"While they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings."
-Franklin D. Roosevelt
"Everyone is entitled to their own opinion, but not their own facts."
-Daniel Patrick Moynihan
Once upon a time, creditors exacted “a pound of flesh” from those who, having borrowed money at high interest rates, found themselves unable to repay loans on time and in full.
John Perkins, author of “Confessions of an Economic Hit Man” (EHM), appearing on PBS television’s “NOW” on March 4, 2005, described a modern twist in this vicious circle at the level of nation-states. Since World War II, the United States has deliberately manipulated the economic and political life of developing countries to create a “new” global imperium based on massive indebtedness as the “pound of flesh.” Posing as a friendly expert, the EHM advises countries to contract with large U.S. companies to build massive projects financed by loans from international financial organizations, justifying the projects as being critical for improving the lives of ordinary citizens. But loans are so large and interest so high, the money cannot be repaid; lives get more, not less, desperate. Opposition by individual elected officials in victimized countries can trigger “accidents” (assassinations) while collective rejection or default may trigger military action. According to Perkins, the price for self-preservation, both personal and national, is to fall in behind U.S. “leadership.”
But this U.S. empire, built on enthralling debtor nations, may itself be in danger from economic overextension. While economists may opine learnedly about the significance (if any) of the U.S. federal debt for fiscal and monetary policy, many non-economic political-military “internationalists” as well as “ordinary” citizens are becoming concerned that the U.S. is increasingly vulnerable to pressures and priorities of creditors who might see the U.S. as a heedless bull-in-a-china-shop recklessly threatening to destroy agreements and institutions that have helped stabilize international relations.
At the risk of causing eyes to glaze, it might be instructive to sample a few U.S. economic facts as documented by Congress and the Treasury Department:
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In the period between January 2001 and July 2004, the portion of the U.S. debt privately held by foreigners rose from 30 to 42 percent.
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In just the year between September 2003 and September 2004, foreigners increased their holdings by $400 billion, from $1.46 trillion to $1.86 trillion – financing virtually the entire $422 billion budget deficit for Fiscal Year 2004.
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U.S. Treasury Department statistics through July 2004 reveal that five of the seven top foreign holders of U.S. obligations are Asian, with Japan ($696 billion) and China ($167 billion) in first and second place, respectively. (The other three in Asia , ranked five, six, and seven, are South Korea at $62 billion, Taiwan at $58 billion, and Hong Kong at $50 billion.)
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Despite an overall increase in the value of foreign holdings for all of calendar 2004, December saw a sharp monthly decline from November in foreign purchases of Treasury bonds and notes. Foreign Central bank buys nose-dived by two-thirds ($21 billion to $7 billion) while private foreign purchases plummeted by nearly 75 percent ($32.8 billion to $8.4 billion)
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Japanese non-Central bank holdings from November to December 2004 dropped $3.1 billion ($714.9 to $711.8 billion). South Korea registered a slight decrease. In contrast, the Chinese increased their total holdings by $2.7 billion (from $191.1 billion to $193.8 billion).
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In late February 2005, South Korea ’s central bank revealed its intention to “diversify” by moving from the dollar to other currencies – undoubtedly the Euro which has strengthened over the last few years.
And the “so what”? Simply this: excessive debt can act as a reverse “nuclear deterrent” for a large debtor. That is, a debtor’s ability to initiate or avoid action is constrained (less “elbow room”) because those who “own” the debt may also own priorities that are different – and are willing to use their economic position to advance their preferred policies or thwart those of the debtor.
When that impasse goes “critical” in the form of “vital national interests,” the fallback position is selective or general violence in the effort to regain – or at a minimum maintain – the empire.
Economic woes in the form of a weak currency, ballooning debt, and unsustainably large trade deficits are not the only indicators of cracks in the empire’s edifice. Another in a series of international polls – this one in December 2004 – looked at the role of the U.S. and China in the world. Nearly 23,000 individuals in 22 countries in Asia (6), Europe (8), North and South America (6), Middle East (1), and Africa (1) were interviewed.
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In 14 countries, China is seen as a positive influence on world events by a plurality or majority – with the average across all countries standing at 48 percent. Conversely, the U.S. is viewed positively in only six countries and negatively in 15 with the average being 38 and 4 percent, respectively.
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Among its six regional neighbors, approval for China ranges from 70 percent in the Philippines to South Korea ’s 49 percent, with only Japan appearing lower at 22 percent approving. Significantly, of all its neighbors, only Japan at 35 percent gave China less than majority assent to the idea that for China to become more powerful economically would be good.
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When it comes to military power, however, citizens in 17 of the 22 nations polled said a stronger China would not be a positive development – with the average negative response at 59 percent. Nonetheless, a clear majority in India (56 percent) saw a stronger military role for China as a positive development. Negative responses from the remaining regional countries ranged from 79 percent in Australia to 46 percent in the Philippines . Equally interesting in light of the European Union’s plan to lift its embargo on arms for China , clear majorities in all five EU countries felt a militarily stronger China would be a negative development. Only Turkey , which has been trying for years to begin the process for EU membership, fell below 50 percent negative viewpoint.
However, those who dismiss “street” polls as mere venting of popular passions or reflections of government propaganda can find little solace in “facts on the ground” that point to China ’s growing influence in Asia .
The number of regional agreements between China and its neighbors indicate that Beijing has succeeded in ameliorating fears and suspicions of most countries. This is most apparent in its relationship with the 10-member Association of Southeast Asian Nations (ASEAN), both mainland and island states.
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In November 2002, China and ASEAN concluded a Framework on Economic Cooperation which, among other provisions, calls for a free trade zone between China and the original six ASEAN states: Brunei , Indonesia , Malaysia , Philippines , Singapore , and Thailand .
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November 2004 saw two important additional steps. One was an agreement establishing the mechanism to be used to resolve trade disputes that might arise, while the second affirmed the intent of all parties to resolve disputes concerning territory and jurisdiction in the South China Sea without “resorting to the threat or use of force.”
China has also been shoring up its north and northwestern fronts. The 1996 Shanghai Five (China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan) agreement recognized China’s drive for re-unification (Macao, Hong Kong, Tibet, Taiwan), paved the way toward resolution of remaining international border disputes among the five, initiated a demilitarizing of common borders, and affirmed the principal of state sovereignty and non-interference in the internal affairs of each. With the accession of Uzbekistan in 2001, the renamed Shanghai Cooperation Organization (SCO) turned to regional economic arrangements and anti-terrorism concerns. With the declared intention of opposing “terrorism, extremism, and separatism,” the SCO provides all six member countries a multinational platform for resisting U.S. calls for political liberalization and greater human rights.
Interestingly, India and Pakistan have both signaled interest in joining the SCO, a move that current members seem hesitant to make. Of the six SCO nations, China would have most to gain from such an expansion, for it would frustrate, to some degree, attempts by the U.S. to throw a new “containment ring” around China . For its part, Beijing is countering U.S. moves by more active diplomacy in what many might consider U.S. “home turf.”
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On October 10, 2002 , with all of the former Soviet Central Asian republics enrolled in the North Atlantic Treaty Organization’s (NATO) Partnership for Peace, China formally requested the opening of a “strategic dialogue” with NATO. (In NATO’s June 2004 Istanbul summit, the alliance went further, declaring that Central Asia and the Caucasus were “strategically important regions.”)
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After years of effort, China seems on the brink of getting the European Union to lift its arms embargo imposed after Tiananmen Square (1989) despite heavy pressure by the U.S. on the EU to maintain the ban. China says it does not intend on buying “expensive” and “obsolete” European arms, but U.S. analysts worry that what China might get is technology, starting with the EU’s Galileo navigation satellite.
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Tellingly, Australia – the main regional “western” country and steadfast U.S. ally – is not objecting to the EU lifting its embargo. Canberra wants more information on the EU arms trade “code of conduct” and to be notified of any sales by EU countries. (Australia lifted its own embargo in 1992 and is now negotiating terms for providing uranium ore to China’s nuclear power industry.) Similarly, Israel and Russia, which both have extensive records of military sales to China and did not institute post-Tiananmen embargos, seem not to be objecting despite the more sophisticated competition the EU brings.
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International Business Machine Corporation has sold its personal computer division to a Chinese firm, Lenovo Group Ltd., in which the Chinese government has a stake – subject to approval by Washington.
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In testimony before the House Armed Services Committee on March 9, 2005, the head of U.S. Southern Command noted that Chinese defense officials conducted 20 visits to Latin America and the Caribbean (with nine reciprocal visits to Beijing), many to the eleven countries whose U.S. military aid was stopped because their governments refused to sign agreements that would exempt U.S. personnel from the jurisdiction of the International Criminal Court.
This leaves the seemingly intractable issues of North Korea and Taiwan , both of which involve the U.S. as a central protagonist.
North Korea’s nuclear weapons – anywhere from two to fifteen, according to which U.S. intelligence agency is speaking – is not just a U.S. concern. But while China does not want to see either North or South Korea (or an eventually reunited Korea) acquire a nuclear arsenal, they are not as exercised about the possibility as is the U.S. In fact, Chinese officials have publicly questioned Washington’s estimates of Pyongyang’s self-declared status as a nuclear weapons state.
In terms of the North Korean “problem,” China finds itself uniquely positioned as the only country genuinely able to mediate and facilitate discussions. But as the history of the “six-party talks” illustrates, Chinese envoys have been sorely tested just in keeping the talks going. For example, on February 10, 2005, the North announced it was leaving the talks, which had not been held since August 2004 because of U.S. demands that the North completely tear down its nuclear program as a precondition for more assistance and U.S. aid. After a four-day visit by a senior Chinese government official, the North’s leader, Kim Jong Il, was said to be willing to resume the six-party discussions if the U.S. showed “trustworthy sincerity.” Just what would count as “sincere” remains undefined, but presumably would include past demands: written assurance that Washington does not seek regime change, guaranteed aid, including fuel, and conclusion of a peace treaty officially ending the Korean War.
U.S. military options are severely restricted by the ongoing war in Iraq, intelligence gaps regarding the location and vulnerability of North Korea’s nuclear facilities, and the great destruction on South Korea (especially Seoul) that the North could inflict in either a first or retaliatory military strike. Nonetheless, rhetoric from the Bush administration aimed both at Kim Jong Il personally and North Korea as a political entity – rogue state and “outpost of tyranny” – seem designed to keep the atmosphere roiling and the next meeting of the six on indefinite hold.
Given Washington’s approach to negotiations, Ch inese leaders may soon see the Bush administration’s end game as keeping China ’s border with North Korea under persistent threat of large-scale migration should Pyongyang suffer economic meltdown or go to war against the South. This would dovetail with Beijing ’s perception that many in the U.S. administration and Congress view China as the emergent great power peer competitor the U.S. will have to confront in the first part of the 21 st century. The CIA Director was quite explicit on this theme when he stated that “ Beijing ’s military modernization and military buildup is tilting the balance of power in the Taiwan Strait .” Yet of the four “modernizations” the PRC is pursuing, military modernization still is the lowest priority.
That said, Beijing does not shirk from the question of Taiwan and military force.
A series of intertwining events over the last 13 months have perceptibly raised tensions in the Taiwan Strait:
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In the run-up for the presidential election in March 2004, Taiwan ’s President Chen Shui-bian promised to rewrite the island’s constitution and free it from the “fiction” of being part of China . He also proposed to seek approval of a “process” for independence via a referendum, sidestepping the constitution, and even placed referenda to carry out the process on the March ballot. Chen was narrowly re-elected; the referenda were not approved. Under U.S. pressure to tone down his rhetoric, Chen back-pedaled on independence in his May 20 inaugural address.
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In July 2004, China , which had also castigated Chen during the Taiwan race, conducted extensive military training in the Taiwan Strait while the U.S. exercise “Operation Summer Pulse 04” in the Pacific was larger than usual.
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In the run-up to the December 2004 Taiwanese legislative elections, Chen again promised to move ahead with a 2006 referendum on independence with a 2008 implementation if his party won the December poll. They lost. But the fact that Chen had re-opened the independence question again was enough to spur the mainland Chinese to bring before their National People’s Congress an “anti-secessionist” law.
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Beijing steadfastly insists that Taiwan and its status are internal concerns of the Chinese people who need no “assistance” from other countries. The February 20, 2005 declaration by the Japanese and U.S. Foreign and Defense ministers that the state of affairs in the Taiwan Strait is a “common strategic objective” is an attack on the unified sovereignty of China which both the U.S. and Japan accept under the “one China ” policy.
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In addition to annually funding, through the Department of State’s budget, the American Institute of Taiwan – transparently an unofficial embassy – Washington reportedly plans to send military officers to Taiwan as official representatives of the Pentagon.
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For years, many in the U.S. Congress have advocated UN membership for Taiwan when clearly this is a status due only legitimate national governments. On February 17, 2005 , five members of the House of Representatives introduced legislation demanding the Bush administration restore full and official diplomatic relations with Taiwan . Such a move would lend encouragement to the designs of Chen Shui-bian who so far has been dissuaded from declaring Taiwan ’s independence by the Taiwanese people and the insistence of the PRC on the peaceful re-unification with the rest of China.
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Washington is trying to force the rulers of Taiwan to pay for and accept $18 billion in new “defensive” weapons first authorized in April 2001. The adoption of the anti-secessionist law by the mainland’s National People’s Congress has energized debate over the aid package in Taiwan ’s legislature.
Beijing reportedly believes that one aim of the Bush administration in Asia is to turn China and Japan against each other. But China is now Japan ’s number one trading partner, and China has opened its doors to Japanese investments. Japan also recognizes the role of China in facilitating the “six party talks” with North Korea over the latter’s purported nuclear weapons and long range missile programs.
Conversely, Japan ’s expanding cooperation with the U.S. on ship-borne missile defense suggests that its concerns over North Korean missiles have broadened to include the 700-800 missiles on China ’s mainland across from Taiwan . Moreover, the withdrawal of 12,500 U.S. troops from Korea, the repositioning of the remaining forces back from the Demilitarized Zone, statements by U.S. Pacific Command that the troops left in Korea could be used regionally, the twin possibilities that the Combined UN command in Korea will be dissolved while the U.S. reconstitutes a corps headquarters in Japan, all suggest a fundamental reorientation of U.S. attention in Asia by the Bush administration away from the Korean peninsula – a change reminiscent of the perception drawn from Secretary of State Dean Acheson’s January 1950 speech that Korea (and Taiwan) lay outside U.S. defense interests.
While any such alterations will not tempt Beijing to challenge Washington militarily, China ’s growing economic and diplomatic presence on the world scene is engendering greater confidence in its leaders. For example, U.S. criticism of China ’s human rights record was uncharacteristically reciprocated by a spokesperson for China ’s governing cabinet who specifically cited accounts of prisoner abuse by U.S. military and civilian personnel at Abu Ghraib, Guantanamo Bay , and other prisons in Iraq and Afghanistan .
In the foreseeable future, China ’s economic position vis-à-vis the U.S. and its role in the North Korean nuclear talks remain key to its relationship with the U.S. On the economic front, because China’s rapid growth has been fueled by a large surplus of exports to over imports from the U.S., Beijing is not expected to “pull the plug” on the U.S. short of looming and inevitable armed conflict resulting from a clear declaration by Taiwan of de jure independence. Beijing would like to regain political control of the island without a fight, and to that end will continue to enmesh Taiwan in a web of economic relations that Taipei increasingly will be loathe to risk.
As have its predecessors since Richard Nixon “opened” China , the Bush administration has chosen, after initially hesitating, to try to ride the Chinese dragon – but with spurs on. Having managed to climb on, Washington cannot get off without risking metaphorical incineration. For its part, China has decided to ride the eagle to the sky’s limit. Beijing believes that if it can hold on for the ride until the eagle economically exhausts itself, it will be able to at last replace U.S. influence in Asia .
As the old song says, “dragons live forever.”
