US President Obama at the Great Wall of China a year ago. Source: Getty Images
Overview
2010 is nearly gone, so what’s in store for the world’s rising powers and their status quo partners? 2011 threatens to be a year of discord.
Keep an eye on two fronts: economic policy and geopolitics. Will the great and the good continue to coordinate policies to improve the functioning of the global economy or will the reality of a declining hegemon create acrimony in the G-20 and lead to policy errors, including protectionism? Are geopolitical crises on the horizon that will stress great power relations, whether over Iran, North Korea or the sea lanes of East Asia? Visit the Rising Powers blog in 2011 to follow these stories.
In 2010 there were signs that global unity on economic policy was unraveling. This unity had been a pleasant surprise in 2008-09, when the major powers looked into the abyss of depression and countered with a collective no. Some were surprised this past year by the hostile actions taken by North Korea, as well as by the advanced state of its nuclear weapons program. What to do with rogue nuclear powers, such as Iran and North Korea, is a question that will challenge the great powers, both rising and status quo. China’s cooperation on these fronts remains critical and increasingly elusive, as the West’s moralizing over human rights and climate change and whining about China’s economic success have left the Dragon peeved.
Most unexpected event of 2010
The fierceness of North Korea’s attacks on South Korea reminded us that military conflict on the Korean peninsula remains a very uncomfortable risk. It could entail heavy casualties, embroil the United States and China on opposing sides, and even culminate in the use of nuclear weapons. Korea watchers say that the artillery attack in late November on South Korea’s Yeonpyeong island, coupled with the sinking of a South Korean naval vessel in March, killing 46 sailors, is the worst the North has done in decades. Paranoid, rickety North Korea periodically heightens tensions, especially to reflect leadership changes — Supreme Leader Kim Jong-il is attempting to ensure succession to his son. China’s reaction to both incidents was muted, refusing to criticize its nettlesome Communist ally, and instead proposing to reward aggression by calling for a return to the Six-Party talks. China was clearly irked by joint US-South Korean naval maneuvers this year in and around its “near abroad” . The North Korean artillery attack came on the heels of a report from a team of US-based nuclear scientists that the regime has a more advanced uranium-enrichment capacity than previously believed. Just when the great powers thought Iran was the biggest nuclear nuisance, the North Koreans have exclaimed, “Hey, what about us?!”
Person of the Year
Liu Xiaobo, the imprisoned Chinese democracy activist, was awarded the Nobel Peace Prize, the first Chinese person to win. Liu is Rising Power’s Person of the Year, not only because of his work calling for multi-party democracy in China, but also for the effect that his Prize could have on great power relations.
International Relations “realism” suggests a focus on China’s relative power; “liberalism,” on China’s cooperation in international institutions; and, “Constructivism,” on China’s “identity and interests,” formed through social interaction with other nations. Acknowledging the importance of the latter, the Rising Powers blog points to the ongoing struggle in China between its identity as a country exploited by the West, formed since the mid-19th century amid European imperialism, and its emerging identity as a responsible rising power. The awarding of Liu Xiaobo the Nobel Peace Prize, named for a wealthy Swedish arms manufacturer, seems like a sharp stick in the eye to many Chinese, rekindling their identity as a people exploited by a hypocritical West. The Chinese Foreign Ministry in response to the announcement of the award said, “The Nobel Peace Prize is meant to award individuals who promote international harmony and friendship, peace and disarmament. Liu Xiaobo is a criminal who has been sentenced by Chinese judicial departments for violating Chinese law. Awarding the Peace Prize to Liu runs completely counter to the principle of the award and is also a desecration of the Peace Prize.” Subsequently, a Chinese group called for an alternative, called the Confucius Peace Prize. No excuses for China’s policy on Liu Xiaobo. Still, we must understand the Chinese narrative on this issue.
We should not underestimate the effect of such emotional issues on China’s behavior, especially geopolitically. Defense coordination between America and China’s neighbors, especially those that claim territory and resources the Dragon also claims, likewise offends the Chinese. The visit last summer of the US warship John McCain to a Vietnamese port reflects this growing coordination. Can the financially-stretched, lumbering hegemon keep this up? Surely through 2011.
What to watch in 2011
Hegemonic Stability Theory suggests that a liberal world economy can be maintained only with the guidance of a global hegemon. 2008-09 added a corollary, that multilateral cooperation is needed to avert a global financial crisis. The US economy, declining relative to those of the rising powers, remains nearly three times the size of the next largest economy; yet macro policy coordination in the G-20, as occurred during the dog days of crisis, has become essential.
Still, at the Seoul Summit in November, the world’s largest economies, while reiterating their commitment to policy coordination, broke no new ground. In fact, debate in Seoul was at times acrimonious over who is to blame for the continuing global imbalances. The US could find no allies to help pressure China to float its currency. In fact, most emerging markets blame the rising risks of inflation and asset price bubbles on America’s easy monetary policy. They also badger the once-towering President Obama to consolidate America’s woeful public finances. It is quite human to work together in a crisis and have discord as conditions improve, planting the seeds of the next crisis.
Policy errors are likely in 2011. Overzealous fiscal deficit cuts that could tip economies back into recession are one such risk (most notably, in Europe, where a sovereign debt crisis, if not a full-blown euro-crisis, is possible next year). The failure to address longer-term fiscal woes by, for example, lowering social security commitments and establishing budget rules that will yield spending cuts and tax hikes down the road, is another. And, if we listen to the free-market lunatic fringe in the U.S., monetary policy might be prematurely tightened.
Most worrying would be a global abdication of responsibility for maintaining stable exchange rates and free trade. If China fails to revalue the RMB substantially and soon, its partners will take action to ensure trade competitiveness. This could include trade barriers (keep a close watch of the U.S. Congress) and fx intervention (monitor emerging markets other than China). Holdings of dollars outside the US will mount, representing sharply rising claims on American assets and risking a loss of confidence in the dollar. This could cause higher U.S. interest rates and a lower value of US dollar holdings the world over, not to mention slowing growth and trade due to reduced capital flows. Finally, structural reforms that would increase domestic demand in China and Japan, sort out once and for all America’s real estate mess, and implement labor and fiscal reforms in Europe, must begin.
For a final dose of worry, the global commitment to staunch climate change, having suffered a setback at Copenhagen in 2009 and taken a baby step forward in Cancun this month, will likely take a back seat to economic concerns in 2011, much to the planet’s chagrin. In the words of Paul Simon, “The planet groans, every time it registers another birth.”
A Happy and a Merry to all!
