called into question this past week by reports of China divesting itself of U.S. Treasury bonds and increasingly promoting its yuan as a potential alternative currency to the dollar. Because the United States is a debtor nation, it can only continue to afford to play its current security role by printing dollars and selling Treasurys to foreign investors. If there are no foreign buyers of Treasurys and if the dollar is replaced by the yuan or other currencies as the main global currency, the United States will simply not be able to afford to play its present security role. Like the British after the pound sterling was broken in 1948, the United States will simply have to wrap things up in Asia and go home.

Right now, America needs to avoid being distracted by Asia’s problems. Rather, it desperately needs to obtain investment in America in both the public and private spheres. The less it invests in exotic new systems and weapons like the LCS and the more it diverts that investment into new production operations and infrastructure in the United States, the better off its citizens will be and the stronger it will ultimately be as a security force.

It is because the logic of the present U.S. role in Asia is so flawed that Gates’s statements will ultimately not hold as long as Washington insists on trying to maintain the role. Nor is Lee’s confidence in an American renaissance likely to be justified. But his concerns about declining American ability and willingness to act as an offset to China definitely will be.