This could cause China to overestimate its leverage and ability to advance its interests on contentious and provocative issues such as Taiwan and maritime sovereignty disputes. At the same time, it could also cause the United States and Japan to overreact to such behavior, partly to disabuse China and others of the notion that the United States is losing its dominant position. Although Beijing and Washington could perhaps avoid letting such a crisis devolve into actual military conflict, even a major nonviolent confrontation could severely, and perhaps irreparably, damage U.
Under present conditions, the issue of Taiwan is particularly concerning. Given the current and worsening U. These sentiments are already found among defense analysts in the United States and Japan. Needless to say, if such views became policy, the U. One China policy would collapse, along with the original basis for normalized relations with Beijing. The result could be a military conflict.
I am certainly not predicting such an outcome. But I am less confident today than I was a few years ago that it can be avoided. First, serious, influential individuals in both countries and not just experts on U. They need to call for an end to reckless rhetoric, soothing propagandistic utterances about win-win outcomes, and mild, half measures for dealing with the serious sources of discontent and suspicion in the relationship. Such actions, along with the efforts of U.
The Deepening U.S.-China Crisis: Origins and Solutions
Meanwhile, the U. Congress should hold hearings on the future strategic balance in Asia and its implications for U. The point of this assessment would be to confirm and define more clearly the power shift occurring in Asia and to determine the most feasible and effective policy options. In my view, this should lead the two countries to accept the need for a stable and real balance in Asia and a defusing of the most likely sources of conflict through mutual accommodation, alongside genuine efforts to integrate the region economically.
Such a mentality should take the place of what currently appear to be U. In addition, policy experts and politicians need to provide support for a nonpartisan examination of additional mechanisms and processes that could help facilitate more effective U. Track I and Track II discussions have produced some notable successes in this area in recent years. But such exchanges have often focused too narrowly on the prevention or successful handling of purely military incidents or accidents, especially on the Track I side.
This larger context would be as critical a factor in determining the evolution and outcome of a serious U. A first step in this direction should be the formation of a senior-level U.
The Deepening U.S.-China Crisis: Origins and Solutions
But, for such a dialogue to occur, both sides must internalize the reality that, under current conditions, a serious political-military crisis between the United States and China could escalate to a major military conflagration. Given this stark fact, each side must recognize that the other is not necessarily interested in provoking or manipulating a crisis to achieve a decisive advantage in the relationship, and both sides should acknowledge that any effort to do so would likely result in disaster.
That recognition is essential on both sides for the initial good faith effort required to engage in a frank discussion about crisis mismanagement.
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A more stable Asia, much less a more stable U. This transformation can only take place over a period of years, under the direction of experienced diplomats, business leaders, and military officers who possess a strong sense of the high stakes involved and a clear understanding of the dangers of allowing the corrosive status quo to continue. Follow the conversation— Sign up to receive email updates when comments are posted to this article.
Very interesting overview, but I would like to comment on one idea: the role of business people in US-China relations in general and diplomatic relations in particular. Swaine hopes that under certain conditions business people can speak up more forcefully and make a positive contribution to modifying the current accelerating crisis. The States Department used to have this capability.
At the time I was the president of Sprint Japan, but kept the designation under my consulting company for several more years including during a two year assignment in China. I was free to offer my own opinions and to analyze the development of telecommunications and Internet Development in Asia, and the growing influence of China in the proceedings, including suppressing ideas of Internet equipment production in Indonesia and other Southeast Asian countries. Traditional diplomats would not have had the technical or international business experience to offer these observations.
When I returned to China later, as a more experienced international telecommunications executive, I found the opportunities to contribute to US-China telecommunications and Internet development strangely truncated. Or prohibiting Huawei and other Chinese firms from using US components could trigger a full-scale process of de-globalisation, as companies scramble to secure their supply chains. Were that to happen, China would have several options for retaliating against the US, such as by closing its market to US multinationals such as Apple.
Under such a scenario, the shock to markets around the world would be sufficient to bring on a global crisis, regardless of what the major central banks do. With the current tensions already denting business, consumer, and investor confidence and slowing global growth, further escalation would tip the world into a recession. And, given the scale of private and public debt, another financial crisis would likely follow from that.
Lasting Effects: The Global Economic Recovery 10 Years After the Crisis – IMF Blog
Yet both sides are still ratcheting up nationalist rhetoric and pursuing tit-for-tat measures. And if they each genuinely believe the other will blink first, the risk of a ruinous clash is high indeed. But even if they do agree to restart negotiations, a comprehensive deal to settle their many points of contention would be a long way off. As the two sides drift further apart, the space for compromise is shrinking, and the risk of a global recession and crisis in an already fragile global economy is rising. Topics Business Project Syndicate economists.
Reuse this content. The big concern is that governments do not have the policy tools they had in to prevent a financial shock turning into a freefall, and overall debt levels are higher than during the previous crisis. Below is an edited transcript. I don't think we'll necessarily have another financial crisis any time soon, although the political turmoil in the United States and the world is such that I don't really feel terribly safe about anything at the moment. When we have another financial crisis, our tools are limited. One problem is that interest rates are very low and it gives the central banks very limited room to cut interest rates.
Another problem is that there's so much divide across the political spectrum that, unless the situation is incredibly grave, it may be difficult to put together a strong enough government spending fiscal response. The thing that concerns me the most is the view that only stimulus should be used in response to a financial crisis and that there isn't a need to address the problems within the financial sector; that's very problematic.
In the last crisis many people reached the conclusion that the simple and most elegant intervention would have been to find a way to write-down subprime debts in the United States using the government's balance sheet; and also in the Eurozone, to find ways to write down the debts of the highly indebted periphery countries. That's very difficult to do but countries and regions that are very successful at emerging from financial crises have debt write-downs.
The problem is, if you don't do that, you're left with a weak financial sector for years and years and years — it can't make loans, you don't grow again — and that's not very healthy either. In the last financial crisis, central banks surprised a lot of policymakers with just how much independence they have. After all, the central bank can issue debt of its own — that's what the Federal Reserve did — very much like the government does.
All the central banks issued masses of debt in order to try to increase the money supply. They issued very short-term debt to buy back long-term debt. I don't think governments totally realized they could do this. Unfortunately, there had been a lot of restrictions put on central banks and their ability to respond creatively, particularly in the United States. Whether those restrictions would be blown through we don't know.
But central bank independence remains very strong around the world, despite these restrictions.
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They have the independence they need but the tools are lacking. I would like to see central banks have the ability to push interest rates well into negative territory in a deep emergency, not in normal times, as a way to try to stimulate the economy. It would have been much more effective than quantitative easing, forward guidance, these obscure things that they were doing that had some effect, but most studies show the effect was pretty limited.
Unfortunately, when there is a financial crisis, a debt crisis, any kind of crisis, the hardest hit are almost invariably the disenfranchised, the poorest people and, very often, the middle class. So, a financial crisis would be bad for the wealthy but it would be worse for ordinary people. After all, they don't have a cushion, they don't have things they can live off of. So, when we think about protecting the economy from a financial crisis, it's not just about protecting the wealthy financiers; it's about protecting ordinary people. That said, there are things the government can do to make sure that the burden is shared more equally.
One of the ways would be by having much more aggressive debt write-downs than we had the last time. Is the global economy always going to be prone to these types of downturns or is there a better way to do things?
Unfortunately, financial crises trace more to human nature than the particulars of the legal system, the financial system. We've been having them for centuries; they go in cycles. What we can do is make it longer till the next time, to put in stronger measures, to put in more creative measures.
To some extent that really has been done after this financial crisis. There's been a lot done to try to heal the banking sector, to make it more safe.
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