America’s Asian dilemma – Asia Business News

Opinion Commentary by Chris Devonshire-Ellis – January 20, 2022

A rising Asia makes it difficult for Washington to continue to wield global influence

The United States – and to some extent the world – is currently at a discernible crossroads as geopolitical tensions rise in a palpable sense of disconnect, exacerbated by Covid.

US President Joe Biden, despite all his talk and rhetoric about his first year and his “outperformance”, is really suggesting to the West that “if you don’t support me, the current order will lose control of the world”.

However, the United States, using its old familiar routine of “bad communists and dictators”, is creating confusion in the United States. Meanwhile, China and Russia use the story to respond to US strength to protect their own empire’s orbits. Western media generally does not understand and continues to buy the simplicity of “good, bad”. However, it is not as simple as that.

It is precisely this type of disconnection in mutual understandings that leads to war. But in the current multiparty political power struggle in the United States, presidents such as Joe Biden are stuck. The United States is still very powerful, but it is also very confused. Too proud to back down from Russian security demands, and too energy-intensive in capitalism not to push their way through to provoke European distrust of Russian gas supplies.

On one level, a solution is simple. Rebuilding America – what the ‘Build Back Better’ deal is about will solve many of America’s squeaky infrastructure and community problems, while striking deals with China and Russia would protect the West from incursions. However, German investment interests are so tied to Russian energy that a German-Russian Europe is largely inevitable, much as a reshaped Asia is inevitable. Instead, the United States is spending fortunes trying to cling to Asia and Europe when these issues are in fact negotiable. But when negotiations — such as the Trans-Pacific Partnership trade deal — were on the table, America pulled out. Washington thinks China and Russia are untrustworthy. Right now, this is being solved against America’s own interests by creating a self-defeating US geopolitical approach that diminishes its global status and commercial influence, instead of increasing it.

This battle for power in Washington now affects the flexibility of the United States in its relations with China and Russia. It’s a barrier that will have to be broken down, and somehow Washington will have to find ways to eject figures like Trump to win the global battle. Biden is fighting hard to show off his military strength to convince the American public to follow him – which is part of why the US has been unable to agree a settlement with the Russians, who in turn are concerned about US hypersonic missiles based on Ukrainian soil. a few minutes away from Moscow. It’s not rocket science. Anyway, there will be a resolution this year. What is unclear is whether this involves military action or not. Biden should be seen as strong. Just like Putin, whose regional concerns are the most pressing. Next week’s Blinken-Lavrov meeting takes on greater significance.

The United States is out of options and is clearly at a crossroads – but the signs ahead are unclear and very difficult to read.

Meanwhile, the rise of Chinese trade has led to the rise of the RMB yuan as an international currency. When the United States took over the status of the world’s reserve currency from the United Kingdom about 100 years ago, it gave the United States enormous power and economic advantages. Inevitably, there has been resistance against this, and particularly in Europe, with the euro as a currency imposing a new stage in European independence from Washington, a process that waxes and wanes as that the sensitivity of the EU turns too much towards American foreign policy. It’s an issue that French President Macron has just underlined by suggesting that the EU itself should engage in direct talks with Russia on the Ukraine issue – a situation partially confirmed by Washington’s apparent intransigence in the negotiations when it’s about dealing with Moscow. As I pointed out here Washington has never had to deal with invading armies. But Europe and Russia did it, and they know the repercussions — subtleties lost on the Washington Hawks.

But has the United States used its dominance of the US dollar wisely? Maybe not – the emergence of US sanctions to impose its foreign policy after it lost control of the Security Council to declare a United Nations war against Iraq and Afghanistan was far too easy a path to bend the sovereign submission to American economic power, and a great wave of international resentment arose.

It is quite clear that China is moving along with other participants towards some sort of currency convertible into gold, but not as a global reserve currency. This was more designed to make the RMB yuan more attractive to various central banks when they have trade surpluses with China, such as Saudi Arabia for example. A side effect of this would lead to the RMB becoming an attractive investment for a growing number of nations – the so-called “internationalization” of the Chinese currency, although it seems unlikely that Beijing really wants to run a major currency of world reserve. on a truly global basis.

But it has also advanced the development of a Sino-Asian Free Trade Area – which has now manifested itself with the Regional Comprehensive Economic Partnership (RCEP).

This is where Washington believes Beijing is undermining the international rules order. RCEP reduces Washington’s power and influence in Asia, but rather is a protection of the developing Asian concept, which is based on maintaining Asian independence, while connecting key regions together. . This resulted in three powerful and distinct global regions – Europe, North America – and Asia.

The United States is fighting the emergence of a united Asia and has been at the heart of the Obama, Trump and Biden administrations, thwarting policies toward China. This has now escalated to the point where the situations in Ukraine and Taiwan appear to threaten war with Russia and China. Washington fought hard to make Europeans afraid of Russia and Asians afraid of China. A new approach is needed – if war breaks out, it is obvious that American foreign policy has been misguided – because conflict can and must be avoided.

Meanwhile, the rise of a digital RMB yuan is now apparent and will happen. The digital ruble is not far behind, as are other digital currencies, but it is China that is leading the change. There have been discussions about the possibility of linking digital currencies to real assets – Iranian oil, Russian gas for example, as this fills a demand void left by the exit from the former gold convertibility standard. The United States, however, would have real problems if Asia established a digital-based Asian currency. This would eliminate the need for payments to go through the SWIFT banking network, reduce the role of the US dollar and US banks in processing international transfers, and obfuscate some money laundering issues. But that’s what happens when Washington oversteps the intended limits of managing a global currency – the dollar and the global SWIFT network have become agents of US foreign policy, are seen as such, and distrust grows.

How a digital currency works and which currency would take the lead is still being worked out, and China is keeping its cards very close to its chest. Meanwhile, Washington is using its domestic inflation interest rates to have a serious impact on other nations’ capital markets. A rise in US rates draws money into the United States, while weakening other currencies – a looming issue that worries many countries.

Another challenge posed to the United States by Asia in terms of digital financing without American involvement seems like an inevitable progress for Asia, but it is a huge problem for many countries. The race for a new monetary landscape is very important, but it cannot be rushed. It seems, however, that Germany and Japan prefer such changes – essentially using the strength of the euro and the yen to dilute an Asian currency mainly supported by China – but this is very difficult to read because both have d ‘other external and internal pressures and have bilateral considerations. .

The way forward is far from clear, although it seems clearer on Asia than on Europe or the United States. This explains the significant amount of foreign investment that has flowed into Asia over the past quarter in place of RCEP – the money is going where the future and the crystal balls are less opaque. We expect this trend to continue.

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Any views or opinions represented in this blog are personal comments, belong solely to the contributor and do not necessarily represent the views of Asia Briefing Limited or Dezan Shira & Associates.

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