Last week, Washington attempted two important policy feats aimed squarely in Beijing's direction.
First, U.S. Defense Secretary Ash Carter scrapped a visit to Beijing and instead visited the South China Sea, where territorial disputes between China and its neighbors have worsened.
And second, U.S. Treasury Secretary Jack Lew called on the International Monetary Fund to more aggressively police predatory exchange rate policies and to rebuke members for failing to do their part to boost anemic global demand.
The two scenes made for a study in contrast. When it comes to military solutions to manage China’s rise, the Pentagon’s swift, clear and measured response affirms just how honed the U.S. military reflexes are. No doubt, the Pentagon’s handling of territorial disputes in the South and East China Seas has had its shortcomings, but U.S. military leaders have in relatively short order managed to settle on, communicate and execute a concrete set of responses to Chinese provocations.
The contest for leadership in Asia is being waged in primarily economic terms.
By contrast, Secretary Lew’s appeal to the IMF – in effect, a call to revive the 1944 Bretton Woods institutions -- may be legitimate and worthwhile, but as an isolated effort, it will not provide what the U.S. and its Asian allies really need: an economic strategy to deal with China’s rise. No practicable IMF, World Bank or World Trade Organization reform will enable Washington or its allies in Asia to reduce asymmetrical economic dependence on China or or build adequate defenses against Chinese economic bullying.
The Chinese military buildup in Asia is real. But it must not be allowed to obscure the fact that the contest for leadership in Asia is being waged in primarily economic terms. The contrast so vividly rendered last week in Washington — a sophisticated military alliance system on the one hand and no meaningful economic counterpart — sadly illustrates why Beijing has taken to economic tactics as a first resort.
Welcome to the era of geoeconomic statecraft; more and more often, states are waging geopolitics and state power struggles through economic means. China allows banana exports from the Philippines to rot on the docks as a means of venting its displeasure with Manila's claims in the South China Sea. It rewards Taiwanese companies that march to Beijing's cadence and penalizes those that do not. It promises trade and business with South Korea in exchange for Seoul rejecting a U.S. bid to deploy a missile defense system. It curtails trade with European governments that host the Dalai Lama.
Nor is China alone. India under Prime Minister Narendra Modi is refurbishing its “Act East” initiative with a decidedly geoeconomic feel, extending new credit lines to Nepal and Mauritius, new high speed data links to Myanmar, new rail links to Sri Lanka -- all in clear response to China's encirclement strategy around India's periphery. Russia threatens Ukraine with sovereign default as a means of keeping Kiev within Moscow's sphere of influence, and Putin resorts to pipeline politics as a way of curtailing Europe and Central Asia.
Washington still reaches too quickly for its gun over its purse to solve its problems abroad.
Not so in the U.S., however, where Washington still reaches too quickly for its gun over its purse to solve its problems abroad. With the notable exception of sanctions, the U.S. still debates its largest geostrategic challenges in overwhelmingly military terms: should Washington send lethal weapons to Ukraine? Should NATO reestablish a permanent presence in Eastern Europe? Should the U.S. directly arm the Iraqi Kurds in the fight against the so-called Islamic State? Should it intervene militarily in the Syrian civil war?
There is no comparable discussion in Washington of returning Ukraine to economic viability as a way to rein in the Kremlin’s plans for a “Novorossiya,” or New Russia, or of steeling U.S. allies in Asia against Chinese economic bullying. The U.S. only recently began truly prioritizing economic and financial strategies in the fight against ISIS. Had the U.S. not allowed ISIS to become the best-funded terrorist group on Earth, starting as far back as June 2014, perhaps the military battle against ISIS, now in its second year, would’ve turned out differently.
What is clear is that the contrast on display this week in Washington and the South China Sea speaks to a broader American discomfort with flexing economic muscle to advance national interests. Unless this hesitation is overcome, the U.S. can expect to pay a high price in influence, blood and treasure.