Prestowitz

South China Sea or me?

Several things came together yesterday that give rise to a fundamental question for the future path of the United States. First, of course, was President Obama’s announcement of troop withdrawals from Afghanistan. This was important not just in terms of Afghanistan but also as a signal that a "war weary" (the president’s words) America is ...

Several things came together yesterday that give rise to a fundamental question for the future path of the United States.

First, of course, was President Obama’s announcement of troop withdrawals from Afghanistan. This was important not just in terms of Afghanistan but also as a signal that a "war weary" (the president’s words) America is beginning to move to reduce its far flung security commitments. Not coincidentally, the speech coincided with House Majority Leader Eric Cantor’s withdrawal from the debt reduction negotiations being chaired by Vice President Biden. Cantor said he refuses to countenance any thought of tax increases. In that context, it’s clear that America is reducing commitments not only because of war weariness, but also because it can’t afford them anymore.

The second item was the Washington Post report of a statement by Federal Reserve Chairman Ben Bernanke that the U.S. economic recovery is slowing and that the Fed doesn’t know why.

Third was another Washington Post story saying that "China warned the United States … not to let Southeast Asian countries drag it into ongoing territorial disputes in the South China Sea." The story quoted China’s Vice Foreign Minister Cui Tiankai as saying "I believe the individual countries are playing with fire. I hope the fire doesn’t reach the United States" before his departure for weekend talks with Assistant Secretary of State Kurt Campbell in Honolulu.

Finally, the Financial Times‘ Richard McGregor wrote that the U.S. strategic posture has reached an inflection point. Withdrawing from Afghanistan and the Middle, according to what McGregor identifies as an important Washington school of thinkers that includes many hawks, will allow the United States to "concentrate its national security firepower on Asia." According to this school of thought, "the road to maintaining U.S. global supremacy runs not through Baghdad, Jerusalem, or Kabul (would have been nice if they had told us sooner), but through the Asian sea lanes around China." The idea is that the only power with the potential to challenge the United States is China and Washington must thus refocus its attention on Asia.

Now let me try to fit this all together for you. Let’s start with Bernanke. Maybe he doesn’t understand, but it’s not rocket science why the economic recovery is struggling. Global companies are sitting on well over $2 trillion of cash, but they are investing hardly any in the United States while expanding their investments and production in China and elsewhere. Recent studies by Booz Allen and Hamilton show that production in America is competitive with imports for about 90 percent of all industries. Yet, imports account for nearly half of U.S. consumption of goods. Investment is not taking place in America in industries that could be competitive from an American production base for a variety of reasons, but key among them is the fact that investment subsidies, currency manipulation and undervaluation, pressures to invest as a condition of market access, and other mercantilist policies by many Asian countries tend to funnel the investment away from America.

This course has worked for a long time for the Asians and for the global corporations because there is no risk. The U.S. security blanket over the Pacific smothers risk and makes Asian mercantilism and investment in Asia safe – indeed safer than in the United States where production can be subject to the targeting of Asian industrial policies.

But now China is beginning to flex its muscles a bit and is sending a chill through its Asian neighbors who heretofore have been among its biggest cheer leaders. As a result, Washington is newly popular in Asia where leaders are urging the United States to maintain and even expand its presence in the Pacific and to guarantee the claims of the likes of Vietnam, the Philippines, Japan, Taiwan, Indonesia, and Malaysia. The U.S. national security establishment, having taken us on a detour along the road to Baghdad for ten years, is now, as we pull back in the Middle East, anxious to heed the call from Asia.

But here are the key questions. What threats are there to the United States in Asia? Should we as a nation be spending more on maintaining complete dominance in the Pacific or more on upgrading our own domestic infrastructure or should we just be spending a lot less?

Clearly there is no direct threat to America from anywhere in the Pacific. China is not going to invade. Nor is there an economic threat. Indeed, the economic threat arises mostly from the impact of Asian mercantilism. But this mercantilism would actually become more risky without an American security umbrella than with it. If the tensions latent between the various Asian nations were not suppressed by the American presence, would investors be as anxious to put their production in Asia?

No, I’m not arguing for a wholesale U.S. abandonment of its Asian commitments. But I am suggesting that we resist the knee jerk temptation to maintain absolute hegemony in the Pacific and engage in an arms race with China. I’m also suggesting that Washington should insist that allies not engage in the various mercantilist practices noted above. For instance, at the moment the Trans Pacific Partnership is being negotiated as a new free trade agreement that might serve as a template for a broader Asia-Pacific free trade area or even economic union. As I write the draft of this deal has no clauses relating to currency manipulation, investment subsidies, or anti-trust policy. It should have required commitments in all these areas.

It’s time for Washington to stop making the world safe for mercantilism.

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