Trade, Security and the Emergence of China and India

IMGXYZ547IMGZYXOn October 19th, 2006, the Carnegie Endowment for International Peace co-hosted an event with the National Bureau of Asian Research on “Trade, Security and the Emergence of China and India.” The keynote speaker was Ambassador Karan Bhatia, Deputy United States Trade Representative. Other panelists included Michael Chambers, Richard J. Ellings, Devesh Kapur, Minxin Pei, Peter Rutland, Michael Swaine, and Ashley Tellis. This event marked the book launch of “Strategic Asia 2006–07: Trade, Interdependence, and Security,” the sixth volume in NBR’s Strategic Asia series, co-edited by Ashley Tellis and Michael Wills.

Jessica Mathews, President of the Carnegie Endowment, made the introductory remarks and provided a brief overview of the relevant programs being undertaken at the Carnegie Endowment, including the largest China and South Asia programs among think-tanks in Washington, D.C. Richard Ellings remarked on the success of the "Strategic Asia" series for the past six years with the help of the team at NBR and Ashley Tellis, among others.

Ashley Tellis, Senior Associate at the Carnegie Endowment, provided a brief overview of the underlying themes of the book. Tellis highlighted the dramatic increases in trade intensity and interdependence though no commitment to collective security has been made. Asia’s rise raises an important question of “relative gains.” Tellis argued that Asian states have, for now, concluded that U.S. hegemony is robust and can provide the public goods that no other Asian country is yet willing to provide. Asian states have high expectations of peace in the future, are not acting like defensive realists and are committed to the use of political means to resolve disagreements. Tellis posited that this scenario is likely to continue unless the “quest for plenty” comes into absolute conflict with the “quest for power” which hasn’t happened yet because all states continue to experience great gains for state power.

In the opening address, the Keynote Speaker, Ambassador Karan Bhatia highlighted two key themes. One, the share of intra-regional trade in total trade for East Asian countries has risen from 34% to 54% in the period from 1984-2004. Two, we are seeing greater bilateral trade between U.S and Asian countries. This growth, he argued, is happening largely without government guidance and control, and is actually being driven by technology. Emphasizing the building and creation of institutions, Bhatia remarked that while Asia has been eager to participate in the global trading regime, it has, regrettably, been reluctant to actually take ownership or leadership of this regime. He expressed hope that India and Japan would continue to undertake liberalization of other sectors, and China would work on reducing the subsidies that were draining the economy. Bhatia also reaffirmed the commitment of the U.S. to international trade in general and to continued involvement in the Asia-Pacific trade structure.

In the China Panel, Michael Chambers provided an overview of China’s economic strategy and its main goals. Chambers also outlined the trading relationships between China and its Asian neighbors and argued that China was seeking to develop greater interdependence with other countries in the region. The implication of increasing trade should be greater peace in the region, he concluded.

Minxin Pei argued that many of China’s socio-economic problems are not primarily due to economic growth and transition but because of the political system. He identified a large patronage system, large state presence in the economy, and a misplaced incentive structure and rampant corruption as the main flaws in China’s political system. The possible consequences, he warned, were persistent, structural inefficiency, rising systematic risk, and decay of the political system.

Michael Swaine refuted the argument that the economic interdependence between China and the U.S. was so intense that it could rule out violent political war between the two countries. Rather than looking at where would ever be war, Swaine suggested that one needs to look at the probability and intensity of conflict. He believed that it is clearly in China’s interests to cooperate right now not because of interdependence but because of domestic and external strategic reasons and other constraints. It is difficult to determine, moreover, whether the need to reduce its vulnerabilities will become greater than the need to maintain the benefits from such interdependence, once China does indeed become even more powerful. On the domestic front, he disagreed with Minxin Pei’s emphasis on democracy and argued it is unclear how and why democratization would impact economic growth. Rather, he identified corruption, environmental degradation and public health as key domestic issues that need to be tackled, but warned that U.S. emphasis on these Chinese domestic issues would take away from the larger strategic issues the two countries faced vis-à-vis each other.

In the second panel, Devesh Kapur pointed out that given South Asia is the least integrated region, interdependence is too weak for it to override security concerns within South Asia. In terms of Indo-Pak trade, Kapur identified various hindrances to greater trade, including similar economic structures, very little intra-industry trade, weak physical interconnectivity, and the Pakistani army’s vested interest in preventing trade issues from putting Kashmir to the backburner. Regarding China, Kapur pointed out that there is competition between the two countries in energy markets, water resources, and in forging strategic relationships with countries like Bangladesh, Myanmar etc. Arguing that in case of an India-China conflict, it would not be very difficult to source the current trade items from other markets, implying that trade interdependence would definitely not override security concerns.

Peter Rutland talked of Russia as an economy growing at 6% since 2000, a rising power both in the Asian and the European context, as well as a major supplier of energy and weaponry. He argued Russia was keener on trade and pipelines towards the West than the East, but geography would force Russia to remain engaged with Asia. Unlike Asian countries, Russia’s increased trade was still state-driven since the state was a 50% stakeholder in the energy sector. As the military-industry complex becomes bigger, Rutland pointed out that Russia is more comfortable transferring the latest technology to India rather than China since the latter could pose a security threat at some point. He concluded that Russia is trying to pursue trade without dependence, which might not be possible.

Ashley Tellis expressed confidence in India’s ability to sustain a 6-8% growth level for the next decade or two. Questioning whether India could actually bump up its growth rates to the next level, Tellis identified three crucial areas where state leadership was necessary- increased investment in infrastructure and agriculture, fiscal stability at the national and state level, and development of India’s human capital needs in education and health. Though autarky as an idea is clearly dead, Tellis argued that India is undergoing “constrained expansion” and still using engagement with the international economy selectively, except in the energy sector. India’s reticence could be attributed to its own massive domestic market, domestic politics, and a cultural tendency towards evolutionary rather than revolutionary change. India’s aim is not to be integrated with the global economy; rather, it sees integration as simply a means to an end, namely, increasing its national power and bringing the benefits of growth to the rest of its population.

The last panel brought all the speakers together to speculate whether a stronger India and China would adversely affect the global and regional security structure. The speakers were of the view that China will probably inevitably come into conflict with other powers because it is largely a non-status-quo power and there are no historical precedents for such a large power to emerge on the global scene without making the status quo power feel threatened or challenged. The case of India is less clear with the outcome dependent on how the security and economic structures evolve and how its own resource constraints play out in the next few decades.