Lee Kuan Yew Sounds A Warning

Tensions over the Taiwan Straits are reaching flash point. China's missile tests close to Taiwan's major ports, inflammatory pre-election rhetoric by politicians on both sides of the straits, and U.S. distraction with its own Presidential primaries form a combination ripe for miscalculation. It's time to listen to Singapore's Lee Kuan Yew.

For weeks, Lee has been warning about the possibility of conflict between China and Taiwan. He has been reminding Asia that growth depends on stability. Open fighting will severely disrupt prosperity. He has told Taiwanese leaders that they must assure China that they still believe in a One-China policy. He has reminded Chinese leaders that the U.S. will militarily defend an attack on Taiwan. And Lee has told both sides that war could devastate their economies. Even a mere U.S. embargo on Chinese goods would seriously damage China's hopes of becoming an industrial nation in 25 years.

An arms race has already broken out in Asia as China increases its military muscle and smaller nations ponder its intentions. Southeast Asia alone surpassed the Mideast in 1995 as the world's third-largest weapon's market, after the U.S. and Europe. Defense spending in the region is up 50% since 1985, with Singapore leading the group. Malaysia, Thailand, the Philippines are all shopping for warplanes.

Lee argues that only the U.S. can keep the balance of power from tipping. For now, it can temper Taiwan's drive for independence and calm Chinese fears. In the long run, its investments, markets, and armed might can offset Japanese economic domination and Chinese military hegemony. If other Asian leaders agree with Lee, they had better start opening their markets to U.S. companies. If Washington agrees with Lee's strategic assessment, it had better devise a clear, consistent working relationship with China fast. As for Beijing, it should realize that bullying can carry a heavy penalty.

Before it's here, it's on the Bloomberg Terminal.