Nov. 10 (Bloomberg) -- President Barack Obama will be working to counter a global perception that a rising China is eclipsing a declining U.S. on a nine-day trek of trans-Pacific summitry that begins tomorrow.
“We are losing our place in the world,” said Carla Hills, a former chief U.S. trade negotiator, at a Nov. 4 conference at the Center for Strategic and International Studies in Washington. “Others are overtaking us.”
To regain some of that lost ground, Obama will discuss expanded U.S. ties to the region, including a planned regional partnership on trade and new U.S. military basing arrangements in Australia, according to Deputy Secretary of State William Burns and other officials. The president will host the annual 21-nation Asia-Pacific Economic Cooperation summit in Honolulu Nov. 12-13 before visiting Australia and attending an East Asia Summit Nov. 18-19 in Bali, Indonesia.
The trip underscores what Secretary of State Hillary Clinton, writing in Foreign Policy magazine, has called a “pivot” to Asia after a decade dominated by wars in Iraq and Afghanistan. The diplomatic outreach is spurred by the rising commercial importance of the region -- and by China’s mounting economic and military power.
Clinton, who traveled to Asia on her first official trip as secretary, says the nation’s prosperity is increasingly linked to Pacific diplomacy. The U.S. this year has exported more to the Pacific Rim than to Europe, according to the Commerce Department. U.S. companies sell more to South Korea than to France, more to Taiwan than Italy. Last year, exports to the region supported 850,000 U.S. jobs, the State Department says.
Depending on Asia
Some of the country’s best-known brands count on Asian customers to fill their order books. Dallas-based Texas Instruments Inc. gets 74 percent of its $14 billion in annual revenue from Asia. For Santa Clara, California-based Intel Corp., it’s 67 percent of $58 billion, and Phoenix-based Freeport-McMoran Copper & Gold Inc. reaps 42 percent of its $22 billion annual revenue from the region.
Such figures are evidence of “the increasing stake that we have in what clearly is emerging as the most consequential region of the world over the coming decades,” Burns said in a telephone interview last week.
At every stop on Obama’s 17,000-mile trip, there will be one constant: China.
Since 1978, the Chinese economy has grown at an annual average of 10 percent. That has lifted hundreds of millions of people out of poverty and fueled a military buildup the Pentagon this year labeled “comprehensive and ongoing.”
The U.S. economy over the same period expanded by 2.7 percent annually. With the federal government struggling with a $15 trillion debt -- some $1.1 trillion of it held by China -- defense spending is slated for at least $450 billion in cuts over the next 10 years, according to Defense Secretary Leon Panetta. This year’s Pentagon budget exceeds $700 billion.
Global powers have been rising and falling for centuries. Now, majorities of people in 15 of 22 countries surveyed this summer by the Washington-based Pew Research Center said it is China’s turn to supplant the U.S.
“China is widely seen as having its act together,” said former U.S. ambassador Chas Freeman, who served as President Richard Nixon’s interpreter during his groundbreaking 1972 trip to China, in a May speech at the U.S. Naval War College in Newport, Rhode Island. “The United States is universally viewed as in big trouble on a dismaying range of issues and not doing much, if anything, about any of them.”
Turning to China
Goldman Sachs Group Inc. and Standard Chartered Plc both predicted last year that China will surpass the U.S. as the world’s largest economy as early as 2020. “Eclipse,” a 2011 book by Arvind Subramanian, a former International Monetary Fund economist, portrays China using its economic clout in a 2021 crisis to compel the U.S. to abandon Western Pacific military bases. China’s ascendance was underscored two weeks ago when European leaders sought a Chinese contribution to their planned financial rescue fund.
Vice President Joe Biden, who visited China in August, felt the need to push back against media reports that he had gone to reassure Chinese leaders about the stability of the U.S. economy. “I didn’t come to explain a damn thing,” Biden told U.S. military personnel Aug. 24 during a stop in Japan on the way back to Washington.
The view of increasing Chinese dominance overlooks an array of vulnerabilities that could hamper China’s rise. An overreliance on investment spending has left it with a growth model that Prime Minister Wen Jiabao has called “unsustainable.” Unbridled development has fouled the air and water. A government report yesterday said inflation was 5.5 percent in October, more than double the 2.5 percent average of the past decade.
The U.S. economy remains more than twice as large as China’s, according to the World Bank, which estimates the U.S.’s 2011 GDP at $15.1 trillion and China’s at $7.0 trillion.
Chinese officials have kept a wary eye on the Arab Spring rebellions against long-established rulers, and amid persistent grumbling about official corruption and misuse of power, the state-owned People’s Daily last week warned of “trust crises” emerging between the Chinese people and their rulers.
“China’s domestic situation is very bad,” said Cheng Li of the Washington-based Brookings Institution, an adviser to a congressional working group on U.S.-China ties. “The reality is that the Chinese economy is in a very, very difficult situation.”
China has stumbled in trying to assert itself as a regional power by provoking clashes with several neighbors over disputed maritime claims.
One key flashpoint has been the South China Sea, where China, Vietnam, the Philippines, Taiwan, Brunei, and Malaysia maintain competing claims to subsea oil and gas reserves. Half the world’s merchant shipping tonnage each year passes through the waterway, Clinton wrote in Foreign Policy. It could contain as much as 28 billion barrels of oil and almost 900 trillion cubic feet of natural gas, according to the U.S. Energy Information Administration.
In September 2010, tensions rose following a collision between a Chinese trawler and a Japanese coast guard vessel in disputed waters adjacent to the Senkaku/Diaoyu island chain, where China, Japan and Taiwan have competing claims. China’s support for North Korea also has sparked concern among U.S. allies.
“Neighboring countries that have long pursued constructive relations with China are now more anxious about Beijing’s motives and plans,” James Clapper, the U.S. director of national intelligence, told a congressional panel in February.
All this provides an opening for the administration’s Asian pivot, say analysts and former U.S. officials. The U.S. has longstanding security alliances with countries including Australia, Japan, Thailand, South Korea, and the Philippines, which it aims to enhance.
Talks in Honolulu between the U.S. and eight other nations aimed at defining the outlines of the Trans-Pacific Partnership trade deal are intended to lay the groundwork for a “free-trade area of the Pacific,” the White House has said.
Still, boosting America’s Pacific profile is “obviously a challenge at a point of budget stringency,” Deputy Secretary of State Burns said last week.
George David, a former chief executive officer of United Technologies Corp., said the U.S. in recent years has failed to exploit even low-cost initiatives. David participated in a CEO trade mission 15 years ago, which he said has not been repeated. “We are simply losing position through inattention and neglect,” he said at the same CSIS conference where Hills, who worked in the administration of President George H.W. Bush, spoke.
The U.S. faces a balancing act as it seeks to deepen Asian regional integration. Countries such as the Philippines and Vietnam are simultaneously attracted by Chinese commerce and concerned by what they consider Chinese belligerence.
The U.S., likewise, sees China as both partner and rival. “Ours is a very complicated relationship,” said Burns.
American diplomats look to China for assistance in stabilizing the global economy and containing North Korea. Daily Chinese-U.S. two-way trade exceeds $1 billion; of the 2.3 million vehicles General Motors Co. delivered in the second quarter, 588,000 landed in China, where the Detroit-based company is No. 1 in market share.
The two countries remain at odds over China’s currency, as U.S. leaders including Treasury Secretary Timothy F. Geithner say the yuan needs to appreciate more against the dollar while Chinese officials say legislative efforts to force a revaluation amount to protectionism.
The Chinese yuan strengthened 0.1 percent to 6.3402 per dollar yesterday, according to the China Foreign Exchange Trade System. The currency has risen 4.2 percent this year, the best performance among the 25 emerging-economy currencies tracked by Bloomberg. China limits currency conversions for investment purposes and buys dollars to slow the yuan’s advance and preserve the competitiveness of its exports.
Even as U.S. officials say the administration’s Asia initiative isn’t intended to contain China, Chinese officials remain skeptical. “China is watching the U.S. behavior,” said Shen Dingli, a professor at Fudan University’s Center for American Studies in Shanghai. “The U.S. arms sales to Taiwan; its support to Vietnam; and, the Philippines’ unilateral action in disputed areas, fan China’s defense buildup.”
Domestic politics in both countries is giving diplomacy a harder edge. U.S. policymaking is increasingly shadowed by the approach of the 2012 presidential election. Chinese policy toward the United States also is unlikely to demonstrate much flexibility amid China’s leadership transition, said former State Department official Susan Shirk.
“In America, do people run for president saying, ‘We should be nice to China’?” Shirk said in a Nov. 1 telephone interview. “It’s the same in China. You don’t win any points for being cooperative with the United States.”
According to the U.S. Defense Department, China has steadily upgraded its military over the past two decades, including investments in improved surface-to-surface missiles and quiet diesel-electric submarines. It also has begun work on fielding an aircraft carrier and a stealth fighter. The Pentagon estimates total Chinese defense spending at $160 billion this year, which is still less than one-fourth of the U.S. defense budget.
Unlike the Pentagon’s global responsibilities, China’s defense effort is concentrated on its neighborhood. A key goal is complicating, if not preventing, a U.S. defense of Taiwan, which China regards as an integral part of its territory. The U.S. is pledged by a 1955 treaty to defend Taiwan’s territorial integrity.
Over the next two decades, China’s defense budget could top the Pentagon’s, according to a study by the Santa Monica, California-based RAND Corp. That projection assumes continued economic growth, which also would spur heightened commercial ties between the two powers.
“China poses a very different challenge from anything we’ve conceived of,” says Dean Cheng, a former China specialist at the government-funded Center for Naval Analyses, and now a fellow at the Washington-based Heritage Foundation.
“For them, the status quo is being the dominant power of the region and the known world,” Cheng said in an interview. “The last 150 years -- what we think of as the status quo -- they think of as an aberration. Both countries see themselves as status quo powers. The question is: which status quo are you enforcing?”
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