Who Benefits from China’s “One Belt, One Road” Initiative?

Silk Road Economic Belt and the 21st-Century Maritime Silk Road
China’s Silk Road Economic Belt and the 21st-Century Maritime Silk Road

Under its Silk Road Economic Belt and the 21st-Century Maritime Silk Road (commonly known as the “One Belt, One Road” initiative) China has sought to build a network of infrastructure projects across Eurasia to encourage trade.  At first glance, it seems that all those involved should benefit.  Chinese loans would kick start the construction of the infrastructure projects.  Developing countries, in which the projects are built, would profit as transshipment points and from the development of new industries that could plug into international supply chains.  Revenues from the resultant economic growth would then repay the Chinese loans, with interest.

That all sounds rosy.  That is, if the new infrastructure network is used.  The mere existence of roads and ports does not ensure that trade will flourish.  Certainly economic growth at either end of the network would help.  But at the moment the economies of both China and Europe are slowing.  Indeed, global economic activity is slowing.  If there is not enough trade to make the new infrastructure profitable, then the benefits from the “One Belt, One Road” initiative only flows in one direction: China.

The operative word in the “One Belt, One Road” initiative’s financing is “loans.”  Chinese loans may have laxer requirements and carry a lower interest rate than those of commercial banks.  But they are loans.  China expects them to be repaid.  Plus, Chinese loans for infrastructure projects are often made with the understanding that the developing countries award construction contracts to Chinese companies.  In short, China benefits from both the financing and construction of infrastructure projects, while developing countries must bear all of the financial risk.  When trade is booming, that may not matter much.  But when it is not, that should be a concern.

In the past, many developing countries became heavily indebted as a result of infrastructure projects that fizzled.  Lenders ultimately had to forgive many of their debts, recognizing that their borrowers could never repay them.  China has forgiven some of its loans to developing countries too, about $3.9 billion in all.  But that is a small fraction of the total debts that developing countries owe it.  For example, in 2015 China cancelled $40 million in debt from Zimbabwe.  But Zimbabwe still owes China over $1 billion.  Moreover, at the time of China’s modest debt cancellation, Zimbabwe pledged that it would increase its use of the Chinese yuan in its foreign exchange reserves.[1]  To outside observers, it seemed that China had used its debt cancellation to achieve its larger foreign policy goals.

Still, several developing counties have welcomed Chinese financing.  Sri Lanka’s former President Mahinda Rajapaksa happily accepted Chinese loans to build a new port facility and airport at Hambantota.  When completed, the port facility will be the largest of its kind in South Asia.  But with slowing seaborne trade, Sri Lanka’s new government has been left with the burden of servicing the country’s $1.1 billion debt to China.  Despite the new government’s criticism of Rajapaksa’s acceptance of Chinese loans and the shortcomings of Chinese construction work, it had little choice but to finish the port and airport, lest it default on the country’s loans.  Indeed, China may believe that borrowers will be forced to repay their loans, because an outright default would severely curtail any developing country’s future access to credit.

Lately, however, some Asian countries have been playing harder to get with China.  That was the case with Indonesia last year.  When a Chinese-led consortium sought a contract to build a high-speed railway between Jakarta and Bandung, Indonesia leveraged the consortium’s eagerness to beat a Japanese-led rival to win a major concession: the consortium would drop its requirement for the Indonesian government to backstop China’s loans.  The consortium won the contract in the end.  But Indonesia offloaded the project’s financial risk onto China.

Thailand has been cautious too.  For years, China has talked about the construction of a long-distance, high-speed railway between Kunming and Bangkok.  After Thailand’s military coup in 2014, the two countries accelerated their talks over such a railway, as they developed closer ties.  But the terms that China offered disappointed Thai leaders.  They balked at China’s desired interest rate, its proposed ownership structure, and its request for development rights along the railway’s right of way.  So, Thailand shelved the project’s original plan.  Instead, it financed its own construction of a much shorter railway from Bangkok to Nakhon Ratchasima, only 250 km away.  While China would still supply the technology and oversee procurement, Thailand would use Thai construction companies to build the railway, not Chinese ones.

The two railway cases are telling.  China may believe that the thirst for low-interest loans in developing countries should make its “One Belt, One Road” initiative an easy sell.  But the leaders of those countries, at least those among them who are observant, know that China’s domestic economy is slowing and that China is increasingly concerned about keeping its construction companies working.  They also know what happened in places like Sri Lanka, Indonesia, and Thailand.  That knowledge gives them leverage to negotiate better terms from China.  If more developing countries do so, China’s “One Belt, One Road” initiative will be quite a bit tougher to realize.

[1] “Zimbabwe says China to cancel $40 million debt, increase yuan use,” Reuters, Dec. 21, 2015.

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China’s Encirclement Concerns

For almost two decades, Chinese strategists have worried about what they regard as the geopolitical encirclement of China. At various times, they have attributed that encirclement to the United States, then India, and most recently Japan.[1] No doubt last week’s large-scale naval exercise in the western Pacific did little to dispel their concerns. For the first time warships from India, Japan, and the United States jointly conducted anti-air and anti-submarine drills in the Philippine Sea, an area directly adjacent to the Chinese-claimed waters of the East and South China Seas.

China's Encirclement Concerns
China’s Encirclement Concerns

Events over the past month likely added to China’s concerns. Last Friday, Indian Prime Minister Narendra Modi visited Bangkok in part to expand his country’s defense and maritime security cooperation with Thailand. A week earlier, he met with President Barack Obama at the White House, highlighting India’s closer ties with the United States. At a summit in late May, the United States and Japan, along with other Group of Seven countries, openly voiced their concern over China’s maritime actions. Days before the summit, Obama flew to Hanoi where he lifted the long-standing U.S. arms embargo against Vietnam, one of China’s South China Sea antagonists. Then after the summit, Japanese Prime Minister Shinzō Abe welcomed a Vietnamese delegation to discuss how they could enhance their military cooperation.

Certainly Chinese concerns over encirclement are not new. During the Cold War, China worried about the Soviet Union pursuing a similar geopolitical strategy. Even earlier, the Chinese Communist Party faced several all too real “encirclement campaigns” during China’s long civil war. Those experiences could have left an imprint may have left their imprint on China’s strategic thinking ever since.

What is clear is that Asia-Pacific countries have begun to prepare for what could be an era of heightened tensions. Such hedging has recently accelerated, as Chinese behavior in the East China Sea, South China Sea, and on its border with India has grown increasingly muscular. The United States has pursued its “pivot” or “rebalance” toward Asia, which shifted the bulk of American naval might to the Pacific. India and Japan have boosted their diplomatic and economic engagement in Southeast Asia and strengthened their military postures. Other countries have begun to do the same. As Australia’s 2016 defense white paper warned, “competing claims for territory and natural resources [in the region]… could undermine stability.”[2] But does such hedging constitute an encirclement of China?

Imagined Encirclements

In the early 2000s, China agonized over a possible American encirclement on its western border as U.S. forces streamed into Afghanistan and Central Asia. But a decade later, a persistent insurgency had worn down the United States and its allies. U.S. military bases in Kyrgyzstan and Uzbekistan were closed; America’s once-close relationship with Pakistan became acrimonious; and U.S. forces began their long withdrawal. China’s concern never materialized.

Now Beijing fears an even wider encirclement by the countries along the Asia-Pacific periphery, as they hedge against China’s assertive behavior. But most of them are still in the early stages of building up their strength. Although Australia has launched an ambitious military modernization program, its forces remain small. India’s defense bureaucracy continues to frustrate its military’s modernization and expansion plans. While Japan fields highly capable forces, its fragile economy constrains its military’s ability to grow. Even America’s “pivot” toward Asia may not be as weighty as it sounds, as the Obama administration has trimmed the overall size of the U.S. Navy. Hence, one could argue that China’s concern over an encirclement is, at least for the moment, not wholly warranted.

Undermine the Encirclement

Besides, the countries that China fears will encircle it are not yet a cohesive bunch. Officially non-aligned, India remains skittish about is relationship with the United States. And while Australia and Japan have security treaties with the United States, they do not have strong ties with each other. That was evident when Australia, at the last minute, chose to purchase France’s Scorpene-class submarine over Japan’s Sōryū-class submarine for its next-generation submarine fleet. India’s security relationships with Australia and Japan are equally tenuous. China could use bilateral deals to weaken those relationships and hinder a nascent encirclement from coalescing any further.

Breakout of the Encirclement

But even if China’s fear was to manifest itself, Beijing is already developing the means to break out of it. In late 2013, China turned heads across Asia with its “One Belt, One Road” initiative. Among the many infrastructure projects it has financed in Southeast Asia are a special economic zone in Cambodia, hydroelectric dams in Laos, and energy and railway projects in Malaysia. While China’s “yuan diplomacy” has not always been successful, it has had an impact. Cambodia and Laos have become reliable advocates for China within ASEAN. Malaysia largely remains on the sidelines of the South China Sea dispute, despite a rising number of Chinese infringements of its exclusive economic zone. China’s initiative may prove useful even in the Philippines, which has been a thorn in Beijing’s side. The Philippines’ new president, Rodridgo Duterte, has indicated that he would undertake the bilateral dialogue that China has long sought in exchange for Chinese economic development assistance.

Benefit of the Encirclement

Still, Beijing may have reason to play up its fears of encirclement. Despite its remarkable economic achievements, China faces a host of problems. Today, Chinese leaders must manage their country’s difficult transition from investment-led growth to expansion by private consumption, while dealing with its various debt-fueled bubbles. Even under the best conditions, those challenges are bound to be volatile. So some may see fears of encirclement as a way to rally public sentiment and maintain the “social stability” needed to ensure the longevity of communist rule. In any case, whether the “encirclement of China” is imagined or real, effective or not, one can expect the phrase to remain in Beijing’s lexicon for years to come.

NOTES

[1] Zhang Yunbi, “Tokyo urged not to stir tension in the South China Sea,” China Daily, Mar. 10, 2016, http://www.chinadaily.com.cn/world/2016-03/10/content_23806572.htm; “Tokyo’s move to encircle China will lead nowhere,” Global Times, Nov. 23, 2015, www.globaltimes.cn/content/954471.shtml; Hu Qingyun, “US to increase troops stationed in Australia: Deal seen as move to ‘encircle’ China,” Global Times, Aug. 13, 2014, http://www.globaltimes.cn/content/875836.shtml; Li Hongmei, “India’s ‘Look East Policy’ means to encircle China,” People’s Daily Online, Oct. 27, 2010, http://en.people.cn/90002/96417/7179404.html; Dai Xu, “U.S. building ‘Asian NATO’ to encircle China,” China.org.cn, Aug. 11, 2010, http://www.china.org.cn/opinion/2010-08/11/content_20687335.htm; “China feels encircled,” Economist, Jun. 6, 2002.

[2] Australian Department of Defence, 2016 Defence White Paper (Canberra: Commonwealth of Australia, 2016), p. 57.

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China’s “One Belt, One Road” to Where?

During visits to Central and Southeast Asia in 2013, Chinese President Xi Jinping unveiled Beijing’s aspiration to create what it called the Silk Road Economic Belt and the 21st-Century Maritime Silk Road.  Both would entail the construction of new infrastructure to better connect the present-day countries along what was once the ancient Silk Road between China and Europe.  The former would do so over land with roads, railways, and airports; the latter across the ocean with seaports.  China’s two-part aspiration is now commonly referred to as its “One Belt, One Road” initiative.

China One Belt, One Road Initiative

At the time of Xi’s unveiling, China was near the zenith of its economic power.  Not even the 2008 global financial crisis seemed able to derail China’s economic ascent.  Some saw the “One Belt, One Road” initiative as a way for China to extend not only its economic, but also its political reach across Eurasia.  India had begun to worry about what it considered to be China’s “string of pearls,” a series of Chinese-built seaports across the Indian Ocean.  Others viewed the initiative even more broadly as an ambitious effort to reorient global commerce towards China.

But since then the air of invincibility surrounding China’s economy has dissipated.  China’s engines of growth—export manufacturing and infrastructure construction—have sputtered, as the debt that fueled them and the overcapacity that they created have ballooned.  Over the last year and half, Chinese leaders have been forced to repeatedly “fine tune” their economy to keep it growing.  They boosted China’s government spending, devalued its currency, cut its interest rates six times, lowered its bank reserve ratio seven times, and even directly intervened in its stock market.  Still, China’s economy continues to slow.

That slowdown has spurred Chinese leaders to seriously begin to shift their export and infrastructure-led economy to one that is driven by consumers.  How successful that transition will be is uncertain.  But one thing is clear, the “social stability” so prized by the Chinese Communist Party has begun to fray.  Popular unrest is on the rise.  The number of labor protests in China has soared from about 100 in 2010 to almost 2,500 in 2015.[1]

Thus, Beijing has every incentive to keep its giant manufacturing and infrastructure-construction state-owned enterprises (SOE) humming, as its economy makes the transition.  Seen in that light, China’s “One Belt, One Road” initiative looks less like a well-planned strategy and more like a scramble to keep the order books of its SOEs full.  New infrastructure contracts abroad would help do that; and once built that new infrastructure might help Chinese manufacturers export at a lower cost.

One can see China’s push to build more infrastructure projects from Indonesia to Pakistan.  In September, a Chinese-led consortium won approval from Indonesia to build a $5.5-billion high-speed railway in Jakarta.  But the consortium won only after it agreed that the Indonesian government would not have to guarantee the Chinese loans needed to finance the railway’s construction.  While that concession may have secured the approval, it also increased the potential financial losses that the consortium would have to bear if anything goes wrong.  With such large and complex construction projects, it is hard to ensure that will not happen.

Surely, China expected a different outcome after its construction companies built a port at Gwadar for Pakistan in 2007.  Despite a total investment of over $1 billion, the port has remained virtually idle.  Now China is doubling down on the Gwadar project.  It has promised $45.7 billion in fresh financing to build the China-Pakistan Economic Corridor, a series of energy, road, railway, and pipeline projects that will more closely tie Gwadar to China.

Of course, China can still benefit from such infrastructure projects even if they turn out to be unprofitable.  The new road, rail, and pipeline routes through Pakistan will enable China to import strategic resources, like oil, natural gas, and minerals, from the Middle East without being reliant on sea routes through the Indian Ocean.  The projects could also deepen China’s “all-weather” friendship with Pakistan by creating new constituencies within Pakistan that benefit from the economic activity that the trade routes to China could foster.

Other land-based links to China could do the same. The Kunming-to-Bangkok railway is another example.  The portion of it in China is already finished; the portion in Laos broke ground in December; and the final portion in Thailand is slated to begin construction in May 2016.  Given the massive scale of Chinese trade, even if a small portion of it is redirected over the railway, it could reshape the economic interests of a small country like Laos.  Indeed, China may hope to use the railway to pry Laos away from its traditional ally, Vietnam, and gain another friend in ASEAN.  On the other hand, China would not benefit to the same degree from Chinese-built seaports and airports that are not directly connected to it.  While they may boost trade in the host country, the course of that trade could be redirected elsewhere, if trade with China does not evolve as expected.

That is now a real possibility.  If the Chinese economy continues to soften, it means that China will need to import fewer raw materials and export fewer finished goods.  In the second half of 2015 China’s monthly imports fell 10 to 20 percent from a year earlier; and its exports slipped too.  Unless global demand revives or Chinese consumers pick up the slack, Beijing might well expect its “One Belt, One Road” initiative to yield more long-lasting political than economic benefits.

[1] “Number of strikes and worker protests in China hits record high in November,” China Labour Bulletin, Dec. 3, 2015.

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The Big Chill: Domestic Insecurities and Sino-Japanese Relations

China and Japan sparred once again, this time at the United Nations.  Last week, China’s ambassador for disarmament affairs charged Japan with amassing excessive amounts of sensitive nuclear materials, notably 1,200 kilograms of highly-enriched uranium and 48 tons of separated plutonium (of which about a quarter is stored on Japanese territory).  That is sufficient, he claimed, for Japan to make 1,350 nuclear warheads.  Japan’s disarmament envoy shot back that his country’s nuclear program has safely operated under the International Atomic Energy Agency’s safeguards for more than 50 years.  He added that over that time Japan has consistently demonstrated its peaceful intentions and would not pose a threat to other countries.[1]  Given that he directed his response at China’s ambassador, one may have also taken it as a reminder of China’s recent aggressive behavior in the East and South China Seas.

Shinzo Abe and Xi Jinping at APEC 2014

The pointed exchange marked another episode in the downward path of relations between China and Japan.  It was not so long ago both countries got along.  Throughout the 1990s and 2000s, they enjoyed ever closer economic ties.  Many blame the current deterioration in Sino-Japanese relations on the tensions that arose over Senkaku Islands (or Diaoyu Islands in China) in 2010 or Tokyo’s purchase of them from private Japanese owners in 2012.  Certainly trade between the two countries has fallen ever since then.  (See table.)  But the dispute over the islands was just the spark.  China and Japan have substantially changed over the last two decades, both in absolute and relative terms.  Both countries have developed domestic insecurities that led them to view each other with greater concern.

On the surface, China does not seem to have any cause for insecurity.  Its ruling Chinese Communist Party (CCP) is ostensibly at the pinnacle of its power.  The government at which it is the head has presided over a 35-year economic expansion that has made China the envy of the developing world.  It is even doling out largesse under the auspices of its “One Belt, One Road” initiative and through the Asian Infrastructure Investment Bank (AIIB) that will likely expand its influence across Asia and Africa.

Yet the CCP has reason to be anxious.  In its headlong push for economic growth, it often ignored public ire over government land grabs, pollution, and workers’ rights.  The party’s widespread corruption further dented its credibility.  Hence, despite the CCP’s best efforts to eliminate organized dissent, the number of public protests has recently risen.[2]  Meanwhile, China’s fast-rising economy, once the CCP’s shining achievement, is losing its luster amid sagging exports, bursting property bubbles, and rapidly mounting debts.  Seen in that light, China’s “One Belt, One Road” initiative and AIIB begin to look more like a worried search for growth abroad (and work for its infrastructure-building companies) than a coherent strategy to connect Eurasia’s economies.

Adding to the CCP’s unease is the ever-smaller number of true believers in its Marxist-Leninist ideology.  Chinese President Xi Jinping’s efforts to promote Marxism have fallen flat.  So, the CCP has returned to nationalism to bolster its popular appeal.  A big part of that has always been showcasing the CCP as China’s savior from Japanese occupation (while largely omitting the role of Taiwan’s Kuomintang).  The CCP seems to believe that its ceaseless criticism of Japan proves that it still faithfully stands watch against any revival of Japanese militarism that could threaten China.

Linked to that narrative, the CCP has tried to show how much stronger China has become under its rule.  That was made clear in September when China celebrated the 70th anniversary of the end of World War II (and China’s victory over Japan) with a massive military parade in Beijing.  The martial display conveyed the message to the Chinese people that they should be confident in the ability of the CCP to not only defend China, but also govern it.  On the other hand, that Beijing felt the need to use such demonstrations of strength to dispel doubts about its political legitimacy probably worried its neighbors.

Meanwhile, across the Yellow Sea, Japan has grown insecure too.  It can no longer rest easy as Asia’s dominant economic power, a title that it lost to China a decade ago.  It is increasingly aware of its national vulnerabilities.  Japan’s population is ageing fast and shrinking.  That demographic shift not only has implications for every aspect of Japanese society, but also will make economic growth harder to achieve.  That is doubly concerning for Japan, which is still struggling to break free from a quarter century of economic stagnation.

Japanese leaders are all too well aware that China’s rise is remaking the regional hierarchy in Asia.  They realize that Japan cannot afford to remain forever quiescent, if it is to avoid being consigned to a subordinate role in the new order.  That has compounded Japan’s sense of unease, because Japan knows that it must keep the power gap between China and Japan from growing wider, even though it now has fewer resources with which to do so.  Fortunately for Japan, other Asian countries have begun to feel the same way.  India, the Philippines, and Vietnam have all embraced Japan.

Tokyo has taken advantage of that sentiment and become far more diplomatically active across the region, if only to prevent China from consolidating its power there.  As Xi has pushed China’s “One Belt, One Road” initiative, Japanese Prime Minister Shinzō Abe has never been far away.  Abe has travelled to Southeast Asia numerous times to ink economic, political, and even a few military cooperation agreements.  Last week, Abe began a five-country tour through Central Asia, which lies at the heart of China’s “One Road.”  A week earlier, the Japanese Maritime Self-Defense Force dispatched a destroyer to participate in naval drills with India and the United States in the Indian Ocean for the first time.

Meanwhile, there has been a generational change in Japan.  Older Japanese who had been willing to accept Japan’s diminished international stature as penance for its militarist past are passing from the scene.  Younger Japanese who have no connection with that past believe that their country has proven itself to be a responsible actor in world affairs.  Today, a majority of Japanese believe that Japan has sufficiently apologized for its military actions during the 1930s and 1940s, which China relishes reminding Japan of at every turn.  Unsurprisingly, recent polls showed that only 7 percent of Japanese viewed China favorably (down from 55 percent in 2002).  Even more telling, China’s very unfavorable rating in Japan climbed to 48 percent.[3]

The domestic insecurities of China and Japan are unlikely to abate soon.  China’s insecurities, bound up with those of the CCP, will grow if the Chinese economy continues to slow.  Japan’s insecurities are tied to its long-term demographic trends.  Both sets of insecurities continue to drive a wedge between the two countries.  Even the non-governmental Beijing-Tokyo Forum, whose primary purpose is to improve Sino-Japanese relations, has found it harder to reach a consensus.  The forum, which invites high-level former government officials from both countries, has always managed to eke out a joint statement, even during particularly testy times in Sino-Japanese relations like 2012.  This week it concluded without managing even that.  For the moment, relations between China and Japan are on ice.  The region should be grateful that the latest row between the two countries occurred inside the United Nations and not out in the East China Sea.

[1] “China Slams Japan’s Plutonium Stockpile, Frets About Nuke Armament,” Japan Bullet, October 21, 2015.

[2] See China Labor Bulletin.

[3] Pew Research Center, “Global Opposition to U.S. Surveillance and Drones, but Limited Harm to America’s Image,” July 2014; Pew Research Center, “America’s Global Image Remains More Positive than China’s,” July 2013.

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U.S. Foreign Policy Aspirations and the Trans-Pacific Partnership: Economic Integration and Political Alignment?

At times, it seemed as though the negotiations over the Trans-Pacific Partnership (TPP) would go on interminably.  Begun in 2010, the TPP evolved from the four-country Trans-Pacific Strategic Economic Partnership Agreement to encompass twelve Asia-Pacific countries, including the United States.  It would eventually take five years for the trade representatives from those countries to hammer out an agreement, the final terms of which were settled on Monday morning.

Trans-Pacific Partnership Member Countries

Over the coming months, much will be said, both for and against, the possible economic and social implications of the TPP as it is debated in the legislatures of its twelve member countries before it can be enacted.  But the TPP also carries with it strategic implications—not only for its smaller members, but also for its largest, the United States.  American interest in the TPP began during the last year of President George W. Bush’s tenure.  But it was the administration of President Barack Obama that moved the TPP to the forefront of U.S. foreign policy in the Asia-Pacific.  So important has the TPP become that Obama persuaded his political opponents in the U.S. Congress to award him “fast-track” trade promotion authority, so that American trade representatives could assure their counterparts from other countries that the U.S. legislative body would not tinker with the specific terms of the trade agreement once it was reached.

Strategically, the United States has come to see the TPP as critical to its long-term security in the Asia-Pacific.  It helps to ensure that, even with China’s rise, countries around the rim of the Pacific Ocean would have economic incentives to pursue strong relationships with the United States.  As that line of thinking goes, the more closely the trade interests of the TPP’s twelve member countries are aligned, the more closely their economies will integrate and, ultimately, the more likely their political outlooks will align.  Perhaps unsurprisingly, the United States is also pursuing a trade agreement similar to the TPP with the countries of Europe called the Transatlantic Trade and Investment Partnership or TTIP.

That line of thinking is not lost on either China or Russia.  While China chose not to participate in the TPP to avoid more pressure to remove its many trade barriers, it pushed for another (less onerous) trade agreement called the Regional Comprehensive Economic Partnership or RCEP, which did not include the United States.  China has also championed its own form of economic integration, called the “One Belt, One Road” initiative (tying together China’s land-based “Silk Road Economic Belt” and sea-based “Maritime Silk Road” efforts).  That initiative has sought to knit together the various economies along the ancient Silk Road between China and Europe.  Beijing even created the Asian Infrastructure Investment Bank earlier this year, in part, to support the construction of the trade infrastructure needed to facilitate that integration.

For its part, Russia has tried to cobble together the Eurasian Economic Union (EEU) from the countries that were once parts of the Soviet Union.  Russia has pursued the economic integration of the former Soviet republics as a way to not only expand its market space, but also strengthen its sphere of influence over them.  While most of the former Soviet republics could not ignore the economic potential of the EEU, they have been cautious about their participation in it.  Even Kazakhstan, an early supporter of the EEU, has repeatedly stressed that the EEU should remain an economic, rather than a political, grouping.  As can be expected, most former Soviet republics are protective of their new-found sovereignty.  And so, they are keenly sensitive to any Russian scheme that may absorb them into a reconstituted empire, particularly in light of what has happened to Ukraine’s Crimea and Donetsk provinces.

But lest we are to believe that closer trade and economic ties will inevitably lead to closer political alignment, history provides plenty of examples where that failed to happen.  One cannot say that closer economic integration between the European Union and Russia has brought the two to a more closely aligned political outlook.  Instead, they have used their respective trade dependencies on one another as weapons against one another in their political clash over Ukraine.

In the Asia-Pacific, one needs to look no further than the experience of China and Japan.  In the 1990s, Japanese companies led the multinational charge to set up outsourced factories and develop new markets in China.  In 1999 the two countries did $66 billion in bilateral trade.  By 2011 that figure climbed to $345 billion.  The two economies became increasingly integrated, with China more reliant on Japan for industrial machinery and Japan more reliant on China for consumer goods.  But then tensions over the Senkaku Islands, which began in late 2010, boiled over in 2012 and sparked anti-Japanese riots in China.  Tensions have run high ever since, cooling their economic relationship.  Every year after 2011 trade between the two countries has fallen.  Last year their bilateral trade slipped to $309 billion; the trade figures for August 2015 suggest that this year’s total will be lower still (indeed it is on track for a steep decline).  Rising costs in China and a stagnant Japanese economy surely contributed too, but they cannot fully explain the drop, given China’s continued, albeit slower, economic growth.

China Japan Bilateral Trade in Goods

The causal logic that closer trade and economic ties will lead to closer political alignment could be turned on its head.  One could argue that it is when political outlooks are aligned that closer economic integration often seems desirable (and also that when political outlooks are in conflict that economic integration often seems dangerous).  That is not to say that the TPP is not a worthy accomplishment; it is.  But the United States should be wary of relying too heavily on the TPP to ensure its security in the Asia-Pacific.  Even if the U.S. Senate ratifies the trade agreement, the United States should continue to actively pursue other strategic initiatives in the region with equal verve.

[1] Japan External Trade Organization, Japanese Trade and Investment Statistics, 1999-2015.

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