Articles

Bipolar Disorder: US Protectionism and Force Projection in the Asia-Pacific (Part 1)

The below is Part One of Two of one of the winning essays from our inaugural “Langley Hope Academic Excellence in Security and Defence Commentary Award Programme.” Stay tuned in the coming weeks for the publication of more winning and noteworthy submissions.

山雨欲来风满楼

 ‘Coming events cast their shadow before them.’

proverb


Introduction

The Obama administration’s ‘pivot to Asia’ was one of the most significant strategic undertakings of his Presidency. Coined originally by Hillary Clinton in Op-Ed commentary for Foreign Policy in 2011, the “pivot” in policy direction made clear that the administration appreciated not only the mutual economic importance of trade and investment to the region, but also the strategic force-projection benefits that strong economic relationship offered in resolving disputes over the South China Sea, North Korea’s nuclear program, and the power balancing of key regional players.1 American policymakers have long understood the political and strategic value of favourable economic conditions with Asia- documentation of that recognition goes as far back as early Federalist papers recognizing the potential for eastward trade disputes to be a source of conflict, and more recently in the extensive use of US foreign investment in Taiwan, South Korea, and Japan after the Second World War as a policy of ‘containment’ against the proliferation of communism.2

The period that followed this post-Soviet era has since been characterized by an international unipolar power structure led by the United States- a global liberal paradigm where American foreign military and economic policy enjoyed (and continues in many respects to enjoy) a significant influence on global affairs. Recent developments, however, suggest that the emergence of a new global power has a credible chance to affect this balance of power, and as a result the ‘pivot to Asia’ can be contextualized as reactionary grand strategy to this changing economic condition.3

In early 2016, seven years of multilateral negotiations among 12 signatories in North America and the Asia-Pacific culminated in a comprehensive trade agreement called The Trans-Pacific Partnership (TPP). Proposed to universally reduce both tariff and non-tariff trade barriers between its partners, and install binding trade dispute resolution mechanisms, the TPP by both trade flow measurements and sheer geographical breadth was the largest deal to harmonize external tariffs ever signed into history. It covered over 40 per cent of the world’s GDP output, removed over 18,000 tariffs on US products worldwide, and established binding clauses for international copyright infringement in a more meaningful structure than dispute resolution mechanisms had previously functioned under the World Trade Organization rules.4 Within the immense scope of its sweeping economic reform, however, it omitted just one large detail- China. And after the first executive order signed by the Donald Trump administration on January 23rd, 2017, the Trans-Pacific Partnership omitted a second key detail- the United States.

What consequences will a period of American protectionism have on the global structure of power and the force-projection capabilities of the United States? Will the proliferation of US protectionism inversely correlate with the expansion of Chinese soft or hard power in Asia?

Upcoming US trade policy towards China and the broader Asian continent will determine the fate of the biggest imbalance in the structure of the international order since the end of the Second World War, and change the destiny of a world economy that is deeply intertwined with- and dependent on- that crucial relationship. While some characteristics of global bipolarity are inevitable, a preponderance of the economic evidence available demonstrates that blocking the ratification of the Trans-Pacific Partnership will only serve to alienate Asia from the sphere of US influence, which will consequently result in a decrease in American force-projection capability in the region. By quantifying the scope of the threat that a liberalizing China poses to a protectionist United States’ economic influence, and demonstrating the immense force-projection benefits that a Trans-Pacific Partnership including China would have towards trade, intellectual property, and economic grand strategy, this paper will show that a period of American protectionism can accelerate the process by which it forfeits its role as the dominant power in the Asia-pacific and its ability to influence key security issues.

Power in the 21st Century

The definition of ‘soft power’ that Joseph S. Nye originally introduced in 1990 is the operating definition used throughout this discussion. His argument that “the factors of technology, education, and economic growth [were] becoming more significant in international power, while geography, population, and raw materials [were] becoming somewhat less important” was originally used to describe the growing economic threat of Japanese automotive products (and an artificially cheap currency) to the American manufacturing sector in the late 1980s.5  Given the immense similarities that case study to the current struggle that the US faces with China, it maintains its relevance. Why is ‘soft power’ important? Nye argues that in an era where achieving political objectives is exponentially more complex, coercing states into acting desirably is less feasible with direct force than with the ‘background’ instruments of culture, technological advancement, and economic power.6 In other words, as the world undergoes globalization processes, hard power diminishes as the

use of force becomes a less feasible method of achieving state goals. For our purposes here, it means that if America’s soft power in Asia declines, it will be less able to influence actors in the region to achieve desirable outcomes, and therefore risk diminishing its position as the dominant regional power.

The economic growth pillar of Nye’s ‘soft power’ definition is the most important in the context of discussing US protectionism, and its consequential effects on the balance of power projection in the Asia Pacific. First, we must quantify the the legitimacy behind the claims that China challenges American economic power. Then, we will discuss three of these bilateral issues in detail: intellectual property, trade balance effects on manufacturing sector employment, and currency manipulation. Then, the effects of protectionist US policies such as dismantling the Trans-pacific partnership can be discussed on their relevance to each individual issue and what the broader the implications are for both Chinese and American soft power in Asia. This paper will conclude that pursuing trade agreements with economies in China’s sphere of influence is imperative to maintaining America’s power projection in the region, and that a period of American protectionism will shift the balance of soft power in the region towards Beijing.

Quantifying the Struggle for Soft Power

China’s economy is the largest national economy in the world by GDP (PPP), is growing at almost four times as the US economy in real GDP, and is expected to hold a 17 per cent share of the world economy in terms of nominal GDP in the next few years.7 These, amongst many others, are indicators which have led scholars to speculate on whether or not China will one day meet or surpass the military, economic, and political power of the United States, and further explore what residual effects such a seismic shift in power could have on global politics. One thing is clear: from Washington’s perspective, the growth of China’s economic power represents a direct challenge to American interests in the region and abroad, and limiting that power with policy that maintains American economic influence in the area has immense strategic value for the United States.

Beijing has been aware of the upcoming struggle for economic power in the region for a long time. Realists contend that we are seeing an expansionary period of China’s regional soft power through trade and diplomacy as a concerted effort to balance against American and (to a lesser extent) Japanese influence.8 Several scholars

have further explained recent China’s pursuit of FTAs in the region- most notably the China-ASEAN FTA- as an attempt to solidify their role as the de facto political power in the region.9 Richard Stubbs and Gregory Chin of McMaster University called the effort “clearly as much a political accord as an economic arrangement,” and in 2014 Xi Jinping explicitly pledged to “increase China’s soft power” with its neighbours and trading partners.10

Even though the Sino-American relationship has been described as the ‘most important bilateral relationship of the century’, a myriad of factors have recently led to a general pessimism towards it in the United States. These include: the alleged undervaluing of the Yuan to make exports much more competitive against American products, the loss of $300bn per year from the theft of American intellectual property abroad (which reports say China is principally responsible for), and the worsening of the trade deficit between China and the United States leading to the United States becoming an increasingly import-dependent economy.11 The latter figure topped -$257 billion USD in September 2016 and is expected to grow, a process which many Americans believe to be a symptom of their industrial sectors (particularly manufacturing and technology) moving across the Pacific, as labour is significantly cheaper for firms to employ there compared to the United States.12

During the 2016 election, these frustrations were channeled by Donald Trump, who pledged protectionist economic reforms designed to bring industry back to America, and to repeal “terrible” trade deals such as the TPP which he hyperbolically characterized as “raping this country”. His language echoes the hyperbole of Peter Navarro (the Harvard Ph. D Economist appointed by the President to lead the National Trade Council), who is the fiercest critic of Sino-American trade in the literature by far, and the apparent informant of the Trump administration’s foreign policy towards it.13

Navarro is a controversial economist. James McGregor of Foreign Policy described him as being “…to Chinese policy and economics what Breitbart is to news: He floats cubes of truths in a murky concoction of hyperbole, ignorance, and expedient simplicity.”14 Despite the scathing criticism from some scholars, however, it is difficult to dispute that there is some legitimate evidence behind American pessimism towards China’s trade practices. David H. Autor, David

Dorn, and Gordon H. Hanson (2013) show that cheaper overseas labour markets have had a direct negative effect on US manufacturing sector employment over the past 3 decades, as there is a high demand for cheaper products amongst American consumers- a timeline which China’s process of experimentation with liberalization since Deng Xiaoping can be almost perfectly superimposed on top of.15 Justice Pierce and Peter Schott (2012) further indicated that the significant losses incurred to US manufacturing sector employment were a direct result of China achieving permanent normal trade relation status, and therefore lower tariffs, with the United States.16 To this day, various economists accuse the People’s Bank of China of intentionally deflating the Yuan to unfairly boost exports, and a report by the Commission on the Theft of Intellectual Property in 2013 claimed China was responsible for over 80 per cent of the $300 bn in deadweight loss that the United States forfeits every year to foreign intellectual property theft.17 Each of these cases has implications for measuring any change in the balance of power.

Intellectual Property

The first economic concern that the TPP effectively addresses is that China is considered to be responsible for hundreds of billions of dollars of annual losses in the American economy, as a direct result of their rampant theft of intellectual properties which include patents and copyrights. This is most overtly seen in the emulation of branding for Chinese companies- iPhone to Hiphone, for example, or KFC to KFG. But the biggest losses to the American economy come from the theft of technological designs and patents, which get reverse-engineered into Chinese products as if they were new inventions, without having to incur any of the overhead costs of research and development that went into creating them.18 Economists from the Commission on the Theft of Intellectual Property reported that the effects of this on the broader economy:

“… are twofold. The first is the tremendous loss of revenue and reward for those who made the inventions or who have purchased licenses to provide goods and services based on them, as well as of the jobs associated with those losses. American companies of all sizes are victimized. The second and even more pernicious effect is that illegal theft of intellectual property is undermining both the means and the incentive for entrepreneurs to innovate, which will slow the development of new inventions and industries that can further expand the world economy and continue to raise the prosperity and quality of life for everyone. Unless current trends are reversed, there is a risk of stifling innovation, with adverse consequences for both developed and still developing countries.“19

 It is unclear whether or not the problem is caused by a lack of effective judicial infrastructure surrounding IP enforcement in China, or a deliberate strategy by the Chinese government who recognizes the immense developmental and economic power that comes with refusing to enforce intellectual property law. Intent is secondary to the need for action, however, as the economic harms associated with the problem continue regardless and both scenarios result in significant adverse effects.

Historically-speaking, problems like these have been solved by way of ‘carrot and stick’- economic sanctions levied against countries until they produce a satisfactory level of compliance. More recently, trade disputes have been formally settled through the dispute mechanisms of the World Trade Organization (WTO)- of which both China and the United States are integral members. Out of this organization, The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was enacted in 1994 to bind members to basic rules surrounding IP, and therefore applies specifically to resolving this issue. But the fact that theft continues regardless indicates that there are significant shortcomings, even though it has been effectively used to solve some trade issues in the past.  One issue is the lag associated with enforcement- a process which has been described as “… so time-consuming that recapturing any damages through this process is often illusory”- and the quagmire of legal ambiguity which makes determining what constitutes ‘non-compliance’ extremely difficult.20

This is where the dispute resolution mechanisms within free trade agreements- and in this case where the internal mechanisms of the TPP- show their necessity. Whereas the WTO mechanisms including TRIPS have encountered little meaningful success at ensuring fair practices, binding terms within trade agreements such as the Korea-US FTA, the US-EU FTA, and NAFTA (to a lesser extent, as Papovich notes there are still significant issues with IP enforcement in Mexico) have successfully allowed the ‘carrot and stick’ mechanic to meaningfully pressure member states into protecting reciprocal intellectual property laws.21 Their success lies in introducing a tangible threat to remove the benefits of trade unless the standards are met.22 If the strategy were applied to China through the dispute mechanisms and copyright enforcement clauses in the TPP, and comparable results were achieved as in other examples of internally-binding dispute mechanisms, Washington would have more effective legal tools to reduce or eliminate the $300 bn loss from IP theft they experience annually. Without doing so, it is unlikely that the United States will be able to slow China’s fraudulent ascent into technological parity, and the ‘innovation’ that has come to characterize the primacy of America’s economy and industries on the global scale- a position which relies heavily on advanced goods and services- could diminish.

The ramifications of this process for the disparity in military power between China and the United States- who has maintained a significant advantage up to this point due largely to more advanced military technology- are significant. If there is no mechanism in place to protect American intellectual property in the weapons industry against Chinese firms copying their research and development and selling it back to the Chinese military, two adverse power effects arise: firstly, the gap between American and Chinese military technological advancement rapidly closes, and secondly, the differential in opportunity cost for investing in these technologies becomes overwhelmingly higher for American firms than Chinese ones. In other words, the United States will continue to pay exorbitant prices to develop newer military technology, and the Chinese military will benefit from those advancements that without the consequential budget constraints. We already see elements of this materializing: in 2016, Chinese businessman Su Bin was sentenced by a US Federal court to 46 months in prison for leaking technical information of F22 Raptors that led to the Chinese development of the J-20 stealth fighters that were based on them- a development which the Center for Strategic and International Studies claims “has the potential to considerably enhance China’s regional military strength.”2324 Unless effective dispute-resolution mechanisms are in place (such as the mechanisms established in the TPP), this structural draining effect on intellectual property will continue to worsen the power-projection capabilities of the US and rapidly place China at a strategic advantage.

References


  1. Clinton, Hillary. “America’s Pacific Century”, Foreign Policy. 1
  2. Zoellick, Robert B. “Trade is a National Security Imperative”. Harvard University Press. 2016. pp. 3
  3. Clinton, 1
  4. Office of the United States Trade Representative, “Ratification of the Trans-Pacific Partnership”, note: since removed from website after Presidential Memorandum on January 23, 2017
  5. Nye, Joseph S. "Soft Power." Foreign Policy. (80) 1990. *paper accessed online via EBSCOhost so pagination unavailable
  6. Nye, Joseph S. "Soft Power." Foreign Policy. (80) 1990. *paper accessed online via EBSCOhost so pagination unavailable
  7. Bernanke, Ben S. “The Chinese Economy: Progress and Challenges”. Speech at the Chinese Academy of Social Sciences, Beijing, China. 2006
  8. Thomas G. Moore, ‘Cooperating to compete: East Asian regionalism in Chinese foreign policy’, paper presented at the Annual Meeting of the American Political Science Association, 2006, 12
  9. Kwei, 133 & Stubbs et al., 8
  10. Ibid.
  11. Liang, 20 & Maguire, 893
  12. National Bureau of Asian Research, 2
  13. Tim Worstall, “Donald Trump’s One Truly Worrying Appointment”, (2016) Forbes, URL: https://www.forbes.com/sites/timworstall/2016/12/22/donald-trumps-one-truly-worrying-appointment-peter-navarros-white-house-national-trade-council/#6b8203d21d0f
  14. Macgregor, James. “How Trump Can With China”, (2017). Forbes, URL: http://foreignpolicy.com/2017/02/03/towards-a-trump-pacific-partnership-a-way-forward-to-win-on-trade-with-china/
  15. Autor et al., “The China Syndrome: Local Labour Market Effects of Import Competition in the United States”, (2013). American Economic Review, vol. 103(6), pp. 2122
  16. Pierce, Justin R. and Schott, Peter K. “The Surprisingly Swift Decline of US Manufacturing Employment”. National Bureau of Economic Research. Cambridge. 2012., 20
  17. Commission on the Theft of Intellectual Property, 2
  18. Ibid., 11
  19. “The Report of the Commission on the Theft of American Intellectual Property.” National Bureau of Asian Research. 2013., 11
  20. Ibid., 19
  21. Joseph S. Papovich, “NAFTA's Provisions Regarding Intellectual Property--Are They Working as Intended--A U.S. Perspective”, 23 Can.-U.S. L.J. 253 .1997., 3
  22. Commission on the Theft of Intellectual Property, 20
  23. https://www.cbsnews.com/pictures/chinas-newest-weapons-of-war/27/
  24. https://www.cnbc.com/2017/11/08/chinese-theft-of-sensitive-us-military-technology-still-huge-problem.html
Previous ArticleNext Article
Lucas Oesterreich
Lucas is the Strategy Chair for Breithorn Group, and sits on the Editorial Board of Political Economy. An experienced finance officer for both provincial and municipal campaigns, and a seasoned government liaison for several large corporations in the North American private sector, he has an in-depth knowledge of political finance, political strategy, public-sector integration strategy, and government operations. Lucas studied Political Science and Economics at McMaster University in Canada and the University of Innsbruck in Austria, with a focus on macroeconomic policy, monetary policy, political economics, and public policy. He speaks English and German.