Changing Strategic Circumstances in Asia

Changing Strategic Circumstances in Asia

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With the recent Inter-Korean Summit, U.S.-China trade disagreements, and unrest in much of the region, the balance of power in Asia continues to be in a state of flux. For this event, the Council on Foreign Relations joins with the Lowy Institute for a discussion of the changing strategic circumstances in Asia.

LEONARD: Well, good morning, everyone. TGIF, I suppose.

I’m Jennifer Leonard. I’m your presider this morning. I am the co-founder of a—of a mission-driver consultancy. We work with—PACE Global Strategies. We work with clients in and on—working in and on emerging economies, developing countries, and crisis-affected environments.

And on behalf of the Council, I’m very happy to welcome you all here today for a panel discussion on the balance of power in Asia, which is a title whose implicit assumption I think we may quickly challenge and unpack with our three experts, who I’m very happy to introduce.

Immediately to my right we have Hervé Lemahieu, who’s a research fellow and director of the Asia Power Index at Australia’s Lowy Institute, independent international policy think tank. And Hervé’s project has just released a seminal report, the Asia Power Index. You might have seen the high-tech video out front and played with it a bit. And we’ll learn more about that research—the research report over the course of our discussions.

Sheila Smith is a renowned expert on the politics and foreign policy of Japan and the neighborhood, and serves as a senior fellow for Japan studies here at the Council.

And finally, we have David Lampton, the George and Sadie Hyman Professor and director of China studies at Johns Hopkins School for Advanced International Studies.

And their many and impressive accomplishments are detailed in the bios that you received. So we won’t dig into it here, but we will dig into the subject matter at hand.

And so, with that, we’ll—the way we’ll run this is a typical CFR event. We’ll speak amongst ourselves and about halfway through open it up for questions amongst the audience. And just a final note, this conversation is on the record.

So, with that, let’s jump right in, shall we? I mean, a good point of departure, perhaps, is, Hervé, the balance of power. Is there one?

And, given the rapidly evolving dynamics and developments in the neighborhood, it would seem to me that your index is aptly timed. Maybe you could sort of outline your top-tier findings and help us understand at least how the Lowy Institute defines the balance of power.

LEMAHIEU: Sure. So our project has been 18 months in the making, so it preexists recent developments but it’s, as you say, very timely.

Our conviction has been that Asia’s economic transformation is rewiring the way that the world functions strategically and politically. We know that instinctively, intuitively, but we wanted to measure it. We wanted to in some way quantify it so that we can have a benchmark that we can apply on a yearly basis to see just how fast and what the implications are of the changing balance of power in Asia.

What we—and we conceived of power broadly through eight different measures, but as a definition it’s the ability to shape the course of regional events, and the behavior and decisions of other states and non-state actors. And that can be done through a variety of means. We look at not only conventional assessments of measuring power—which is material capabilities and resources; so we look at military capability, we look at economic resources, we look at the future trends of military expenditure and GDP growth—but also you could argue more importantly in terms of where we add value, we look at influence, how countries in the region associate with each other in terms of diplomatic initiatives, in terms of their defense networks, not only the depth and the vitality of the alliance system but also increasingly these non-allied partnerships that we’re seeing emerge in Asia as a form of hedging, almost, against a prospect of a possible U.S. retrenchment. You know, no one—no one knows for certain and everyone hopes, I think on behalf of most countries in Asia, that the U.S. stays, but you can never—these are uncertain times. So just in terms of—and we also look at cultural influence and a number of other measures.

So it’s 114 indicators. I would recommend you have a look on the website. It’s incredibly interactive.

But just in terms of the headline findings, what we see is that the U.S. retains its position of preeminence in the U.S. developed over, you know, half a century of leadership; that its most pronounced competitive advantage over China remains military capability despite China’s rapid advancements in terms of its maritime area denial which we see in the South China Sea. I think, in fact, the new Pacific commander had said essentially the South China Sea is now under the control of China in all scenarios except war with the United States. So the United States remains key in that military balance of power and still has a lead, if it chooses to exercise it. And that’s really a political commitment rather than one of ability, because the ability in our index is still there.

It also is a huge cultural influencer, and I think this gets underrated. We looked at the media landscape in Asia, and U.S. media and news is the—is the foremost source of news in the region among all the countries that we looked at. And we looked at very detailed, you know, internet search trends that confirm that picture for us. China has invested billions of dollars in its state-owned media abroad with a fraction of the success. So there is still a deficit there in terms of what China can accomplish in terms of the appeal of the China dream. Just look at the half-a-million Asian students that come to the U.S. every year to study at U.S. universities against the tens of thousands that go to Beijing.

So, you know, China’s making strides, but I want to paint a glass-half-full picture. There are still enormous assets that the U.S. has in Asia if it chooses to exercise that leadership. So it’s one of political commitment rather than capability.

Where it lags is on economic relationships. And this is where we see that China, not only is it—you know, has it been competitive below the level of—below the threshold of conflict—and it’s not just coercive, but it is increasingly taking ownership over the multilateral system in Asia. So initiatives like the AIIB are incredibly popular because, unlike the Bretton Woods institutions, there’s a real emphasis on infrastructure and physical connectivity, and that has traction. So we don’t want to deny that China is universally unpopular or viewed with skepticism. It is making strides in Asia, and that is reflected in the index.

So it is a contested U.S. primacy. I think we’re moving towards a balance of power in very near future between China and the U.S., but one that’s uncertain and one that possibly may be unsustainable. So I’ll leave it at that for now.

LEONARD: Well, maybe let’s use that to pivot to David as a—as a China expert. Unpack that a little bit more. I mean, we were—we were speaking earlier and you said just in the past—the course of the past few months the U.S. seems to have shifted from defining China as a—as a competitor to that of a rival to that of an adversary. You take the power index, the Lowy power index into account and what Hervé has just laid out. I mean, what’s driving it? What are the implications? Where is it going?

LAMPTON: Well, first of all, this is the first I’ve heard a comprehensive explanation of your very interesting project, so—and I was trying to think of how I would put that into my framework. And I think we are kind of in a national mood of underestimating our own capabilities. And I heard you, in effect, partly saying that. And I think we have the kind of military and intrinsic economic power, and China takes it very seriously. And so if you take, like, our trade disputes and so on, I think China has a lot of incentives to at least move in our direction—not completely roll over by any means. So I start with that.

But you mentioned half—glass half-full, half-empty. I am very worried about the directionality of our policy or the absence of our policy in important domains in Asia. Certainly, the fact that our allies would go ahead with a TPP-11, and then the U.S. expresses certain ambivalence about whether they made the right move and so forth, the sort of anti-multilateral dimension to much of our policy, the kind of our allies aren’t taking enough burden kind of thing, I think that’s not the way to take advantage of our intrinsic capacities.

Also, I think China, through this Belt and Road Initiative—and we should start by saying that’s not a strategy—I mean, it’s not a plan. It’s an umbrella idea of connectivity and building infrastructure. And China is—has some good projects, there are some bad projects there. It’s a real mixed bag. A lot of it isn’t dreamed up by Beijing, it’s dreamed up by provinces—(laughs)—that are entrepreneurial and so on.

But long and the short of it, I’m studying the building of railroads from Singapore to southern China. And China’s knitting together this region in terms of infrastructure, and there is going to be at least one railroad—high-speed railroad—from southern China to Singapore, probably by something around 2026. And the U.S. is really not in the game of building the pathways for the exercise of power in Asia.

So I concede the current situation. But I—to me, power in Asia is—we’re putting too much emphasis on the military dimension and not enough on the economic, if I just sort of had to say. And you can see that, and that gets to what you mentioned, Jen, about the strategic documents.

I think most Americans aren’t fully aware the degree to which the National Security Strategy in December, the National Defense Strategy in January, the Nuclear Posture Review in February is a series of documents that really paint China as—“enemy” may be a little too strong, but if I had to just pick one word on the competitor/rival/enemy continuum, we’re pretty close to the “enemy.” And we are—if you look at our big budget change and boost for military power, we’re putting our chips behind the military card. And I think China’s playing an economic game. So I can’t help but think we’re just kind of at the right table, but not playing the same game.

LEONARD: Where does Japan fit into all of—(laughs)—to this?

SMITH: Good question.

LEONARD: We’ll take a few steps back in a minute and talk about the big U.S. strategy picture. But talk to us about the perspective and machinations in Japan.

SMITH: Yeah. So, Hervé and Lowy, congratulations. I think this is a great contribution to our understanding of what’s going on right now in the field. It’s also really fun to play with. So that’s a hard—that’s a difficult achievement, and it’s great.

And I don’t say that just because you have Japan as an overachiever. I just want to say that. But it’s interesting that you have Japan as an overachiever. And I think that’s the—that’s the crux of what you are trying to do here, and that is to look at material indicators of power and then see how other nations either perceive them or translate them into influence. And I think that is fantastic, and I think the potential of an iterative sort of tracking of that process in Asia is going to be really fun to watch and explore some of the dynamics that Mike was talking about here.

I mean, the soft power aspect is really good for Japan, obviously. Cultural influence, its embeddedness in multilateral organizations, institutions in the region as well as globally, this is where Japan’s influence is wielded probably most effectively. Less so in the military domain, and I think that shows in your—in your numbers if you take a quick look.

But here’s the question for me—and if you take it out of the U.S. strategy picture for just a second—is: What’s happening among the regional powers themselves? And I wrote a book a couple years ago about Japan’s response to a rising China, and one of the things about material power and influence is Japanese attitudes, I believe, are changing about hard power. Japan, as we know, has Article 9 in the constitution, has long felt that it needed to have a restrained approach to its military, has spent a lot of its postwar period telling its neighbors it will not use force. But the rise of China and the military pressures along and around Japan are starting to change, I think, the way Japanese strategic thinkers look at that piece of their strategy.

Now, that’s not to say that Japan is on the cusp of militarism, so I hate it when people jump from A to Z like that. So what I—what I am just saying here is, as we look at the iteration over the years, it’ll be also interesting to see how powers in the region respond to the changing balance of material power. Do they start to see other instruments of power—economic, military, cultural, right, diplomatic—do they start to see their mix of tools change over time? And I suspect, at least from that little microcosm of the Japan-China relationship, that we are already starting to see some of that.

The one thing I also would like to see over time is—and again, I’m not sure this is fair to ask you to capture this, but I just—in my sense of what’s happening in the region is the perception of Chinese power may be actually as important as the actual material fact of Chinese power. And that—again, that weighs in, I think, Mike, to what you were saying about the U.S. perception of China as shifting so dramatically and seemingly so rapidly. Japan’s perception changed over—you know, started to change over a decade ago because it began to feel the implications of that power.

Now, that power may not necessarily be a negative, completely, for Japan, but the perception is that there’s a zero-sum game in this bilateral. And again, this is just the Japan-China relationship here, but the perception is that a rise in Chinese power by definition means a loss of Japanese influence, right?

So that is—that directs us a little bit to the architecture of the region, right? It’s not that material power—Japan’s material power has disappeared completely, right, but its perception of its influence has changed. And so I don’t know how to capture that in the kind of project you have, but it’s certainly part of the policy picture as we try to address how do we think about the region going forward.

LEONARD: Is that evolution expedited, spurred on, et cetera by even these rapidly evolving dynamics with regard to the politics of the peninsula? I mean, the Trump administration’s approach and focus on the—on the nukes question, the outstanding question about, you know, peace on the peninsula. I mean, how is—is this sort of very quickly emerging developments, et cetera, expediting what you’re describing has been more of a gradual process and shift in attitudes and perceptions? And are we going to—is the pace going to pick up? And what’s it depend on?

Sure. Yeah, Sheila, take it.

SMITH: Sorry. (Laughs.) Don’t want to keep going on.

LEONARD: Sorry.

SMITH: I think very specifically on the North Korean issue—and I’m speaking from Tokyo’s perception of it, right?—is you are going to see some real cautious skepticism about peace on the Korean Peninsula. You’re going to see some very cautious skepticism about denuclearization. In other words, what Tokyo will be focused on is, A, its own—its own security interests, first and foremost, which is what we should expect in any negotiation. But compromising denuclearization will, by definition, be bad for Japan, right?

The second piece for Japan is not on the table yet, or at least we don’t see how it’s on the table yet, although President Trump has mentioned it as he goes into this meeting with Kim Jong-un, and that is the ballistic missile program. Now, I don’t know—we haven’t up until now in the negotiations on the peninsula had a disarmament regime that addresses delivery vehicles specifically. We’ve been very focused on fissile material. But if you’re thinking about regional stability and the regional—especially from Japan, but not exclusively, then this question of the delivery vehicles—not just the ICBM, but all of them—is also going to be part of what you see here. So the zero-sum nature in the negotiations could come out quite abruptly if you start to see Washington or Seoul compromising other security interests in the interest of a peace regime on the peninsula.

LEONARD: And where do you see China fitting in? You want to—you look like you have something to chime in on here.

LAMPTON: Well, I think Sheila’s on to something very important. Now, we’re jumping way ahead to be talking about peace on the Korean Peninsula—

LEONARD: Well, why not? (Laughs.)

LAMPTON: —and I don’t know what probability to attach to it, but not 50/50 in my view. But just assume for a moment that we move in a direction of a peace agreement and economic normalization and some process to move towards denuclearization. I think the pressure to get U.S. troops off the peninsula is great, and I can’t imagine Tokyo’s anything but alarmed at that prospect. And then, if you have a sort of Moon kind of orientation, which I don’t mean to sound like I’m totally critical of but nonetheless accommodating China and economic integration, that direction which China wants, you’re going to have a very alarming picture for Japan. And then that raises how Japan responds, and I’m not predicting they go from A to Z, but they may go from A to M. And that will—that will have a lot of implications for an arms race with China because China is building up, whatever you want to say about that.

Also, looking to the south, I’ve been doing this project with eight countries that are involved. And I was just in Burma, had the opportunity to meet Aung San Suu Kyi, and the degree to which Burma is accommodating to China and actively seeking its economic help is quite substantial. Burmese—there was—it just happened to be in the paper, an op-ed in the Burmese English-language paper about how China is the inevitable economic power in our part of the world and we have to accommodate it, like it or not. The U.S. is on the track to being important, but not dominant in this—in this region.

The Thais have already accommodated very substantially. We’ll see what Mahathir does now that he’s there. So the region is really accommodating to a future in which they think China’s going to be economically dominant. And of course, to the degree to which Thailand is, in effect, an ally, I don’t know exactly how I would characterize that relationship.

But China is trying to neuter our alliances. That’s the core of their policy. And the more their economic power grows and the more we defuse situations that don’t seemingly require the presence of our troops, I think that’s—China thinks it’s died and gone to heaven if this goes.

LEONARD: Hervé, can we bring it back to the findings of your study and what you undertook in that regard? I mean, based on your—the 114 sum indicators, I mean, what do you make of the diagnosis that Sheila and Mike have laid out in this regard?

LEMAHIEU: There’s a few points to be made. I think you’re absolutely right, though, about perception because it’s not just China’s current size or current importance in terms of the way the region is economically wired, but it is to do with the fact that perceptions of China’s future power are even more staggering. So we decided to include among the eight measures a future trends component, not because we’re big believers in—you know, and not because we want to be fatalistic in terms of the inevitable and conclusive rise of China and the decline, at least in relative terms, of everyone else, but because it informs perceptions in the region. And so perceptions of China’s material capabilities are actually having a political influence in the balance of power. And it’s only weighted 7.5 percent of the overall index, but it’s as far as we could get to measuring some degree of how future orientations or the future development of China informs the balance of power today and informs the decision-making of powers today, because fundamentally they think the U.S., hmm, well, has global commitments, a lot of resources, but it’s in relative terms shrinking in Asia. It’s also, unlike China—you know, China can commit its resources to its near abroad. You know, there is no geographical escaping of the fact that China is their neighbor, whereas the U.S., well, it really depends on its political commitments, so we need to hedge. So we did try to bring that in there.

But I think your—just on another point, if there is—there are two, I think, flaws in the U.S.—in current U.S. Asia policy. The first is, you’re absolutely right, we’re focused too much on the military balance of power. That is a critical dimension of power, but—and to a certain extent we should be reassured by the fact that the U.S. still has assets in the region if it chooses to use them. But really, what’s happening in Asia is a much bigger game. China’s competitive below the threshold of conflict and it is about economic relationships.

And then the second potential flaw or risk is to reduce Asia policy to the dimension of the Korean Peninsula, which is again an important component of the overall balance of power but not exclusively, you know, the entire game. And one of the more remarkable findings of the index—and I expect this will be debated—but because of the way we look at power, which is multidimensional and your performance across all these measures and indicators, North Korea comes out 17th in our index. You know, it’s a misfit middle power. It’s asymmetric. It’s chosen to put all its eggs in one basket, in fact in one element of its military capability, which is its nuclear capability and its intercontinental ballistic missile range. But otherwise, it has a GDP smaller than Laos despite having four times the population of Laos.

LAMPTON: Really?

LEMAHIEU: It operates as a—as a criminal syndicate in the region in terms of its economic relationships. It’s chronically dependent on China in a way that can’t be healthy. It remains a brittle state. And to use your nuclear weapons, you know, would be to provoke the end of the regime through retaliation. So it’s a very blunt weapon. It serves a theatric purpose or a disruption purpose and a deterrence purpose, but it—but in itself, I mean, I think we need to put it in a broader context and see, you know, it’s not just Kim Jong-un and Donald Trump here, but it’s Xi Jinping and the broader game and all these other countries. So that’s what I’ll say about that.

LEONARD: Misfit middle power. One could make an argument that maybe it’s overachieving at this point—(laughter)—that it’s punching above its weight on these issues.

SMITH: It’s a massive, massive overachiever. (Laughs.)

LEONARD: I mean, the elephant in the room is—I mean, you mentioned it—implying that there is a U.S. policy toward Asia. I’ll just put it out there for any of you to bite off on: Is there really a comprehensive strategy? Is disruption a strategy? And is it sustainable to pursue these sort of bilateral, issue-focused approaches that are, you know, in the trade lane, in the—in the hard security lane? And they seem to be handled in a relatively ad hoc manner and separately, but they are, as we’ve heard from the three of you, interrelated and play off one another. So, I mean, it’s perhaps an unfair question, but I’ll pose it anyway: Is there a U.S. policy? If there—if there isn’t, how is that being read and responded to in a way that could well imperil U.S. interests over time? David?

LAMPTON: Well, without putting too big a(n) attribution of grand strategic thinking, you know, five blocks from here, I think there are two elements to our—I do think there’s a kind of strategic impulse—two—that I would identify in those documents that I mentioned earlier plus the behavior of our trade officials and so on.

And the first thrust is to see Russia and China as the two big-power problems. Secretary Mattis came over to SAIS, where I teach, on I believe January 19th when they released, and he basically said: Students, if you don’t understand anything else about what I’ve said, terrorism was the focus of our activity, broadly speaking, strategically until this document. From now, it’s big-power competition. Now, he wasn’t saying terrorism’s a zero problem, nor was he—but he was saying the balance has shifted.

And I think, you know, you have to go back to kind of Nixon and say, what was the strategic insight? In fact, what insight did Acheson have in 1950? The strategic policy of the U.S. ought to be, in effect, drive a wedge—leave aside what, to what purposes—but don’t drive China and Russia together. So I see an impulse here that I think is strategically unsound. We could debate that, but that’s my bottom line.

The other is on the economic front China does—and this railroad project’s a good insight into it—have industrial policy. And just without putting too fine a point on it, in 2004 China had no high-speed rail industry, and in 2017 it’s at the global forefront now. The Japanese is probably a little better quality, but the Chinese are a lot cheaper. And so they’ve got a world-class industry that’s, for them, what Boeing is to us. And the U.S. policy is essentially to try to bust China’s industrial policy, this Made in China 2025. And I believe we will not be successful for the very simple reason that China believes it is successful in these key future industries.

And so I’m worried that the core elements of both our economic and what you might call geostrategic are not sound impulses. I think it’s sound for us to try to take the rough edges off China’s industrial policy, but after all, the U.S. had industrial policy in the 1950s, right? (Laughs.) So to think China at that equivalent stage of development is somehow going to disarm its economic competitiveness is a nonstarter. Whatever you think should be the case, I don’t believe that will. So I think we’re barking up two wrong strategic trees here.

SMITH: Jen, I think the question, it’s interesting. So do we have a strategy towards Asia? And we can answer it as this administration as part of the question, but then we take a step back. And I think taking a step back is useful to what it ought to be when we start thinking about where we want to go, regardless of what we think is possible.

So I don’t think the Trump administration has worked out an Asia policy. At the beginning of the administration, having listened to a lot of what their thinking was, and then looking at the documents, right—the security strategy, the larger strategy, and then the defense strategy—it seems to me we may not expect a regional strategy out of this administration in many ways, right? I don’t know, or it may be yet to come, but I don’t think that was their starting point. Whereas with the Obama administration, that was actually a starting point, that the rebalance to Asia was a way of recalibrating American priorities away from the Middle East and the wars of the Middle East to our longer-term economic strategic interests, which were located in Asia. So very different ways of thinking of these two administrations.

But walk it back to the Clinton and Bush, then Obama, and then Trump. And what you see there is an American encounter with a rising China, quite frankly, and varying ways to work through it, around it, with it. You know, and so the bilateral U.S.-PRC relationship has, in fact, shaped our evolutionary thinking about how much priority to give to Asia. The Trump administration just may not want to play that game in the same way; in other words, through a regional strategy.

But I—you know I see us inevitably having to come back to something that looks like the rebalance. Whether we like the word or we like the association with the previous administration—I happen to like it—I think it’s the right answer because I think the future of the global economy is now undeniably in Asia. The future strategic battles that we’re going to have to work our way through, whether it’s at the nuclear strategic level or the—or the larger question of missile technologies and cyber and all these emerging military—that is also going to be located in Asia. So the globe is shifting. (Laughs.) The center of global power really has shifted to Asia. So we may not want to call it an Asia strategy, but whatever the Trump administration comes up with the major powers of Russia and China are, you know, firmly located, increasingly, in activities that emanate from Asia. So we’re going to have to think about it. So your index will be much more global than regional.

But one last point about something that Hervé said about—I mean, in your question, Jennifer, about disruption and the Korea focus. Disrupters have a lot of influence. They may be number 19. What—

LEMAHIEU: Seventeen.

SMITH: Seventeen. But North Korea is focusing our attention on them in a way that no other power in Asia is, frankly. And so that’s a question. What is the impact of disrupters on regional balances of power? Can they reshape them? Can they reconfigure the way we think about the—you know, it opens up all kinds of interesting intellectual questions. But whatever happens at the end of the North Korea negotiations that the Trump-Kim summit begins, for good or for bad—and I happen to think a peace regime would not be a bad outcome—(laughs)—for all of us, frankly, if it’s done right—but it will reshape Northeast Asia fundamentally, for good or for bad. And thereby, it will reshape the Asia-Pacific balance at least, right? So disrupters and disruptive problems—(laughs)—are pretty significant in the way that you’re thinking about your study, I think.

LEONARD: You have your work cut out for you, Hervé. Before we jump to questions, did you want to add any point?

LEMAHIEU: Yeah, I mean, just a few points.

One is I think you’re absolutely right. I think that’s exactly why—you know, everyone has agency in Asia. You know, North Korea is the most economically dependent country on China—87 percent of its trade is with China—and yet its foreign policy is so stubbornly independent of anyone, including Beijing, that it just shows that it doesn’t take very much to be an effective disrupter.

And, you know, one of our other convictions was that what we’re seeing in this evolution of the U.S.-China relationship is not a new Cold War in the sense that we are accustomed to it because there is no mutually exclusive spheres of influence for the U.S. and China because they operate in this complex landscape made out of so many other actors and so many other interests who—you know, whose power differential is much lower than with U.S. and China, but who nonetheless play critical, pivotal roles in the balance of power. And that is also why the balance of power fluctuates more than it might have when we, you know, think of the Cold War.

So that’s one thing, you don’t have to be very powerful to be an effective disrupter. You can use what you have to maximum effect, and it is able to disrupt things.

Just on the question of U.S. policy, I think it’s been on the back foot for a long time. It’s not necessarily just the Trump administration. I just think it’s been reactive, as you say, to the rise of China. It’s been reactive to events in the South China Sea. Whereas what we’ve seen happening out of Beijing is proactive, is actively reshaping things.

Then, on the economic front, again, China is now just so enmeshed in the global economy that there is really no way of isolating it in a way that, you know—or of thinking that you could lead a trade war with China that wouldn’t somehow involve the rest of the global economy with it. You know, this comes back to the Trump administration, to the extent that it seems to have a policy on Asia, it’s about taking a narrower view of U.S. interests, whether that’s on the Korean Peninsula or what to do with trade, but forgetting that the World Trade Organization underpins the rules-based order in terms of economic relationships; that there are a whole host of Asian economies whose trade-to-GDP ratios are much more vulnerable to currents in global trade than is China, which has a large domestic economy and is therefore much more insulated from potential escalating trade tensions; and to forget that, you know, those countries have a strategic interest in the U.S. taking a broader view of its interests and its leadership in Asia. If it abandons that, it’s undermining the very assets that remain its competitive advantage in Asia. Or if it—you know, again, with the alliance skepticism, if that leads to a revisionism of U.S. security commitments in Asia, you know, our index shows that without those defense networks China and the U.S. would already be leveled, right?

So the very pillars of strength that the U.S. has in Asia are those that are either being undervalued or undermined by the Trump administration, to the extent that it has a policy on Asia. So it doesn’t have much policy, and where it does it’s—it seems to be undermining its own—its own advantages.

LEONARD: Just one final point before we open it up to the group.

LAMPTON: Just to maybe segue to the Q&A, there are still some old neuralgic issues, crisis potential that isn’t sort of captured thus far in the discussion, and I would just flag Taiwan as a big problem. China is getting more confident, developing the capabilities to put more coercive pressure on, is already doing so: cutting back on Chinese tourists to Taiwan, isolating—the Dominican Republic is another formal recognition that Taiwan had that they just recently lost. So China is trying to isolate it. And you have self-identity on Taiwan going in an increasingly I’m-not-Chinese direction.

And the U.S., just with a unanimous vote in the U.S. Congress, passed the Taiwan Travel Act, which really—it’s a sense of Congress thing, but nonetheless the president signed it and has expressed his support for it—would really undermine, I think, the sort of Three Communiques, the One China policy. I think we don’t recognize where we’re treading on this.

So there’s all this new power shift, but there’s that one big neuralgic issue that really could go haywire irrespective of how well or not well some of these other things work out.

LEONARD: OK. Well, I’m hearing that Xi Jinping and Kim both have a vision. Unclear what the vision is here in Washington.

With that, let me open it up for questions. Please identify yourself, your affiliation, and state your question succinctly. To the woman in the front, please.

Q: Thank you. Marisa Lino with Northrop Grumman.

For Mr. Lemahieu, I wonder—I’m always fascinated by issues of demography, and I wonder how much your study has taken into account an aging Japan, the leftover impact of one-child policy, migration issues, et cetera in coming up with your formulas.

LEONARD: Go ahead and take it, yeah.

LEMAHIEU: No, that’s absolutely—I mean, when we talk about perceptions of power, demographics also play into the picture. I think Japan is acutely aware of the fact that it is an aging society. In fact, between now and 2030 it will lose 8 million people from its working-age population, so that’s 15 to 65, the most productive cohorts of the population. But that’s not unique to Japan. I mean, it’s accelerating in Japan and it’s been—it’s been—it’s been there for a while, but China is also an aging society. It also has to confront that as a societal challenge. So is South Korea. So is Singapore. So is Taiwan. Whereas Japan—sorry, India, for example, stands to gain 169 million people between now and 2030 in terms of its working-age population. It’s in the midst of this incredible demographic revolution. And other countries, like Indonesia, are also still growing. And that means that the relative size of these other countries are shrinking, right?

So we have factored that in. It’s something that you can—you can look on the website. And we know that at the heart of Asia’s economic transformation is—you know, are numbers. It’s about population shifts. I think the late statistician Hans Rosling once said, you know, the PIN code for the world is 1114 because every other region in the world has 1 billion except Asia, which has 4 billion. And I think he was referring to 2025. So just sheer numbers mean that you are going to see a realignment in the economic center of power in the world towards Asia.

That said, though, we are going to make that—you know, we do make that very clear distinction between countries with all the resources, but still finding it difficult to translate that resource into influence. So India, for example, massive, will eclipse—will eclipse China in population terms by 2030, but is an underachiever in our—in our index, has been unable—and it just seems to be to a large extent inward-looking, and is just not very involved in the economic game that we were talking about. There is an Act East policy that Narendra Modi has espoused, which is meant to be a follow-up to the Look East policy, but we’re not really seeing them act east too much, not in relative terms. They’ve really—you know, to match strategic ambition you have to have economic muscle power, and so far, at least, we don’t see—we don’t see that happening in India.

So this dream that India will one day match China, it won’t happen by 2030. Maybe we’re talking at the end of the century. A lot of variables are at play here, and it’s not just demographics or GDP size. It’s how you’re able to leverage that into strategy, economic muscle power, cultural influence, and all the other measures that we look at in the index.

LEONARD: Please.

Q: I’m Glen Fukushima at the Center for American Progress.

I spent most of March and April in Asia, primarily in Hong Kong, Japan, Australia, and New Zealand. And based on about six weeks in Asia, I find that many of the results here are consistent with what I heard.

There are two things, though, that stood out that seemed to be inconsistent, and the first has to do with the fact that everywhere I went it seemed like the most important theme people were concerned about was the withdrawal of the United States from Asia and the rise of China, and the fact that to the extent the U.S. does withdraw with regard to TPP and other areas that it leaves a vacuum for China. And this was—I spoke at the Lowy Institute. I spoke at the University of Sydney, Australian National University, and elsewhere. And every place that I went, it seemed that that was really the key concern that people had—especially in Australia, where they said until recently we could rely on a dependable, reliable United States. We thought the rise of China economically would benefit Australia, just a one-way benefit, and we could rely on our strong relationship with—economic relationship with Japan. But Japan is stagnating, the U.S. is unreliable; China is not only growing economically, but politically in terms of this book that just came out in Australia called Silent Invasion. And just a real concern about the political influence of China, of, you know, investments in strategic industries, contributing to political candidates who have changed their positions on the South China Sea, and so forth.

So my question is, number one, my sense is there may be a slight time lag here. Maybe it has to do with the perception issue that Sheila talked about. But I don’t—I didn’t think that this report adequately reflected that concern that I heard around Asia about the real—the negative aspects of the rise of China, number one, and also the withdrawal of the United States, how significant that is and how much of a concern that’s creating, number one.

The second question has to do with the power gap. And I was quite surprised to find that Japan is far and away the overachiever—(laughs)—because I think most people that I speak with in the region think that Japan is an underachiever in the sense that here you have the world’s third-largest economy, and—in terms of the level of sophistication of technology, in terms of the essential products and parts that it produces for production around the world, and that it really—in part because English isn’t used very much in Japan, partly because of the educational system, partly because of cultural tendencies not to want to assert itself—partly because of the experience of World War II—that Japan actually is a real underachiever. And it seems like many people in the region think Japan should actually assert itself more, and come up with ideas, and provide leadership, which Abe in some sense is trying to do, but there are a lot—there are a lot—a lot—a lot of resistance within Japan to doing that.

So I just wonder if you could comment on those two kind of things that stood out to me as not being kind of accurately reflected in the report.

LEONARD: It’s hard to keep up. (Laughs.)

LEMAHIEU: Yeah. Well, first of all, I don’t think there’s a time lag with the—with the index. I think that the whole point was to take a step back, to take a dispassionate view of what’s happening, to look at the structural fundamentals, to come up with an antidote against the alarmism that we keep hearing of China’s rise and the U.S.’s decline, and to see, well, OK, in this point in time, what exactly has China got, what exactly has the U.S. got, how do they relate to the rest of the region? And what we see is that the U.S. retains a degree a preeminence over China. But we also see massive weaknesses in terms of economic relationships, which are being sort of contributed to by the Trump administration and contribute to fears of withdrawalism on the part of countries.

But all we’re saying is that the U.S. still has—if it still has the willingness to do so, it has the assets in place to maintain its leadership in Asia. So the fundamentals are there. Whether it chooses to use them or not we can’t answer. I mean, that’s not for the index to answer. That’s for D.C. and Trump to answer.

But there is the fear, right, and the fear is based on future decisions rather than—rather than anything that exists today. Today you still see the U.S. preeminent. So I’d say—and then—I’d say that about the U.S.

And the other thing about China’s rise is that, yes, you know, in Australia we’re living through—and Australia’s not the only society in Asia, or in the Asia-Pacific, to live through this—but a bit of a sort of China scare at the moment. I would argue that the very reason that it’s become such a big debate in Australia is proof in itself that China’s influence operations have not been very or terribly successful, the fact that there is that degree of fightback. And you don’t—I mean, it’s not just in Australia. I mean, look at the election result in Malaysia 48 hours ago, in itself—I mean, there are broader themes at work here, but in itself also is a reaction against Prime Minister Najib’s position or, you know, association with Chinese investors. Look at Myanmar, as well. I mean, we spoke about Burma earlier. But, you know, a lot of countries have deep-seated anxiety at the rise of China, and for that reason are actually also much more aware and alert to China’s attempts to influence them politically. And that’s why I would argue that China’s influence operations in the region have had mixed success.

I don’t think we should think that they’re universally successful, even in parts of Southeast Asia where we might think, oh, well, you know, they’ve acquiesced. You know, there’s been a joint patrol between Japan and the Philippines yesterday, I think it was. You know, we think of Duterte’s Philippines as a country that—you know, the classic model of acquiescence, of jumping on the Chinese bandwagon, of accepting that China’s economic rise is worth the costs to your own sovereignty and to the military balance of power. I think, in reality, the view on China is much more complex, much more nuanced, even among countries that we think operate in China’s shadow or in China’s sphere of influence.

So I would—I would—I question the success of China’s influence. And I would also think that the U.S.—the U.S.’s presence in Asia, you know, is not inevitable—it’s not inevitable it should withdraw. That relies on future decision points. And therefore, we need that antidote to all the alarm we’re having, and something like the index takes a broader view on that question.

LEONARD: Is the index meant to be an annual exercise, then?

LEMAHIEU: That’s right, yeah.

LEONARD: OK. So, I mean, a year from now—

LEMAHIEU: We may well be seeing a different picture.

LEONARD: —depending on how things shake out or don’t, maybe a different—

Q: (Off mic.)

LEONARD: And, yeah, are we overinflating Japan?

LEMAHIEU: All right, sorry. Yeah.

Well, it’s interesting because the Japanese themselves have told me that, you know, they don’t consider themselves to be very successful. They tend to underappreciate their own role in the region and they think they could be doing more. And I’ve told them, look, it’s sort of glass half-full or a glass half-empty scenario. I think that, you know, in Southeast Asia—I appreciate the fact that, you know, they remain contentious in parts of East Asia that—for example, if Japan wants to thicken its relationship with South Korea, it must contend with these historical divisions that still cloud the relationship in the same way, you know, that it—that it has that with China. But in Southeast Asia Japan is enormously popular culturally, economically, diplomatically. And the fact that it is not as abrasive as China or the U.S. might be is actually an asset in its favor because it’s sort of a—more of an understated Asian way of dealing with arriving at a consensus. That might look like an abdication of leadership, but I would actually say, you know, that form of multilateralism, that way of dealing with other Asian societies is an asset in itself. I wouldn’t interpret it as a weakness.

LEONARD: So you’ve opened the aperture.

Yeah.

LAMPTON: I kind of resonate with the implications of your question, conceding the U.S. has lots of assets, right? But it seems to me if we look at a couple of fundamentals, we really run—we, the U.S., run a danger of being complacent here, one of which is just take something as fundamental as savings rate. China’s saving 45 percent of GTP year in and year out. And we’re saving, what, 2 to 3 (percent) if you’re a real optimist, right? So China’s going to have a lot of money in a region that’s motivated to get resources to throw at this issue. And it’s nice that our economy is humming along in terms of growth, at least in some measures, but the fact is we’re not boosting our savings rate and devoting it to a strategically-defined purpose, and China is. And so I think we have to come to terms with that. (Laughs.)

Secondly, look at draining commitment. I mean, broadly speaking, I would think strategically we’ve overinvested in the Middle East, just to kind of put a bracket around this, and we’ve underinvested—it’s the implication of the power shift, right? So we’re underinvesting in the—and we have no exit plan from those sunk costs in the Middle East, as far as I can see. So we’ve made, I think, an unwise strategic bet to the degree that we have, or it hasn’t worked out.

Thirdly, there’s something called popular will, which I take—or popular support, and we look at the authoritarian quality of China, nobody supports it. Well, actually, the Chinese people are very proud—nationalistic, you might say—and see China as increasing its capacities, see us in relative terms decreasing our capacities, and they really like the idea of a powerful China going out. This is a really attractive vision in China, like it or not.

So I just see the sort of big picture here, and that leads me to be, yes, we got lots of assets, but are we harnessing them?

LEONARD: Please, up front here.

Q: Thank you. Hi. It’s John Kehoe from the Australian Financial Review.

Professor Lampton, you mentioned that China, through initiatives such as the Belt and Road, are investing in building infrastructure in the region, and that the U.S. is not really in the game in that per se and economically it’s sort of retreated somewhat. Does that extend to what some people, perhaps uncharitably or maybe correctly, have termed China’s so-called debtbook diplomacy in the region? And, if so, what do you think about what’s happening in that—in that space?

LAMPTON: Did you say debtbook or checkbook?

Q: Well—(laughter)—that’s a good question. Well, some people call it debtbook diplomacy; i.e., lending a lot of money to a—to a developing country in the South Pacific or in Southeast Asia, and then that country not being able to repay the—repay the loan, and therefore China takes over the strategic assets such as a port in Sri Lanka, or there’s other assets as well as examples. Yeah.

LAMPTON: Right. China’s had a lot of experience along the lines you’re talking about, and much of it not good. And I think when I mentioned BR at the beginning I said it was a broad umbrella, and there are a lot of good things and a lot of bad things. And I particularly interviewed in Laos, where this is immediately a problem because they’re taking on—you know, they have 6.7 million people in Laos and they’re taking on huge debt as a fraction of their GDP just for one rail project going through. And lots of people are worried about them—these kinds of countries getting into unsustainable debt problems.

In fact, many Chinese are worried about—this is controversial in China because a lot of people in China see China dumping money into hopeless projects, one of which I would say this corridor between western China and Pakistan. That strikes me as a little more dubious here, I mean in pure economic terms. So, yes, I think people are worried about this. But the Chinese have shown some ability to refinance these or write off debts in Africa and so on, and so the Chinese are probably going to write off a lot.

But I think the Chinese at the strategic level have a view here. Once this infrastructure is laid down, if you don’t have too narrow of revenue—you got to have the passengers pay for the investment kind of thing—(laughs)—and start saying, OK, we’re going to orient our production chains as value—as labor costs go up in China, we’re going to push them southward. We’re going to build a flow of economic goods towards China. You talk about the influence and cultural influence that’s going to come along these pathways. I think China’s taking a kind of 30-year view of what it takes to pay back.

And so I think they will end up over—getting people too much debt, and then having to eat it, and many Chinese are worried about that. But if they can, you know, pull this off for 10 years, they’re going to transform the reality, and then I think we’ll all—I just remember the story of the Transcontinental Railroad here. When we built it and the—and the 10 years afterwards, everybody said this is the biggest boondoggle, land giveaway going through buffalo country and all this. But, you know, it changed—it made the U.S. a Pacific power, really. And so I think that’s the kind of timeframe.

Now, you know, whether Xi will be able to keep draining and using those resources for purposes that are controversial in China, that remains to be seen. But if the Chinese can sustain this and are willing to write off some of that debt, which I think they’ll probably have to do—I think we’re too much in the—we’re in the peanut gallery throwing bric-a-bracs at the folks that are down in the arena. I think we got to get in the arena. (Laughter.)

LEONARD: Sheila, you had a point.

SMITH: Get in the arena, I love it.

So I’m listening to this conversation about China, and it just—I mean, Glen will probably feel the same way—but it just so resonates with some of the ways we talked about Japan in the 1980s, right?

LAMPTON: Yeah.

SMITH: And this is not Trump’s version of Japan in the 1980s. But debt is a liability as much as it’s a strength. You know, in a lot of ways, remember, Japan also was the checkbook power, right? Could have been the debtbook power. And especially with China, and had to write a lot of things off right? So we’re assuming a kind of omnipotent China that understands and can play the game without any mistakes, and I think that’s probably the wrong assumption.

LEONARD: There’s a learning curve. (Laughs.)

SMITH: There’s a limit.

But, you know, the other piece of—and this—Hervé’s comment about Duterte kind of brought me back to the value soft power losses that we are experiencing, I think, in Asia with this administration. And I’ll just say it quite bluntly. If you—again, to go back to your idea that our power and influence is derived not just from material power, but also who we are as a society, you know, American—we have not always acted in concert with our democratic values. I’m clearly aware of that historical fact. However, for a lot of countries in Asia, they do see the promise of the way in which our society works as a positive for the United States, as a—as opposed to a negative.

And I think—it was striking to me watching in Australia, in Japan, South Korea, in the initial six months of the Trump administration the shock that we were actually walking away from, you know, standing up for some of the values we believed in. And I think that’s one of the pieces of the puzzle to watch carefully as time goes on.

There is something about transactional, right negotiations. And, frankly, every president has had some transactional moments, right? It’s not just this particular president. But the lack of interest in standing up for human rights, the lack of interest in pushing that a little bit further in terms of how we recognize or don’t recognize our interests with countries around the—around the world, especially in Asia, I think it matters. It matters a great deal.

And you can, you know, go back to Reagan’s citadel on the hill kind of rhetoric, which, you know, I don’t think we have to go quite that far. But how we engage with a more authoritarian China, how we engage with how China is working—government is working internally as well as externally, it matters to other countries in the region. And I think that’s one of the aspects of our influence that is going to be of particular importance in the next several years, how much we’re abandoning our role in talking about human rights, democracy, and how we ought to be shaping the institutions of the region. That’s just a—

LEONARD: Well, and certainly a challenge to sort of way to measure the unquantifiable, making it quantifiable.

It’s 9:30, so I’m sorry, we want to respect everyone’s time and we need to wrap things up. But thank you so much to our expert panelists. Thanks to our audience for your attentive engagement. And onward. (Laughter.)

SMITH: Thank you.

LEONARD: (Laughs.) Thanks.

SMITH: Onwards and upwards. (Applause.)

(END)

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