Strategic Asia 2009-10: Economic Meltdown and Geopolitical Stability

Preface

Preface Richard J. Ellings Strategic Asia 2009–10: Economic Meltdown and Geopolitical Stability is the ninth volume in the series of annual assessments produced by the Strategic Asia Program of The National Bureau of Asian Research (NBR). This year’s volume analyzes the impact of the current global economic crisis on the strategic fortunes of key Asian states and U.S. interests in Asia. The gravity of the crisis and its potential to transform the regional strategic landscape warrants the rigorous, independent analysis that is the program’s hallmark. It is difficult to overstate the severity of the financial and economic crisis the world is currently experiencing. Economies in every region have witnessedafreefallinmarketwealth,plummetingdemandformanufactured goods, and severe contractions in output. Declining capital flows and reduced external demand have derailed growth trajectories even in Asia, which has been for several decades now the world’s most dynamic region and core engine for global growth. Governments have scurried to reign in the crisis but with limited success to date. Central banks have cut interest rates to historic lows, and budget deficits are swelling as governments pump trillions of dollars into the financial system and their own ailing economies. Despite these efforts, however, there still remains widespread uncertainty as to how long the crisis will endure. Amid the struggle to manage the fallout, some long-term consequences already appear probable: the world’s poor will likely increase, the middle class will likely recede, and the capacity for Western-style capitalism to deliver prosperity will be increasingly called into question. Throughout Asia and beyond, the search for economic security and stronger social safety nets will invite government intervention into markets and threaten a widespread shift toward the national at the expense of the global. x • Strategic Asia 2009–10 Such serious financial and economic developments are not without political implications. The possibility exists that the combination of financial collapse and a pervasive recession could serve as a pivotal event in international politics, one that could affect the stability and trajectory of several influential states in the Asia-Pacific. The nearest similar crisis, the Great Depression, precipitated a global collapse in liberal trade, lent credence to communism, and fanned authoritarianism—trends that together culminated in the outbreak of World War II. Although it is too early to presage a similar conflagration, the potentially far-reaching consequences of the current crisis require swift and forward-looking leadership at the international level. As the principle architect, investor, and strategic stakeholder in the international order, the consequences of the crisis are uniquely portentous for the United States. For other countries in the Asia-Pacific region, submitting to and investing in the U.S.-led regime has historically yielded dependable stability and prosperity. U.S. power and leadership in the region are to a large extent tied to the ability to guarantee those dividends. Yet, unlike in previous downturns, the United States is generally perceived as causing the current problem rather than as leading the way out. The resulting blow to U.S. legitimacy and credibility is likely to reverberate throughout the diplomatic and strategic realms for some time. Emerging Asian economies have voiced their desire to take a more direct role in stewarding the global economy, a development that could erode the United States’ advantageous status as the world’s “preferred borrower.” Early signs of this are already evident in China’s proposal to create a new “super-sovereign” currency within the International Monetary Fund (IMF) that would replace the U.S. dollar as the world’s primary reserve currency. A loss of faith in the ability of the United States to lead the global economy could jeopardize future U.S. prosperity and court regional as well as global insecurity and instability. The principal task for Washington will thus be to accommodate and adapt to ongoing changes while assuring emerging powers that the benefits of the United States maintaining a crucial economic and fundamental security role in Asia outweigh the costs of challenging that role. As the United States comes to terms with the diverse implications of the crisis, one certainty has come into stark relief: no other nation has either the will or the capabilities to lead global efforts to repair the damage. Even China, whose continued growth many have hoped might jump-start the global economy, has been demure. In taking advantage of this crucial opportunity, the United States remains well positioned to demonstrate its indispensability in the region and thereby lay claim to an enduring...