Tuesday, 3 January 2012


Ever since Nixon took the step to ameliorate relations with China, there have been gradual global economic realignments. The end of the Cold War and the creation of the European Monetary Union were major historic turning points in global realignment, as was the US decision in the 1990s to promote China and Taiwan to counterbalance Japan's Asian hegemony. We are currently witnessing the unfolding of realignment with the US making bold moves toward consolidating its position in the Asia-Pacific markets, and with China and Japan fighting back with their own plans for regional cooperation.

In December 2011, China took steps to forge closer ties with Japan, South Korea and Afghanistan. This was part of a broader policy to consolidate its economic hegemony over Asia and to counterbalance the US role in the Asia-Pacific region, but also to protect itself from the economic problems facing the European Union that is undergoing major restructuring.

In mid-November 2011, I wrote a piece arguing that the US "Trans-Pacific Partnership" initiative at the Asia-Pacific Economic Cooperation (APEC) summit was aimed at containing China's economic role, but it would actually harm Japan's economic interests as well. I further argued that it was questionable whether the US could actually collaborate with China to carve out spheres of influence in the manner that the Great Powers did in the 19th century, and that regardless of the US-China relationship, Japan was the big loser from the Trans-Pacific Partnership initiative. At the time, I speculated that Japan could move toward closer cooperation with China to counterbalance the US.

During the 1980s, Japan experienced substantial economic expansion, while the US economy remained fairly stagnant by comparison. This reality convinced some US politicians and analysts that Japan was practicing unfair trade, focused on limiting imports from the US and exporting without restraints. It is interesting to note that the US has been using some of the exact same arguments against China in the past ten years as it used against Japan in the 1980s. Tensions were inevitable in US-Japan economic relations as long as Japan was gaining global market share at the expense of the US, until the US decided to use China and Taiwan to counterbalance Japan's hegemonic influence in Asia and the world.

The US-Japan bilateral relationship was gradually transformed in the 1990s when the US began to move toward a multilateral policy that aimed at closer integration of China and Taiwan into the world economy. Focusing on geopolitical rivalry that China posed historically, Japan did not take the necessary steps in the 1990s or in the first decade of this century to forge closer economic relations with China - at the bilateral and regional levels - to counter-balance the US. From 2001 to 2006, Japan focused on political tensions with China, and engaged in select boycott of Chinese products at times. Meanwhile, the Japanese economy continued to lose ground to China until the global recession of 2008-present finally pushed Japan into third place in world economic rankings and allowed China to take second place.

Exactly one month after the US Trans-Pacific bloc, China and Japan agreed to begin talks that would include South Korea for regional economic cooperation. The plans for such talks probably pre-date the APEC summit in November, but that summit may have pushed the two Asian countries to move faster on the issue.

At the same time, China announced a major economic integration initiative with Afghanistan. China's National Petroleum Corporation will become the first foreign company in Afghanistan's oil and natural gas reserves, a move that may have taken many analysts by surprise considering that the US has been fighting a war in the last ten years and has nothing to show for it in terms of tangible commercial gains after the conflict ends. Afghanistan is also interested in developing its mineral (copper and iron) resources that the US estimates at $1 trillion, while others believe the reserves could go as high as $3 trillion. To exploit those resources, Afghanistan has looked to China whose economy has been expanding rapidly and needs raw materials to continue the expansion.

In 2008, China Metallurgical Construction agreed to develop the Aynak copper mine in Afghanistan's Logar province, investing $3.5 billion, the largest foreign investment in the country. In short, China has a stake in the US stabilizing Afghanistan that is already set up to become one of China's economic satellites in Asia. That the US taxpayers have paid dearly in the last ten years to prepare Afghanistan for Chinese investment is one of history's interesting ironies. Just as interesting is the fact that the US has now driven Japan and China, with South Korea as junior partner, toward closer cooperation to counter-balance the US role in Asia.

The framework of China-Japan cooperation includes, but not limited to the following:
a) the two parties agreed to acquire China’s treasury debts as a means of stimulating economic activity.
b) enhancing their respective government bonds, the two countries will promote their respective currencies in global trade.
c) free trade between China, South Korea and Japan.
d) possibility of the trilateral trade deal expanding to join the US-led Trans-Pacific Partnership.
e) Japan to play a larger role in satisfying China's consumer demand as income rise in the future, considering that the two signatories are the world's largest holders of foreign reserves.

Despite their deep historic political differences, China and Japan have agreed to forge a closer economic relationship not only to counter-balance the US, but also EU, and at the same time to protect their countries from the imminent reality that recessions in the US and EU have a profound impact in Asia that relies on exports for its rising GDP.

Increasingly, the world does appear to be divided into regional blocs, regardless of the vacuous rhetoric about 'free trade', equality of trade opportunities for all nations. As the EU is undergoing structural shifts in its integration model from an inter-dependent where there was a semblance of national sovereignty to a patron-client model where Germany, with France as junior partner, imposes its hegemony over the eurozone, the other Great Powers, including China and Japan, are looking to remain competitive by forging new economic pacts.

The Great Powers are scrambling to secure markets and raw materials around the world, just as they did in the Age of Imperialism (1870-1914). The question is what will such a race for markets and raw materials mean for the global balance of power, for possible conflicts between the powers forging these regional blocs? Will conflict be resolved through diplomacy, or should we expect major wars in the 21st century as we had in the 20th century?

1 comment:

Edmond Charley said...

Interesting perspective Jon. Civilization is moving from the West to the East, and the East, making use of such opportunity, would have many good things coming their way in the next few years. I believe Time is demanding the West to change their political and economic systems, and if they insist on the status quo, I am afraid it would be the down fall of the Roman Empire(s, if it has not already taken place.