Spheres of influence were the conventional language of expansion. Countries
compete to increase their sphere of influence, and wars were often the
result. In the late-19th century, a rising power challenged this
concept.
The US was the revisionist power. As
part of its defense of the territorial integrity of China against the
imperialist in Europe and Japan that were carving up China into spheres of
influence (e.g., the Bund district in Shanghai, Hong Kong), the US offered an
alternatively organizing principle. It picked up the UK mantle of
free-trade.
Instead of fixed spheres of influence, the US proposed variable shares of the world economy. The variability would depend on economic
prowess. The more efficient one can produce a good that people want
to buy the greater one’s share. The spheres of influence were
rent-seeking behavior in the extreme. Concessions were granted by
political authorities, often under duress. To be sure the US proposal
was not based on a sense of altruism or
pacifism.
The rising US economic prowess, coaling
stations through the Pacific snatched from Spain at the end of the 19th
century, gave it the ability to project its power and trade into Asia.
It was late to the game of carving up the world. The cherries had already
been picked. As a revisionist
power, it did not simply challenge this or that concession, but the entire
system, and proposed one in which it could succeed.
The initial attempt at the end of WWI
failed. The US did not have the institutional capacity or political
will. The America First and the rejection of the League of Nations
was part of the “return to normalcy” as the period has been called by
some historians. The railroads, for example, that Wilson nationalized
during the war effort, were privatized again. By the end of WWII, things changed. Americans were now
more willing recognize that what happens abroad affects American prosperity at
home. The post-WWII institutions, like the IMF, World Bank and Bretton
Woods was the globalization of the variable share strategy.
This is
not just a historical narrative. It
is particularly relevant given Chinese President Xi speech earlier today.
Most of the market coverage seems to recognize that little new ground was covered and that the Core Leader reiterated
pledges and promises made before about new efforts to open the economy and
strengthen intellectual property rights. This
is boilerplate stuff.
What seems to have been largely overlooked was Xi’s comments on spheres of influence.
Xi said China would not “attempt to
overturn the existing international system
or seek spheres of influence, no matter how much progress it has made in
development.” To the extent that declaratory policies mean anything,
this is substantive.
The critical
problem is that while China says ts
eschews the spheres of influence approach others may be embracing it.
It turns out, for example, the European prosperity was partly predicated on leaders in Northern Africa and the Middle
East keeping their people down (and in). Since 2010 and the
beginning of the Arab Spring coincided with the EMU crisis, and even now
immigration is threatening to rip Europe apart even as the economy enjoys the
broadest expansion since the advent of the euro. Europe is looking
inward. The European project is being challenged post-crisis by Brexit in
the west and illiberal representative governments
in the east.
Asian regional trade is increasing, and Japan’s development assistance and infrastructure
surpass China. Several sectors,
including autos, are being integrated on a continental basis. The TPP
will facilitate more regional integration. China’s businesses are moving production facilities to
cheaper labor supplies also help integrate the region.
Trump has claimed the NAFTA agreement was the
worst ever. While he has threatened to quit it, there is a new push
to reach an agreement as early as the end of this week, at least in principle.
Negotiating posturing notwithstanding, it seems to
sustain a confrontation with China, protecting one’s flank is
important.
In the early 1970s, David Rockefeller launched
the Trilateral Commission, a nonpartisan forum that saw North America, Western Europe, and Japan as the three pillars.
While there interest in some quarters for a new Bretton Woods agreement, which
we think is far-fetched, we could be experiencing the second incarnation of a
trilateral world.
Under the original and in the new version, an
Asian bloc is less tangible. Originally, it was that the Japanese leg
was the weakest by almost any metric, its insular perspective, and estrangement
from other countries in the region
prevented it from emerging as a regional leader. In the new version,
China and Japan are regional rivals. Neither is providing what Germany
does to Europe or the US in North America.
Trilateralism 2.0 ?