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21 October 2013, Gateway House

U.S. government shutdown, China’s gain

The U.S. government shutdown and President Obama’s absence gave China immense diplomatic and political space at the APEC and East Asia Summit meetings. China’s declaration of a “de-Americanised” world may be premature but the crumbling old order is doing little to dispel this notion

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Washington – No one should be surprised that America’s loss was China’s gain. The extreme dysfunction of one only made the brutal efficiency of the other more obvious.

The contrast between a largely self-absorbed America and an activist China gets sharper with each crisis. The U.S. government shutdown for 16 days and the painful display of whacko politics in Washington gave China immense diplomatic and political space to play, especially in Asia.

The U.S. government was on the brink of default all because of a group of hardliners in the Republican Party who oppose expanding healthcare coverage to the needy.

The agreement to re-open the government and raise the debt ceiling averts the crisis only temporarily – until January when there could be another showdown. The prospect of another drama early next year does nothing to enhance international confidence in the U.S. government’s ability to put its fiscal house in order.

Can an America, so distracted, really pivot to Asia where a group of anxious countries await its leadership while slowly getting smothered with billion dollar deals from China?

Calls have already come from Beijing in thinly disguised editorials that it is time to create a “de-Americanised” world. A world where the dollar would be less important and the ability of the reigning superpower to cause financial trouble greatly diminished.

The signed opinion piece was a blunt notice – if one were needed – to broadcast where the game is headed. It declared that the U.S. “instead of honoring its duties as a responsible leading power” has introduced “even more chaos into the world by shifting financial risks overseas.”

What’s needed is “a new international reserve currency” so that the international system could “permanently” immunise itself from the “intensifying domestic turmoil in the United States.” The tone is unmistakable and intentionally the same as Americans would employ when advising countries floundering in an economic mess.

The “tough love” is in direct proportion to the pain American political dysfunction and possible default could cause the Chinese. China has gargantuan stakes in the U.S. economy – it holds a whopping $1.2 trillion or 8% of the $14.3-trillion U.S. debt, thanks to the enormous trade surpluses built over the years. To put it in perspective, China is the third largest holder of U.S. bills, notes and bonds, after the Social Security Trust Fund and the Federal Reserve. Japan is next with $912 billion.

De-Americanisation may already be underway, especially in the financial world. The BRICS (Brazil, Russia, India, China and South Africa) countries are trading with each other more in their own currencies. Every year the demands for a greater say by emerging economies in the Bretton Woods system are getting louder.

The Americans will block the dilution of their power within the IMF and the World Bank for as long as they can but it is a matter of time before change will force its way. China, well placed within the system, will benefit and move into spaces thus created.

China’s confidence and diplomatic heft on the world stage grows daily, especially when the U.S. goes missing in action.

The shutdown forced President Barack Obama to cancel his trip to Asia for the Asia-Pacific Economic Cooperation meeting in Bali and the East Asian Summit in Brunei. It was a free pass to Chinese President Xi Jinping who used the opportunity with aplomb, visiting Brunei and waxing lyrical about being an Asian in Asia.

Showing up is a barometer of commitment and also half the battle. While Obama was a no show, Xi signed deals worth $30 billion with Indonesia and addressed its parliament – the first foreign leader to have the privilege. His visit to Malaysia was equally weighty.

By contrast the American pivot must be executed in the face of shrinking budgets, furloughs, a tepid economic recovery, Obama’s preference for domestic issues and the inevitability of Middle East crises to overtake all.

Obama’s foreign policy priorities come in this order: Syria’s chemical weapons, Iran’s nuclear programme, Israel’s worries about both and Saudi Arabia’s fears about losing its primacy in the Muslim world and the American mind. These leave little time for the Asian pivot, a project that requires tremendous imagination and nimbleness.

Already, the grand idea of a Trans-Pacific Partnership under negotiation by 12 countries in the Asia-Pacific region but excluding China, is mired in controversy and secrecy. The TPP was to be America’s answer to China’s growing economic muscle in Asia. But some Asian leaders say the TPP is nothing but corporate overreach. It goes beyond trade promotion to give corporations new rights and privileges, especially in the field of intellectual property. Some provisions seriously hamper governments’ ability to produce generic medicines.

The historic inability of American negotiators to balance the rights of people against those of business lobbies will hardly endear countries such as Vietnam and Malaysia to the TPP. If anything, Southeast Asia is more likely to succumb to the Chinese charm, already its leading commercial partner.

China may be getting ahead of itself in declaring a “de-Americanised” world. But the old order seems to be helping it along by crumbling and periodically shutting down.

Seema Sirohi is a Washington-based analyst and a frequent contributor to Gateway House: Indian Council on Global Relations. Seema is also on Twitter, and her handle is @seemasirohi

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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