In search of a new Metternich for the Pacific century

A doe-eyed prime minister Julia Gillard of Australia this week hosted Barack Obama in the most consequential presidential visit in decades. The two beleaguered liberal leaders staged a 26-hour love-in, the highlight being an agreement to station 2,500 US marines within five years in the Northern Territory, along with increased use of air and naval bases, army training areas and bombing ranges.

The deal marks the first long-term expansion of America’s military presence in the Pacific since the Vietnam war, and a significant deepening of bilateral ties between the US and Australia, two long-time allies. Local commentators spoke proudly of Australia’s new-found importance in the fast-growing Asia-Pacific region. Cooler heads will wonder what comes next.

However the new tripwire defence in Australia is dressed up, it is aimed squarely at China. Mr Obama made that clear during a speech to the parliament in Canberra. With the “tide of war” in the Middle East now receding, America’s focus would shift firmly to the Asia Pacific, he said: “Let there be no doubt. In the Asia-Pacific in the 21st century, the United States of America is all-in.”

Historians will look back and ask whether America’s re-engagement in the Pacific in November 2011 marked the moment when tensions with China, the superpower-in-waiting, escalated irreversibly. Throughout the ages, the failure to accommodate rising powers – or rather the failing of rising powers to accommodate the existing state system – has been a source of conflict.

Germany’s search for a place in the sun at the end of the 19th century is one example. Resource-hungry Japan’s quest for a new co-prosperity sphere in the 1930s is another. No less relevant (but studiously ignored Down Under this week) is America’s own emergence as a world power at the turn of the 20th century, which led to ”the splendid little war” with the former colonial power of Spain, both in Cuba and the Philippines.

A century later, China is not so much the elephant in the room, but the elephant in the region. Lately it has become embroiled in numerous territorial disputes with its neighbours. In addition to the historic stand-offs with India and Taiwan, Beijing has bumped up against Japan, the Philippines and Vietnam in the South China Sea, an area of lucrative mineral deposits. As China’s power grows, the risks of conflict in a region where nationalist demons have largely remained dormant are manifest.

Mr Obama’s “Pax Americana in the Pacific” is intended to reassure the neighbourhood, including former foes such as Vietnam. The deepening of the 60-year-old mutual defence treaty with Australia also forces a potential enemy to think twice before challenging the status quo. Crucially, however, it does not extend US sovereignty to Australian territory in the manner of the Guam and Okinawa military bases.

The other strand in US/China foreign policy is economic. This weekend’s east Asia summit in Bali will see Mr Obama seeking to solidify trade ties, starting with the Trans-Pacific Partnership (TPP), a group of Asian-Pacific countries, which specifically excludes China. Now, it is possible that the grouping could grow and China might be encouraged to join. But that is not the way it looks now. “It’s a posse to get China”, writes Peter Hartcher, respected international editor of the Sydney Morning Herald.

The TPP overture comes on top of persistent US criticism of China’s artificially low exchange rate. In the upcoming election year, the temperature can only rise. Yet the White House decision to escalate economic and trade tensions with China when markets remain spooked by the European sovereign debt crisis may not be so smart. Those with longer memories recall how the Reagan administration’s spat with Germany over monetary policy triggered the Black Monday stock market crash in October 1987.

So far, China’s response to Mr Obama’s double power-play has been muted. With a leadership transition due in 2012, Beijing has its own domestic preoccupations. But the Communist party hierarchy is also struggling to manage the economy’s convulsive shift from an investment-led, low-cost manufacturing champion to a more consumer-friendly economy. That shift will be felt well beyond China’s borders. Propelled by waning competitiveness, China’s manufacturers are scouring the world searching for markets, acquiring companies, upgrading technology and building brands.

China Inc’s outward reach is already altering trade patterns profoundly. The key destinations are already coming into focus: Australia, Brazil, Indonesia, Vietnam, Mexico, South Africa and even the US. What distinguishes China’s internationalisation from, say, that of Japan is the speed and scale of the change. In the case of Brazil, Chinese trade was just 2 per cent a decade ago but now accounts for 16 per cent, overtaking the US.

These shifts seemingly spell a decisive shift east in economic power. By 2030, China’s gross domestic product is set to be one quarter higher than America’s. It may have twice America’s share of world trade. Yet China’s GDP per head, at purchasing power parity, is still about a fifth that of the US. It is to become an economic superpower, while still a developing country – a premature superpower, as it were.

Here we come to the risks of mutual miscalculation. As long as the US-Australia military agreement is not the first building block in a rigid containment strategy, China need not feel threatened. As former Australian prime minister Paul Keating says, what is needed is a flexible accommodation of China, through a concert of powers. For that to work in the “Pacific century” one should turn not to a Chinese theoretician nor to an American idealist, but to the ultimate realist: Prince Klemens von Metternich.

The writer is the editor of the Financial Times and the article is based on this year’s Lowy lecture in Sydney