International Herald Tribune
For Asia, U.S. shift offers perils and promise
Friday, November 10, 2006

The U.S. midterm election has signaled a sea- change in American attitudes. For Asia, this shift will present a challenge as the United States faces up to the unsustainability of current strategic, economic and environmental policies.

America's military overstretch, trade imbalance and budget deficit, as well as its role in global warming, are interrelated in ways that require very skillful leadership - by major Asian countries as well as the new Congress and the White House.

The costly and humbling U.S. failure in Iraq will affect America's engagement elsewhere, especially in East Asia, the part of the world most reliant for its own stability on U.S. military hegemony.

If America scales back on bases or missile defense, China and Japan will have to work much harder to avoid further military build-ups generated by historical friction, and to find common ground with Seoul on North Korea. The rhetoric and military spending of recent years are not encouraging. The recent visits to Beijing and Seoul by Prime Minister Shinzo Abe of Japan may have signaled, however, that all three countries are now more aware of the dangers.

More immediately, the U.S. relationship with East Asia will be tested by the trade deficit. The election fell on the day China announced another record surplus and that its foreign exchange reserves, mostly in U.S. government debt, passed the $1 trillion mark.

The unpleasant reality is that the U.S. deficit, mostly with Asia, can only be brought down by a dramatic drop in the dollar or a major U.S. recession, or the raising of new trade barriers - or all three combined.

The election of a Democratic Congress makes trade restrictions and higher taxes more likely. Bush administration tax cuts have helped create the deficits and increase income divides within America. Its attempts to persuade China - and others - to change their exchange-rate policies has largely failed. So Democrats will be tempted to put up trade barriers, possibly aimed specifically at China, to protect U.S. jobs.

The adjustment of unsustainable trade imbalances was always going to be painful for Asia's exporters. It could now be even more so if Asian countries are not willing to do more to rectify the problem and thus head off protectionist measures that would devastate the global trading system.

The new Congress makes it all the more important that the current round of World Trade Organization negotiations is finalized before President George W. Bush's negotiating authority expires in mid-2007.

Trade missteps could also cause a blow-up in the world financial system, which is endangered by a surfeit of dollars, easy credit and opaque derivatives. There is more at stake for East Asian countries - the major creditors - than they usually recognize.

There is one area, however, in which America and major Asian countries should have massive mutual interest - reduction in use of imported carbon energy, and a serious assault on the global warming issue.

Public opinion in the United States was changing fast even before the election. China is beginning to realize that pollution is killing and maiming its own people in vast numbers now, regardless of what it does to the globe in 30 years' time. Sooner or later, India will stop bleating about the "unfairness" of carbon restraints on poor countries and get the same message.

Political, economic and environmental interests come together on the energy issue to support cooperation by East Asia and South Asia with a new U.S. policy.

Most of Asia knows that there can be no solution without U.S. participation, and would like to see the United States take the lead and use its formidable technological prowess to address these issues. Everyone needs cleaner energy and less reliance on imports from unstable regions. Asia would be delighted to see the war on terror, which has created more enemies, replaced by a war on global warming.

There are immense opportunities to be had from the change in U.S. attitudes, to a return to multilateralism, consensus-building among allies and trade partners, to the regeneration of U.S. moral leadership.

But progress can be made only if the nature of the problems and the links between them are understood, and the necessity for tradeoffs acknowledged - by Asia as well as the United States.