27.06.2019, Asia Briefing: The Age of Asia

The shift of power and wealth to Asia – the process that I call "Easternization" – has accelerated of late. As the Indian prime minister, Narendra Modi, reminded the World Economic Forum in 2018, his country's economy is now six times as large as it was in 1997 – the last time an Indian prime minister had spoken in Davos. The growth of the Chinese economy has been even more momentous. By 2014, according to the IMF, China had become the world's largest economy, ranked by purchasing power. The US was now number two, relinquishing the top spot that it had held since the late nineteenth century. The IMF figures also showed that three of the world's four largest economies are now in Asia, with Japan at number three and India at number four.

The economic transformation of Asia first became evident in Japan in the 1960s and then in South Korea, Taiwan and parts of South-East-Asia in the 1970s. But the population of Japan, at just over 120m in 1990, was too small to shift the global balance of economic power on its own. The rise of China and India – two countries with populations of over 1 billion people – is a different matter.

The fundamental reason for the shift in economic power to Asia is simple – weight of numbers. Hans Rosling, the late Swedish academic and statistician, put it nicely when he describes the world's pin-code as 1114 – meaning that of the planet's 7 billion people, roughly 1 billion live in Europe, 1 billion live in the Americas, 1 billion in Africa and 4 billion in Asia. By 2050, the world's population is likely to be 9 billion, and the pin-code will have changed to 1125, with both Africa and Asia having added a billion people.

For centuries, the wealth and technology gap between West and East was so enormous that western nations dominated international affairs and business – no matter the difference in population. But rapid economic development in Asia over the past two generations means that this wealth-gap has narrowed sufficiently for the weight of numbers in Asia to begin to tilt the balance-of-power in the world.

Western sceptics about the rise of Asia tend to highlight any signs of political or economic turmoil in China, in particular – and there is no shortage of those. In 2015 alone, China experienced a sharp slowdown in growth, a spectacular plunge in the stock-market, an increasingly harsh political crackdown on domestic dissent and the arrest or interrogation of high-profile political, media and business figures – as part of a crackdown on corruption. It may well be that China's economy will slow sharply in the coming years and will fall well short of the 7% growth a year that President Xi Jingping long stated was his aim, for the years running up to 2020.

But, in geopolitical terms a slowdown in Chinese or Asian growth would no longer be transformative. The economic development that allows China and India to push for great-power status has already happened.

China's Communist system is clearly vulnerable to political and economic shocks and India is notoriously hard to govern. But the idea that the fragility of the Chinese or Indian systems means that the "Easternisation" story will soon end, ignores the extent to which the West's own rise was punctuated by episodes of extreme instability. The United States, after all, fought a civil war in the middle of the nineteenth century – but that did not halt its rise to global pre-eminence. The rise of Asia has already been punctuated by occasional crises. China was on the brink of revolution in 1989, just a decade after the economic reforms promoted by Deng Xiaoping had begun. South Korea, Thailand and Indonesia all suffered huge economic damage during the Asian financial crisis of 1997. Yet the rise of Asia has continued and so has the process of Easternisation.

Measuring or predicting how this shift in economic power will change international politics, however, is an uncertain business because the relationship between economic and political power is not straightforward. When China became the world's largest economy it did not also automatically become the world's most powerful country. On the contrary, the US retained a military, diplomatic and institutional edge that continued to justify its title as the "hyper-power".

Over the long run, however, there clearly is a strong relationship between economic might and international political power. The British Empire became unsustainable when Britain's economy was no longer strong enough to support its global commitments. The Soviet Union lost the cold war largely because its economy was too weak to keep up with the United States. For the moment, however, the most obvious consequence of the erosion of Western power is a fraying of international order and a growing risk of conflict around the world.

Theres already an arms race under way in Asia. India, along with Saudi Arabia, has become the world's largest importer of weaponry. And, by 2020, according to the Washington Post, China is likely to have more ships in its navy than the United States.¹

This erosion of America's strategic and economic dominance formed the backdrop to the election of Donald Trump as the 45th president of the United States. In pledging to ‘Make America Great Again', Trump implicitly promises to reverse the shift of power to Asia – restoring America to its unrivalled position, both in terms of living standards and global power.

Some of Trump's most important advisers, made a direct link between globalization, the rise of Asia and the decline in American wealth and influence. Steve Bannon, who was appointed as chief strategist in the Trump White House, argues that ‘The globalists gutted the American working class and created a middle class in Asia.'²

Bannon and Trump have fallen out. But the protectionist instincts of the Trump administration endure. Wilbur Ross, Trump's Commerce Secretary, argued in Davos recently that a trade war is already underway and that it had been initiated by other nations. In response, argued Mr Ross, "the US troops are now coming to the ramparts." Over the coming year, it can be expected that the US will take a variety of protectionist actions – with China as a leading target.

The dangers of confrontation between the US and China are increased by the fact that under President Jinping, who came to power in Beijing in 2012, China itself has also moved in a much more nationalistic direction. Well before Trump pledged to ‘Make America Great Again', Xi had made a similar pitch to nostalgic nationalism, promising a ‘great rejuvenation' of the Chinese nation. With Trump and Xi in power in Washington and Beijing, the stage is set for a potential clash between American and Chinese nationalism in the Pacific.

The last years of the Obama administration had already seen rising alarm in Washington about China's programme of ‘island-building' in the South China Sea. The threat that Beijing might one day seek to control access to these seas – the busiest commercial waterways in the world – is clearly rising.

In his confirmation hearings before the US Senate, Rex Tillerson, Trump's new Secretary of State, signaled a significant hardening in the American attitude to the South China Sea. Tillerson likened the island-building to Russia's illegal annexation of Crimea, and said that the Trump administration intended to let Beijing know that ‘your access to those islands is not going to be allowed'.

Taken at face value that sounded like a threat to blockade the islands. China would almost certainly attempt to break such a blockade by sea or air. The reaction to the Tillerson statement in China's state-controlled media was ferocious.

After a few weeks of fevered speculation, following Tillerson's Senate testimony, General James Mattis, Trump's new Defense Secretary, calmed the atmosphere by stressing that the US was not planning any sudden military moves in the South China Sea. In the first few months of his presidency, Trump even took a more conciliatory stance over trade.

A crucial moment came with the first visit by the Chinese president to the US in April 2017. The Chinese president did a masterful job of charming his American counterpart. Months later, Trump was still waxing lyrical about their relationship, telling an interviewer – "We got along great. I like him a lot. I think he likes me a lot."³ Early threats of tariffs against China were played down, only to be revived a few months later – a useful reminder of the volatility of policymaking in the Trump White House.

One key to understanding Trump's early reversals in Asia was his preoccupation with the nuclear threat from North Korea. The rapid progress of North Korea's nuclear-weapons programme and the threat that Pyongyang is close to developing ballistic missiles that could hit the continental United States, ensured that North Korea was one of three major topics discussed by Obama and Trump in their first meeting at the White House following Trump's election. Trump's initial comments on the subject focused on the idea that increased pressure from China could force the North Koreans to abandon their nuclear programme. As a result, the new president discovered that dealing with North Korea required him to secure the co-operation of countries, such as South Korea and China, which he had once threatened with a trade war.

It is certainly true that North Korea is desperately poor and hugely dependent on its wealthy Chinese neighbour. Yet the Chinese have always denied that they have the leverage to ‘deliver' North Korea. The real truth may be that they are loath to provoke a crisis in a dangerous and unstable neighbour – which also remains an ally, albeit an infuriating one. Faced with possible diplomatic frustration over North Korea, Trump made it clear that he was prepared to contemplate military action. America's Asian allies were deeply alarmed by Trump's confrontational language, since they are well aware that any American attack would probably provoke conventional or even nuclear retaliation by North Korea - a devastating prospect since many South Korean and Japanese cities are well within range of North Korean missiles.

Trump's unpredictability is a profound worry for America's closest allies in East Asia: Japan and South Korea. The recent efforts by President Moon Jae-In of South Korea to launch a rapprochement with the North Korea – centred around the Winter Olympics – underlines the extent to which US and South Korean interests are beginning to diverge. South Korea has lived with the threat of North Korean nuclear weapons for some years. For the Moon administration, the biggest short term security threat is that the US, in pursuit of its own security interests, will attack North Korea and provoke a devastating war on the Korean peninsula.

But Japan, which is painfully aware of its reliance on the US security guarantee in the face of a rising China, has little option but to humour Trump. Just four days after meeting Abe in November 2016, Trump announced that he intended to renounce the Trans-Pacific Partnership (TPP) on his first day in office. The TPP, a giant new trade deal linking twelve countries includind the US and Japan that had been painstakingly negotiated by Obama and Abe. For Abe, the significance of the TPP was as much strategic as economic. Like President Obama, he saw the negotiation of a giant new trade deal that included Japan and the US – but very pointedly did not include China – as a way of heading off Chinese dominance of the Asia-Pacific region.

The Japanese government, like the Obama administration, understands that the likeliest route to a China-dominated Asia is through commerce rather than conflict. Twenty years ago, America was the most significant market for all the major Asian economies, and Japanese multinationals were the largest foreign investors across South East Asia. But those days have gone. Now China is the most important trading partner for South Korea, Japan, Australia and most of the nations of South East Asia. As Abe and Obama both realised, the growing importance of Chinese trade and investment across the world has considerable geopolitical significance. Asian countries will be much less willing to confront China if their economic futures depend on goodwill from Beijing.

For the Abe administration, the TPP represented a last effort to push back against the creation of a China-dominated co-prosperity sphere in East Asia. Donald Trump's repudiation of the deal was thus a grievous blow to Japan's survival strategy for the twenty-first century. Eventually, Japan decided to press ahead with the TPP without American participation – with the 11 other signatories agreeing to put a revised treaty into force in early 2018. But the deal is clearly much less significant without American participation.

Ditching the TPP was a decision driven by American domestic considerations. But outside the United States, Trump's move was widely interpreted as a symbol of an American retreat from global leadership. A couple of days after the decision was announced, I found myself in the office of a senior EU official in Brussels, who remarked to me ‘It's interesting, when the Brits were the world's dominant economy, they were also the main promoters of free trade. And then when America became the world's dominant economy, they became the main promoters of free trade. And now America is losing its faith in globalisation and China is becoming the main advocate of free trade. You can feel the wheels of history turning.'

Traditionally, the US approach to Asia had maintained a rigid division between military and economic affairs. Trump sees military and security commitments as part of a connected set of issues that can be used as bargaining chips in a broad-ranging negotiation.

To America's security establishment this approach is anathema. Military alliances are meant to be sacrosanct. If they are thrown into the mix as part of a negotiation, then American ‘credibility' are gravely weakened. The implications for allies like Japan – and for the Taiwanese – of this new Trump approach are also disturbing, since it implies that their security could be traded away as part of a broader negotiation with China.

The volatile and unreliable nature of the Trump White House has also handed China a remarkable propaganda opportunity. During the Obama years, the US had often suggested that China was an irresponsible international actor – whose actions over climate change, or the South China Sea, threatened the international order. The arrival of Donald Trump in the White House presents Beijing with an opportunity to turn the tables. Now it is the United States that can be presented as a dangerous player, over issues such as North Korea, trade and climate – while China played the role of the supporter of international norms and agreements.

The chaos that swiftly engulfed the Trump White House also marked a striking contrast with the apparent calm and long-term thinking in Beijing. In May 2017, as Washington was convulsed with speculation about the possible impeachment of Trump, following the sacking of Comey, President Xi hosted an international summit to promote China's "Belt and Road" initiative. The largest group of foreign dignitaries to assemble in Beijing since the Olympics in 2008 heard the Chinese government pledge to spend $150 billion a year on infrastructure investment across 68 countries.

Yet while China deployed its wealth to create a new network of partners, Trump threatened to alienate traditional allies. He is the first US president since 1945 to express more admiration for the leader of Russia than for the chancellor of Germany. While Trump consistently praised Putin as a strong leader during the presidential election, he attacked Angela Merkel's willingness to admit over a million refugees into Germany as ‘insane'. Trump was even widely reported to have presented Merkel with a fake "invoice" for $376 billion – that he claimed Germany owed in dues to Nato. While the White House denied these stories, there was no disguising the tension between the American and German leaders – which made a marked contrast with the bonhomie between Trump and Sergei Lavrov, when the Russian foreign minister visited the Oval Office a few weeks later. For some of Trump's current and former advisers, such as Steve Bannon, antagonism towards the EU has an ideological element. Through his Breitbart news service, Bannon has forged ties with far-right and anti-EU parties in Europe. Even though Bannon is now banished from the White House, his ideas are still propagated by White House advisers, such as the presidential speechwriter, Stephen Miller – and they also form part of a deeper ecosystem of right-wing thought in America, propagated on talk radio and through Fox News and Breitbart.

Go to most of the capital cities of the European Union and you will be visiting the capital of a former empire. The ruins of the Acropolis in Athens speak of the glories of ancient Greece. In Italy, the Coliseum and the Pantheon are reminders of when the Roman Empire defined the civilised world. In Vienna, the grandeur of the Ringstrasse dates back to the late nineteenth century when the city was still the centre of a great empire. Brussels, now the capital of the European Union, was once the capital of the Belgian empire and much of the city's inherited wealth stems from the colonisation of the Congo. As for London, my parents' generation grew up in a world where large parts of world maps, including India, were still coloured pink – to signify that they were parts of the British Empire.

The process of "Easternisation" means not just that Europe no longer controls large swathes of the globe. That has been the case for decades. It also means that Europe is increasingly vulnerable to political, social and economic trends in the rest of the world that it cannot control – but which pose direct and indirect threats to European stability, prosperity and even peace.

Different parts of the world pose different sorts of challenge and threat. Even before the financial crisis of 2008, Europe had been struggling with low growth and high unemployment. The prolonged and intractable nature of these problems means that more and more economists are giving voice to the idea that competition with low-cost producers in Asia, in particular China, has contributed to the European economic malaise. This is a notion that was once shunned by orthodox economists, but that is becoming increasingly mainstream.

The sense of gloom was particularly acute in southern European countries, which were hit by an acute debt crisis, in the years after the financial plunge of 2008. The poster-child for the European debt crisis was Greece. After it emerged in 2008 that the Greek government had been covering up the extent of its debts, the country lost the confidence of international investors. The Greeks – like the Portuguese and Irish – were compelled to accept official bail-outs from the rest of the European Union and from the IMF.

Italy avoided a bail-out. And yet the problems of Italy demonstrated that Europe's economic challenges were not simply to do with debt. They also reflected the difficulty Europeans would have in sustaining high living-standards and generous welfare-states, in a world in which European workers had to compete directly with much less well-paid Asian workers. In the five years after the financial crisis, Italy lost 25% of its industrial capacity. The problem was not simply the collapse in European demand caused by a deep recession. It was also that Italian manufacturers, the traditional backbone of the economy, were finding it increasingly hard to compete with competitors in Asia.

The traditional ‘West' as a political concept has always had two pillars – North America and Europe. But if the US and the EU end up at loggerheads during the Trump years, the ‘Western alliance' will be in profound trouble. Trump, as an advocate of ‘America First', might not worry about antagonising Europe. But the weakening of the Western alliance would actually gravely undermine Trump's plans to restore American greatness – since it would decrease the power of the United States to shape world affairs. In so doing, it would also hasten the shift of wealth and power to Asia that so troubles Trump and his supporters.

The rise of new Asien powers and the fracturing of the West strengthens the case for European unification, so that EU countries can defend their collective interests. But there is little reason to believe the EU will move quickly enough to respond to the process of Easternization that is unfolding at remarkable speed.