SINGAPORE – U.S. prominence in Asia since World War II has rested on a widespread belief among friends, foes and nonaligned nations alike that Washington would use its economic and military power to prevent what it saw as dangerous challenges to the region’s peace, stability and growth.
This conviction was eroded in recent years as various U.S. administrations pursued different, and often confusing, approaches to Asia. While America bounced back from defeat in the Vietnam War, its current performance in Iraq and Afghanistan shows a lack of staying power.
The relative economic decline of the United States and its key Asian ally, Japan, have reinforced regional perceptions that America and the U.S.-led alliance system are no longer as dependable as before. The rapid, seemingly unstoppable, rise of China has strengthened its claim to be an alternative pole.
After being lectured by the U.S. for policy failings in the Asian financial crisis of 1997-98, Asia suffered from the fallout of the 2008 global financial crisis that had “made-in America” written all over it. The reputation of the U.S. for competence as well as reliability was called into question, again enhancing China’s standing in the region.
America has caused further serious damage to its reputation by the absurd and irresponsible political drama over its debt ceiling. As U.S. federal government debt threatened to break the ceiling of $14.3 trillion authorized by Congress, an extension of Washington’s self-imposed credit limit was required by Tuesday (U.S. time). If the U.S. had defaulted on its debt repayments, it would have undermined an already fragile global economy and hit Asian growth. The extension has been held hostage as the two major U.S. parties haggle over how to cut the government’s accumulated debt of $14.3 trillion from years of over-spending.
Only about $4.5 trillion of this debt is owed to foreigners. The balance is owed to Americans and U.S. institutions. However, the U.S. is damaging the sovereign bond market that governments around the world depend on to raise funds. It is doing so when the eurozone is trying to stave off potential defaults by Greece and several other heavily indebted member states of the European Union, as the amount of interest they must pay on new loans surges.
The U.S. has issued or guarantees 55 percent of all triple-A-rated bonds, according the Japan’s financial services firm, Nomura. Asian countries, led by China and Japan, are the biggest holders of U.S. government debt. China alone has nearly $1.16 trillion in Treasury securities, about 26 percent of the total held by foreigners.
China would be the biggest Asian loser in a U.S. default to its creditors. The fact that security of repayment hinges on partisan politics in Washington, instead of being guaranteed in a separate arrangement, will further undermine confidence in U.S. governance.
Washington’s wrangling politicians may cobble together a limited extension of the debt ceiling in time to prevent a delay in interest payments to China, Japan and others. But serious damage to America’s fiscal reputation has already been done and a dark cloud of uncertainty hangs over future management of the U.S. debt.
China’s increasing economic strength has enabled it to invest in a major military modernization program. This, plus growing self-confidence and belief that U.S. power and influence in Asia are waning, have prompted China to become more assertive in maritime boundary disputes with several Southeast Asian states in the South China Sea, with Japan in the East China Sea, and with India over their common land border.
Governments must balance military spending, domestic consumption and investment in productive capacity to drive expansion of their economies. If the balance is right, they can generate future military power.
China — which not long ago surpassed Japan to become the world’s second largest economy after the U.S. — has evidently been achieving the correct balance, though it may not always do so in future.
By contrast the U.S., which has a far bigger defense budget than China and accounts for about 43 percent of global military spending, faces the dilemma of having to make substantial reductions now or risk even more savage cuts in future.
When Adm. Mike Mullen, the top U.S. military officer, visited China earlier this month, he was told by his counterpart Gen. Chen Bingde that “strategic trust” between the two nations would only prevail if the U.S. respected Chinese interests in Taiwan, the South China Sea, and in waters and airspace close to China.
Beijing underlined its conditional offer on July 26, when it warned that recent U.S. surveillance flights near the Chinese coast, which Washington says are permitted under international law and will continue, are a major obstacle to closer Sino-U.S. military ties.
While China is concerned that a prolonged U.S. debt debacle will slow global economic growth, it also sees an opportunity to increase pressure on America to reduce its military footprint in Asia.
Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.