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Foreign Policy

Where Commerce and Politics Collide

Oct 15 , 2012

Whatever happened to the reassuring view that expanding trade ties make for a safer and more prosperous world? This idea has been long present in U.S. strategies toward China, even before being concretized in Robert Zoellick’s notion of integrating China into the world financial and commercial systems as a way of promoting ”responsible stakeholdership.”

The Chinese had a parallel concept – that promoting economic interdependence with America would counter Washington’s natural tendency to block China’s rise as an alternative power.

But as President Obama and Governor Mitt Romney argue over who can be tougher on China and its trade practices, and as a wave of anti-American nationalism surges across China, the commercial partnership meant to bring Washington and Beijing closer together appears to be pushing the world’s two largest economies further apart. Are we headed for some new form of Cold War-style confrontation?

We don’t think so. Behind all the finger-pointing and fist-shaking on both sides is a powerful economic interdependence that constrains both countries and was totally missing from U.S.-Soviet relations during the Cold War. What’s bad for one economy is still bad for the other, and both Washington and Beijing know it.

With trillions invested in U.S. Treasuries, and the continuing sluggishness of American consumer spending, China has a huge stake in a more robust U.S. recovery. And the prospect of a rapidly growing consumer sector in China creates enormous opportunities for American agriculture and industry.

But macro-economic interdependence brings with it a whole range of tactical tensions – over exchange rates, intellectual property, investment rules and standard-setting. Yet there is also a more strategic downside to mutually assured economic destruction, because neither side has perfect control over events that might undermine the relationship, and because reduced risk of all-out conflict lets them feel freer to play with fire.

There are a growing number of security risks around the world. In Asia, an expanding U.S. security and commercial presence has China’s next generation of leaders on edge, and Beijing finds itself in various forms of direct conflict with many of its neighbors, some of whom are America’s strategic allies. In the Middle East, a variety of new actors with competing agendas are jostling to fill emerging power vacuums. In Europe, Germany has taken a leadership role in what is sure to emerge as a quite different continent. In Russia’s sphere of influence, a government that faces rising risks at home may well respond more aggressively abroad.

In the past, these sorts of tectonic geopolitical shifts and the uncertainty they create might well have provoked war. But today, the economic dimension is at least as important as military muscle in shaping the balance of power. That makes for more complicated international relationships.

Look more closely at the contradictions. A military rivalry is a zero-sum relationship; what’s good for one side is bad for the other. But economic security is good for both. America and China both need oil to flow smoothly from the Middle East and for peace to prevail in the South China Sea. Deepening trade relations give each side a stake in the other’s success.

As China and Japan bicker over territorial disputes, both sides are trying to exploit local resentments for political gain. But they share an overriding incentive to protect a deepening economic partnership that reinforces stability at home by enriching them both. Similarly, Turkey and Iran are backing different sides in Syria, but neither will let their bilateral relationship deteriorate too sharply; Iran needs Turkey to go easy on enforcement of sanctions, and Turkey needs Iran to continue selling its natural gas.

However, there are two important reasons why this is not as good as it appears. First, the assurance that all-out war has become so unlikely encourages governments to flirt with economically damaging lower-level conflicts.

If U.S.-China trade relations spiral into various forms of confrontation, the risk of proxy battles in cyberspace will rise sharply, and a more aggressive Chinese approach to territorial disputes with Vietnam, the Philippines and others could draw Washington into fights it hopes to avoid.

If Iran tries to undermine Turkey’s opposition to Syria’s government by offering clandestine support for Kurdish separatists inside Turkey, the trouble between Ankara and Tehran could escalate to levels that neither can manage. Regional war in Asia or the Middle East remains extremely unlikely, but a constant state of tension will have an economic impact.

Second, conflicts can take on a life of their own. Beijing may discover over time that it’s becoming much more difficult to keep a lid on the crowds it riles up for geopolitical advantage, and Japanese leaders may talk themselves into conflicts from which they can’t easily back down. Arab world animosities may grow beyond the ability of inexperienced new governments to control.

Governments around the world face much more complicated challenges than the Cold War could offer, and economic interdependence can create joint vulnerability. The risk of superpower nuclear war is much lower, but there is little to protect one side’s security from volatility on the other.

Following the leadership transition in Beijing and the presidential election in America, both China and the United States need to reinvigorate their top-level dialogue, and pay more attention to ensuring that domestic politics does not overcome the incentives for conflict avoidance that mutually assured economic destruction has created.


Ian Bremmer is president of Eurasia Group and author of ”Every Nation for Itself: Winners and Losers in a G-Zero World.” David Gordon is head of research at Eurasia Group and former director of policy planning at the State Department.

© 2012 The International Herald Tribune. Reprinted with Permission


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