This week's Washington debut by China's prospective new President Xi Jinping provides an excellent opportunity for President Obama to un-confuse his administration's economic and security policies with regard to China and Asia.
In the fall, the president announced a drawdown of U.S. military deployments in Europe and the Middle East and a simultaneous strengthening of the U.S. presence in the Asia-Pacific region including the deployment of Marines to a new base in Darwin, Australia. These maneuvers, which also occurred in conjunction with expressions of U.S. concern about Chinese territorial claims in the South China Sea (or West Philippine Sea per Hillary Clinton), were all said to constitute a "Pivot to Asia" not only of U.S. forces but also of U.S. focus and priorities. At the Honolulu meeting of leaders of the Asia Pacific Economic Cooperation (APEC) forum in November, Obama emphasized that this Pivot is not aimed at any particular country but rather is being undertaken because the region is central to America's future prosperity. But this was transparent nonsense. U.S. forces have long patrolled China's coast and China's force modernization is clearly aimed at denying unimpeded access to its coastal waters to the U.S. Navy. In turn, Washington clearly sees China's build-up and its assertion of claims in broad reaches of the South China Sea as a security threat to certain allies and perhaps even to itself.
But then here comes the contradiction. China's ability to pose a threat is, of course, based on its increasing industrial, technological, and economic and financial prowess. China's rising power and influence arise not from its military strength, but from its economic success dynamism. Conversely, the decline of America's power and influence is the result not of loss of military capability but of economic competitiveness. Yet, in this circumstance, the United States is doing just about everything possible to enhance China's economic power and virtually nothing to counter the negative impact of that on the U.S. economy or to enhance its own competitiveness. Consider, for example, that the chairman of the President's Commission on Jobs and Competitiveness, GE Chairman Jeff Immelt, has just completed a deal to merge GE's avionics activities with those of a Chinese state owned company and to move a significant part of the activity to China. Intel has just opened a factory to produce Pentium microprocessors in China in part because China offered investment incentives that Washington refused to match. Everyone knows that China is manipulating its yuan in violation of both World Trade Organization(WTO) and International Monetary Fund (IMF) guidelines, but Washington not only refrains from doing nothing about it, it also even denies that China is manipulating.
In my mind, the whole concept of the threat from China is skewed. In the first place, the notion that Asia is central to America's future prosperity is wrong. Asia buys relatively little from the United States, engages in mercantilism that costs America investment and jobs, and subsidizes the off-shoring of U.S. production facilities and technology. Asia is a drag on American prosperity. Of course, that could change and we must hope that it does. But to think that America now has vital economic facilities in Asia that need to be protected by more American military presence is very wide of the mark at the moment.
But just for the sake of the argument, let's suppose Asia is central to America's future prosperity. Just what is China doing or likely to do in any military sense that would constitute a threat. Is China going to invade the United States or Japan or South Korea or any other significant country in the region? The answer is no. Is it going to occupy certain reefs and islands the ownership of which are in dispute? Possibly, but so what. Is it critical to American security that the highly questionable claim of the Philippines to certain coral reefs is forcefully defended? No. What about the claims of the Japanese and Koreans? Those are perhaps more serious in terms of U.S. obligations to defend Japan and Korea, but, on the other hand, Japan and Korea are major rich countries with large military forces that are capable of doing a fair amount for themselves. And they certainly should do the maximum before the United States jumps in and the United States should certainly not jump in if the Koreans and Japanese are not doing so. So all in all, it's hard to reason for the Pivot. The Chinese see it as a hostile move and it kind of is -- unnecessarily so.
The real problem is on the economic side. Here, if Washington thinks there is a threat from China, it should stop feeding the beast. But even if, as I argue, there is no military threat, there certainly is a threat that American power will be eclipsed by a combination of Chinese economic dynamism and American economic decline.
Thus, the best way to defend and assure the future prosperity and power, both military and economic, of the United States is to figure out how to compete with China and the rest of Asia. For starters this would mean telling Xi that neither he nor China should take anything personally because it's all just business. But the United States will initiate some investigations into how best to counter the problem of dollar over-valuation and will take steps to prevent it. He should further explain that the United States will be matching the investment off-shoring investment incentive packages of China and others and that he will take every legal step to convince Chinese and other producers that if they are selling in America they should make every possible effort to produce here as well and he will pressure and use tax incentives to persuade U.S. business leaders to make it in America. Finally, he should lay out the proposals he will make for adoption of a value added tax, a reduced corporate tax, a greatly increased government R&D budget, and other steps to spark a renaissance of American competitiveness.
This kind of program in conjunction with an actual reduction of the U.S. military presence in the Asia-Pacific area would constitute a Pivot to America. Xi might appreciate that as much as the American people.