October 21, 2010

Economic Warfare in a Weakening International System


China's recent aggressive power plays on the world stage ahead of the next G20 meeting have been dominating the news.  The dispute with Japan over an arrested fisherman and some uninhabited rocks unveiled a bold new level of rhetoric, while Chinese authorities have lobbed accusations against the United States over the "currency war," which according to the state press reveals Washington's "desire to promote the redistribution of global wealth to its own advantage." 

However, the move that has really raised some eyebrows was the decision by Beijing to place an embargo on exports of rare earth metals to a number of crucial markets
, including the United States and Japan.  Daniel McGroarty, a Washington consultant, describes China's move as a "test fire" of its resource weapon.  Steve LeVine writes, "Beijing is telling companies in the rest of the world the same thing: You could be next."  Paul Krugman, who is as shocked as I am by the very confused and cavalier response to the actions of the Chinese, pointed out the following with regard to the international system:


Major economic powers, realizing that they have an important stake in the international system, are normally very hesitant about resorting to economic warfare, even in the face of severe provocation -- witness the way U.S. policy makers have agonized and temporized over what to do about China's grossly protectionist exchange-rate policy. China, however, showed no hesitation at all about using its trade muscle to get its way in a political dispute, in clear -- if denied -- violation of international trade law.
However what's missing from the Krugman argument is an assessment of the international impact of Washington's fumbling response to this challenge, among others.  It's been made clear by a number of authors, from Peter Beinart's Icarus Syndrome, to Ian Bremmer's visions of state capitalism, to Fareed Zakaria's end of unipolarity, that the world has entered into a period of global disequilibrium, marked by the rise in influence of new economic powers and a decentralization of diplomacy in terms, especially in crisis resolution.

While it is debatable just how far or how rapidly the United States is fading from economic superiority (the military presence will take a long time to become overcompensated), there is a far greater range of responses to these changes in the global balance of power, and what we have seen from the Obama administration thus far is, well, deeply disappointing.  While Russia has its absurd spy rings exposed, and later rewards the hapless agents, the U.S. president boasts of how great the reset is going.  When Venezuela purchases the first Russian built nuclear reactor in Latin America - and this is in one of the most oil-rich countries in the world - the president pretends as though nothing be less important.  While countries like Rwanda, Thailand, Burma, Egypt, and Kyrgyzstan, to name a few, stumble toward open mockeries of democratic process, the Obama administration bites its tongue and implies consent and support.

We can recognize that there are processes underway in the global balance of powers which are weakening the rule-based international system, but it sends the entirely wrong message to America's strongest allies that we have a government that won't even fight for such rules.  These rules, embodied in multilateral organizations, alliances, and common legal regimes, do not inherently favor one party over any other, and provide much more protection to many members of the international community than threaten the rise of any new power.  However what we are witnessing, from rare earths to economic wars to cavalier attitudes to Venezuela's nuclear agenda, represents a fundamental dearth of strategic thinking among this administration that one can only hope and pray for an unpredictable outcome.

http://www.robertamsterdam.com/2010/10/economic_warfare_in_a_weakening_international_system.htm