Atlas stumbled

It is not yet clear what havoc President-Elect Trump will or will not wreak on the US economy, society, and foreign relations. Liberal internationalist self-esteem apparently remains intact despite the awkwardness of having to explain to authoritarian nationalist regimes that they lectured on their moral, political, and economic shortcomings for decades why the United States itself elected an authoritarian nationalist.

It might be worth pointing out that China’s massive state-mandated stimulus program, and not the US government throwing mountains of cash at overjoyed bankers, is what probably kept the world out of recession in 2008.

 

The narrative that Trump, who garnered about 2 million fewer votes than his Democratic rival Hillary Clinton, won thanks only to the quirks of the Electoral College and the idiocy of 57 million deluded voters, has quickly taken hold and will console and encourage liberal internationalists until the next election.

One thing, however, that has taken a quick and immediate hit is the idea that the United States was the reliable linchpin of the liberal internationalist order, one that not only practiced and promoted the norms of globalization but also defined, promulgated, and enforced them.

Now, the American Atlas has stumbled, alarming the world with the spectacle of its inattention and apparent incapacity.  Xi Jinping has offered to carry at least the economic share of the burden.  Is China ready?

With Trump’s announcement of US withdrawal from the TPP as part of his 100-days agenda—one of the few campaign promises he can easily honor—the United States has abdicated its position as leader of an Asian-Pacific trade bloc that would exclude the PRC and position the United States and Japan as a preferred focus of regional investment and trade.

The lofty ambitions of the TPP—and its hopes of bucking a regional trend towardeconomic integration with the PRC—seemed unsustainable to me. Even as the TPP chugged along, Asian nations conducted discussions on the PRC-sponsored RCEP (Regional Comprehensive Economic Partnership) as well as the TPP, to keep a foot in both camps.

Perhaps a welter of bilateral agreements, or a “TPP-lite” of like-minded Asian nations led by Japan, will garner the tangible economic gains the TPP promised to secure. But economics aside, the United States is paying a hefty geopolitical price as Asia stands revealed as a sideshow in Trump’s America.

The PRC is gleefully capitalizing on US retrenchment to present itself not only as the lodestone of Asian economic integration—a pretty plausible claim—but also as champion and guardian of the global free-trade order against protectionism—a considerably harder sell given the PRC restrictions on capital flows and investment, its obsession with cultivating and protecting national champions, and its selective and imperfect legal system.

The PRC’s claim to embody the ideals of globalization are about as dubious as the now-fading US claims to occupy a leading position in the Asian economic order. It is not unreasonable to assume that some Chinese misstep will allow the PRC’s interlocutors to push back against Chinese overreach—and perhaps permit US liberal internationalists to exact a measure of revenge.

Unexpected shocks tend to shake loose interesting responses, one of which was an interview that economist Paul Krugman, a vociferous pro-Clinton partisan and champion of liberal internationalism, gave to Voice of America. His bitterness at the US electoral outcome and the repudiation of his agenda for Asia were reflected in some dark China-related thoughts.

Per VOA:

A number of analysts have argued, and human rights and democracy advocates hope, that an economic downturn in China could bring about social and political change that constitutes regime change — even if that regime change is engineered by the current government or members of the current government. Krugman said he thought many outcomes were possible, including the Beijing government turning again to violent means to crack down on protest and dissent.

The core assessment here seems to be Shambaughism 2.0. David Shambaugh, an analyst of contemporary China who is very influential in the Beltway and US medialand, had originally opined that economic development in the PRC would result in a more liberal, US-friendly government in Beijing—the so-called “responsible stakeholder.” When this expectation was disappointed, he concluded that the PRC regime, due its illiberal and authoritarian character, was doomed to collapse. Indeed, the collapse—the “crack-up” in Shambaugh’s words—was imminent.

I suspect that Shambaugh’s analysis became the foundation of US China policy in the age of the pivot, and informed a posture, both for US national policy and its dealings with Asian allies, that China was going to fall on its behind and go boom. Therefore, the key mission was to quarantine the PRC, economically and militarily, to the greatest extent feasible, and set up parallel trade, financial, and security structures that would contain the damage from a PRC collapse and provide place for a chastened and submissive China to rehabilitate itself as a newly compliant member of the “liberal international order.”

The fact that “human rights and democracy advocates,” many of whom have close and sympathetic ties to the United States (and for that matter, VOA) had integrated the “PRC collapse” scenario into their strategies is perhaps another indication of the influence of this theory in US China policy.

Now, rather ironically, it’s the US Asian order, rather than the PRC, that has fallen on its behind and gone boom.

Or as Woeser, a Tibetan rights activist, put it: “Trump symbolizes the collapse of civilization.”

In recent months Krugman has been bullish on a China collapse with the happy optimism that the consequences of the CCP’s economic misdeeds would be borne primarily by China and not the world economy.

In Krugman’s view today, apparently, the PRC’s still going to blow a la Shambaugh, but under Trump America’s not going to be there to pick up the pieces i.e. coordinate a global response to mitigate the impact of a sag in Chinese demand, per his interview with VOA:

Krugman says it is not China’s economic growth and dominance in the world economy that worries him. Rather, it is the likelihood of a coming economic downturn in China, and its enormous impact on the global economy, that concerns him.

…

The biggest problem, he said, is what China will do in the event of an economic collapse, and what problems that would pose for the rest of the world.

Asked whether the international community would come to China’s rescue in a manner similar to the bank bailout program the U.S. government launched following the financial crisis of 2007-2008, Krugman shook his head: “No, even with the best will in the world, China is just too big — not too big to fail, but too big to save.”

He quickly added: “Who’s going to do this? The Trump administration in America? The European Union, which is busy tearing itself apart? No, it’s not going to be a global rescue.”

Everything would have worked perfectly, if not for those darned nationalists, in other words.

It might be worth pointing out that PRC’s massive state-mandated stimulus program, and not the US government throwing mountains of cash at overjoyed bankers, is what probably kept the world out of recession in 2008.


But in Krugmanland, I get the feeling a China/world economic crisis, though bad for, you know, China and the world, might have the salutary collateral result of awakening the masses to the error of their ways and help put the liberal internationalists back in the saddle.

It should be stipulated that the PRC today is in a pretty unhappy place economically with exploding corporate debt and money supply, and declining returns on investment as the PRC tries to keep the wheels on until the global economy rebounds and domestic reforms to local governance and administration of state-owned enterprises somehow take hold. If U.S. interest rates rise, flight capital will presumably start trotting toward the door, leaving the CCP with the unpleasant options of either digging into its forex war chest to defend the RMB, or letting it float and undercutting the PRC’s claim to possess a strong, stable currency ready for international prime time.

Xi Jinping can only hope that Paul Krugman is as wrong about China as he was about the US election—i.e. spectacularly—and the PRC can draw on reserves of political, institutional, and economic resilience as invisible to the liberal internationalists as Trump’s electoral strength inside the US. By Peter Lee