China will limit U.S. power

Posted in China , United States , Asia | 28-Dec-03 | Author: François Heisbourg| Source: International Herald Tribune

New strategic partners ?
Beijing's economic weapon

PARIS - With the capture of Saddam Hussein, the disarmament of Muammar el-Qaddafi's Libya and the revival of economic growth, Americans seem to have good reason to celebrate during this holiday season. But behind these events lie the precursor signals of the looming crisis of American power.

Difficulties in Iraq are only the most obvious manifestation of the challenge to America. Although U.S. military expenditure in 2004 will exceed that of the rest of the world put together, the U.S. armed forces cannot exercise battle-space dominance a few hundred yards beyond L. Paul Bremmer 3rd's bunker in central Baghdad. This lesson on the limits of power pales in comparison, however, to the impending tectonic shifts between China and the United States. It is no exaggeration to suggest that their consequences will dominate the next U.S. presidential term.

Such an assertion may come as a surprise. After all, U.S.-Chinese relations have substantially improved since George W. Bush asserted during the 2000 presidential campaign that China was a strategic competitor, and since the Hainan Island incident, a few weeks after Bush's inauguration, in which a U.S. surveillance aircraft was forced to land in China. The skillful diplomatic handling of the Hainan Island crisis laid the groundwork for a normalization of relations, which were, in turn, bolstered by the convergence between Beijing and Washington in the fight against terrorism after the Sept. 11 attacks.

Most recently, Bush has attempted to defuse a new Taiwan Strait crisis by stating clearly that President Chen Shui-bian of Taiwan should refrain from holding an inflammatory referendum next March. It is difficult to fault this posture on strategic grounds even if it may have been driven by the wish to avoid an election-year crisis. These considerations do not explain, however, why Bush deemed it necessary to make his point on Taiwan in the presence of China's prime minister, Wen Jiabao, during his visit to America. The scene encapsulated America's extraordinary shift over three years from strategic competition with China to complicity, if not compliance.

There is a stark reality behind that shift, in the form of America's dependence on China in the monetary arena. If China were to cease to accumulate dollars, the result would be an uncontrolled free-fall of the U.S. currency, inducing a systemic shock for the global economy. In other words, China holds the fate of America's economic recovery in its hands.

China would no doubt be hurt as much as, if not more than, the United States if it were to turn its back on the dollar. China's trade surplus with the United States of more than $100 billion is the engine of its economic growth and breaking the dollar would destroy that surplus, with dire social consequences in China. Indeed, as a matter of policy, breaking the dollar would be the functional equivalent of using a nuclear weapon, something neither rational nor likely.

Much as with nuclear weapons, however, the possession of such a capability cannot be ignored by the weaker party. The United States can hardly continue to assume that China is going to continue to accumulate depreciating dollars, while not getting commensurate satisfaction on issues deemed to be of vital interest by Beijing, such as the reintegration of Taiwan into the Middle Empire.

Skeptics may argue that the United States was similarly dependent on Japan in the late 1980's. American fears of Japanese domination at the time turned out to be greatly exaggerated, as the Japanese bubble burst a few years later. But China is not Japan. There is no assurance that China's economy is on the verge of imploding (not that such an event would do the U.S. economy any good).

Most important, Japan was, and remains, strategically linked to the United States: There was little risk that Tokyo was going to transform its economic muscle into strategic power directed against the United States, which ensures Japan's security in a dangerous and unstable East Asia. China, on the other hand, has its own strategic agenda to press - and Taiwan figures most prominently on it.

The United States will thus have to chart an increasingly difficult course between the risks of appeasement and the dangers of confrontation, knowing that China's strong economic hand largely makes up for its lack of global military reach.

The United States is, and will probably remain, the world's only superpower, through virtue of its unrivalled military capabilities. But this does not make it an imperial hegemon, capable of dictating policy to others as a matter of course. This, to America's credit, has hitherto been a matter of choice rather than of obligation. Historians of the future may well decide that in 2003 and 2004, the limits on U.S. power became a matter of obligation rather than of choice.

The writer is director of the Paris-based Fondation pour la Recherche Stratégique