Where Will It End?: China’s East China Sea Air Defense Identification Zone

More lines were drawn in the East China Sea (or rather in the skies above it).  With very little notice, China declared a sweeping air defense identification zone (ADIZ) over much of the East China Sea as of November 23 at 10:00 a.m. (local time).  Countries typically use such zones to expand their early warning against potential airborne threats.  Aircraft that fly within those zones are required to file flight plans and identify themselves to the appropriate authorities; otherwise those authorities may dispatch combat aircraft to intercept them.  China’s new ADIZ covers an area that contains two disputed maritime territories.  The first consists of islands, called Diaoyu in China and Senkaku in Japan, that are claimed by both Beijing and Tokyo.  The second is a small submerged rock, called Suyan in China and Ieodo in South Korea, which is claimed by both Beijing and Seoul.  South Korea has operated a small research station there for the last decade.  Shortly after China’s new ADIZ went into effect, its air force mounted its first patrol of the area; Japan spotted a Y-8 maritime patrol aircraft and a Tu-154 electronic intelligence aircraft over the East China Sea.

China’s demarcation follows a widely-publicized 18-day Japanese military exercise across southern Japan.  The exercise was one of an annual series that is normally held in November.  In 2011, a similar exercise was held that involved 35,000 Japanese personnel and the U.S. aircraft carrier George Washington.  After tensions were ratcheted up between China and Japan over the disputed Senkaku Islands in September 2012, Tokyo shelved that year’s exercise.  This year’s iteration involved 34,000 military personnel, six ships, and 360 aircraft.  The exercise featured air defense missile battery drills on Okinawa as well as an amphibious landing, supported by a Japanese helicopter carrier, on the uninhabited atoll of Okidaitōjima, about 250 miles southeast of Okinawa.

China’s new ADIZ requires aircraft operating within the zone to register flight plan, radio, transponder, and logo information with its Civil Aviation Administration.  But the Ministry of National Defense is the “administrative organ” responsible for the zone.  Aircraft that violate the rules of the ADIZ could prompt the Chinese air force to adopt “emergency measures.”  Japan maintains a similar zone around its nearby islands.

Certainly China’s action has reverberated across the Asia-Pacific.  As one South Korean official noted, the focus of South Korea’s upcoming talks with China will likely shift from strengthening trust and cooperation to the ADIZ controversy.  Even Australia summoned the Chinese ambassador in Canberra to express its concern.  But those that could ultimately end up facing a similar situation might be the countries of Southeast Asia.  In announcing the ADIZ, the Chinese Ministry of National Defense referred to its authority over “the area enclosed by China’s outer limit of the territorial sea.”  Of course, there is another “territorial sea” that China claims—the South China Sea.  Within that sea, China has many other maritime disputes.  The most recently visible one is between China and the Philippines over Scarborough Shoal, which led Manila to challenge China’s maritime claims before a United Nations tribunal earlier this year.  There are also the long-running disputes between China and Vietnam over the Paracel Islands as well as among China, Brunei, Malaysia, the Philippines, and Vietnam over the Spratly Islands.  But by mentioning the “outer limit of the territorial sea” China also revives a long-dormant dispute between it and Indonesia over the waters along the northern edge of Indonesia’s Natuna Islands, which have offshore natural gas fields.  China’s use of an ADIZ to strengthen its sovereignty claims in the East China Sea suggests that it might try a similar approach in the South China Sea too.  China’s Ministry of National Defense spokesman, Colonel Yang Yujun, failed to dispel such notions when he said that China would establish additional zones “at the right moment after necessary preparations are completed.”

More practically dangerous for the United States is that China’s ADIZ creates a situation in which American reconnaissance aircraft, which regularly patrol the East China Sea, may increasingly encounter Chinese fighter jets.  (Such patrols have long annoyed China.)  To appreciate the danger, one needs only to recall the April 2001 incident when a Chinese J-8 fighter jet collided with a U.S. Navy EP-3 reconnaissance aircraft over the South China Sea.  The EP-3 was forced to land on China’s Hainan Island where it was interned, triggering a two-week long crisis between China and the United States.

Little surprise, then, that China’s demarcation drew an immediate response from the United States.  Secretary of State John Kerry commented that he was “deeply concerned” and that China’s “unilateral action constitutes an attempt to change the status quo in the East China Sea”; Secretary of Defense Chuck Hagel flatly stated that the United States would not recognize China’s control over the zone.  To make that point clear, the United States ordered two B-52 bombers to make an unannounced transit of the East China Sea on November 26.  No doubt, Washington also wanted to set a precedent for American combat aircraft to operate within the zone without notifying Chinese authorities.

Tokyo took an equally stern tone.  Prime Minister Shinzō Abe said that Japan would not recognize the zone.  He even persuaded Japan’s major airlines not to file flight plans with Chinese authorities on routes through the East China Sea.  Both Japan and South Korea flew military aircraft into the zone on November 27.  Soon after, China announced that it sent more aircraft to patrol the area, including a KJ-2000 early-warning aircraft and several J-11 and Su-30 fighters.

Most likely, China is trying to use the ADIZ to not only respond to Japan’s recent military exercise, but also enhance its sovereignty claims to the East China Sea (and the islands within it).  Earlier, it began maritime law enforcement patrols in the area to do the same.  Hopefully, China understands that it is setting the stage for future conflict if it pushes its claims too hard.  Already, China has chipped away at the credibility of its own diplomatic charm offensive in Southeast Asia, which Beijing just launched at the Asia-Pacific Economic Cooperation forum in October.  Even Southeast Asian countries with less-apprehensive views of China, like Indonesia and Malaysia, cannot help but take notice.

China’s establishment of its air defense information zone in the East China Sea raises another question: why take such a step now?  Is it because China feels the need to immediately respond to Japan’s recent military exercise; or because Beijing knows that the world’s attention is focused on the successful international negotiations in Geneva over Iran’s nuclear program rather than its actions in the East China Sea; or because China sees the Obama administration’s commitment to its Asian allies as fundamentally weak (and wants to test it)?  Thankfully, Beijing decided to declare its ADIZ after Japan concluded its military exercise.  At least, there will be a full year before Japan conducts its next set of military drills in the area.

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Diamond (Still) in the Rough: China’s New Charm Offensive in Southeast Asia

In early September, China hosted the 10th China-ASEAN Expo in southern Chinese city of Nanning.  There, Chinese Premier Li Keqiang glowingly characterized the last ten years as a “golden decade” of growing economic ties between China and the countries of Southeast Asia, all of which are members of the Association of Southeast Asian Nations (ASEAN).  He now foresaw that the next decade would be even better—a “diamond decade.”

Together with Chinese President Xi Jinping’s visits to Indonesia and Malaysia and his high-level meetings at the Asia-Pacific Economic Cooperation (APEC) forum that would soon follow, Li’s remarks appeared to mark the start of a new charm offensive in Southeast Asia.  China’s last charm offensive, despite Li’s depiction of a “golden decade,” had sputtered out at the end of that decade, overshadowed by China’s growing economic and political assertiveness on land and at sea.  Although China’s disputes with its maritime neighbors have drawn more attention, China also managed to irritate its neighbors across Indochina.  Its state-owned companies operating in the region have often been high-handed.  Their cavalier attitude towards displacing communities and destroying cultural relics contributed to Myanmar’s decision to halt the construction of the Myitsone dam in 2011—the first time any Southeast Asian country blocked a major Chinese-sponsored infrastructure project.  Meanwhile, China’s unrestrained hydroelectric development on its upstream stretch of the Mekong River has worried many downstream communities in Southeast Asia, even though their governments seldom voice their concerns.

Worse for China’s image is its maritime disputes with Southeast Asia, which were put under an international spotlight in 2010 when several ASEAN countries confronted China about its behavior in the South China Sea at the 17th ASEAN Regional Forum.  Regional concerns over Chinese intentions were further stoked by China’s increased interference of Vietnamese oil exploration ship; its months-long standoff with the Philippines over Scarborough Shoal in the spring of 2012; and its escalatory attitude toward Japan over the Senkaku/Diaoyu Islands since September of that year.  Finally, many believed that Chinese pressure directly contributed to rifts in ASEAN itself, when the 2012 ASEAN foreign ministers’ meeting failed to produce any progress on a multilateral code of conduct for the South China Sea or even issue a closing joint communiqué that mentioned one.  Surely such rising concerns have led the Philippines and Vietnam to accelerate the pace of their military buildups.

However, many Chinese believe they see the hand of the United States in China’s recently contentious relations with Southeast Asia.  They see American policy as either creating the environment that has allowed Southeast Asian countries to resist China’s interests or directly encouraging those countries to resist them.  In either case, they see the flare up of disagreements between China and its ASEAN neighbors as evidence of a larger American effort to contain China’s rise.  Hence, Beijing may believe that initiating a new charm offensive could not only capitalize on Southeast Asia’s continued view of China as a source of economic growth, but also diminish the effect of that American effort.  Whether Beijing’s new tack is momentary or longer lasting is too early to tell.

Yet China has already met with some success, perhaps enhanced as a result of President Barack Obama’s absence from the APEC meetings.  While it was not the first time an American president was absent, Obama’s absence came at a time when many Southeast Asians were looking for reassurance of American commitment.  At the very least, it allowed Xi to become the center of attention.  And Xi brought China’s “diamond decade” message with him.  He pointed out several areas of opportunity: upgrading China’s free-trade agreement with ASEAN, improving communications between China and Southeast Asian countries, strengthening financial cooperation across borders, developing maritime cooperation, and enhancing Chinese cultural exchanges with Southeast Asia.

Even before the APEC meetings, Xi visited Malaysia and Indonesia.  He heralded the advent of “strategic cooperative relationships” with those countries and was the first foreign leader to address the Indonesian parliament.  Then after the APEC meetings, Li arrived in Southeast Asia to continue China’s diplomatic efforts in Brunei, Thailand, and Vietnam.  In Brunei, Li discussed joint energy development.  In Thailand, he championed plans for a high-speed railway project connecting China to Singapore that has lain dormant for many years.  And in Vietnam—a country that has its share of maritime disputes with China—Li and his Vietnamese counterparts announced that the two countries would set up a joint maritime development working committee to ease the tensions in the South China Sea.

For their part, ASEAN countries seem to have responded positively (and possibly opportunistically).  Malaysia—perhaps sensing that the Philippines has, for the moment, halted China’s broader assertiveness in the South China Sea—may now view Chinese overtures as a chance to boost its own economy.  And while Thailand still sees the high-speed railway project as too expensive for it to undertake alone, it has encouraged China to contribute to the financing.

However, the one country in the region that China has not courted is the Philippines.  Instead, China seemed to go out of its way to isolate it.  Indeed, it is a strategy that some Chinese foreign policy scholars have advocated.  As if to underline the point, after China issued invitations to all the heads of state in Southeast Asia to attend the China-ASEAN Expo, it rescinded its invitation to Philippine President Benigno Aquino III.  And so, the Philippines was the only ASEAN country not represented at the event.  And so, even as China seeks to emphasize its kinder, gentler side, its steely side remains.  Relations between China and Southeast Asia may yet improve during the “diamond decade,” but mostly on Chinese terms.

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What the Unit Costs: U.S. Federal Reserve Policy, International Currencies, and Military Procurement

At first glance, the movement of currencies seems to have little to do with the trajectory of military capabilities.  But look closer and what emerges is a clear connection between international finance and international security, particularly for countries whose militaries rely on foreign arms.  Since a country must buy armaments, like other goods, with local currency that must be converted into a foreign one, the exchange rate at which that conversion occurs is very important.  A stronger local currency means a country can buy more from abroad; a weaker one means it can buy less.

Soon after the global credit crisis hit in 2008, the U.S. Federal Reserve quickly loosened monetary policy to support the American economy.  But its trio of quantitative easings—purchases of bonds with newly created money—has had far-reaching consequences.  They not only lifted the U.S. economy, but also weakened the U.S. dollar relative to other currencies.  Fearful that a suddenly weak U.S. dollar would trigger disruptive money flows and undermine their export industries, many countries tried to stabilize their currencies’ exchange rates against the U.S. dollar.  To do so, their central banks slashed interest rates and expanded their monetary bases.  Happily (for the moment), that had the attendant benefit of spurring economic growth.  And so, countries as diverse as Brazil, Indonesia, and South Africa boomed.

But that virtuous cycle is ending.  Before long the U.S. Federal Reserve will start to taper its bond purchases—a first step toward tightening American monetary supply.  As a result, the U.S. dollar has generally strengthened against other national currencies.  For those countries whose currencies have become relatively weaker, that has meant that everything they import is now more expensive, from grain to oil to military equipment.  Countries whose governments subsidize imported food and energy have seen their subsidy expenditures balloon.  In response to such inflation, some central banks have sought to temper the weakening of the currencies by raising interest rates to drain the excess liquidity from their economies.  Unfortunately, that also slows economic growth and strains their capital markets (sometimes in countries whose unemployment is already relatively high).  In any case, both these factors further weaken local currencies, which in turn reduce the foreign purchasing power of their governments’ arms procurement budgets.

The Indian military knows that all too well.  India’s high inflation and a balance-of-payments crisis in the early 1990s caused the value of the Indian rupee to precipitously fall.  Given the concurrent demise of the Soviet Union and its generous arms export terms to India, its hoped-for military modernization plans never transpired.  Costs, in Indian rupees, for new military kit from abroad soared.  Even the prices for spare parts to maintain its legacy Soviet hardware climbed.  Indian warships designed with Russian combat systems in mind went unfinished and those in service became expensive to maintain.  A Godavari-class frigate built in the early 1990s was estimated to cost four times as much as comparable one in the 1980s.

To Indian military leaders old enough to remember that era today must seem uncomfortably familiar.  Reacting to the U.S. Federal Reserve’s increasing monetary restraint and high inflation, the Reserve Bank of India raised interest rates to defend the rupee.  That has slowed the country’s economic growth and, in turn, pressured its currency.  In fact, the rupee slid 14 percent against the dollar between May and August 2013.  With such a currency backdrop, India’s military is finding its new modernization program difficult to achieve, even apart from its internal bureaucratic challenges (perhaps a topic for a future blog).  In one recent example, the Indian navy must decide how to replace the Sindhurakshak, which was lost in an August 2013 explosion.  Early speculation is that the navy will lease another Russian Kilo-class submarine.  But that would entail annual payments which could rise if the rupee falls further.  And if the navy decides to buy a replacement, that submarine would be 14 percent more expensive than it was only four months ago.  Such considerations hinder not only India’ military, but also multinationals selling everything from artillery pieces to attack helicopters, all of which India needs.  Indeed, if New Delhi proceeds with the formation of a new two-division mountain strike corps, it may find its new divisions under-equipped for battle.

A weak currency can also affect developed countries, like Japan.  There, the Bank of Japan has exacerbated its currency’s relative weakness by starting its own aggressive monetary expansion program, just as the U.S. Federal Reserve is ending its.  Consequently, the Japanese yen has plunged 22 percent against the U.S. dollar since last year.  That will impact potential Japanese purchases of OV-22 and long-range unmanned aerial vehicles from the United States.  And that is particularly bad news for Japan’s Air Self-Defense Force, whose technological future rests on the already-expensive American F-35 Joint Strike Fighter.  A weaker yen means that each new fighter will cost more yen.  Under a June 2013 foreign military sales agreement with the United States, Japan agreed to acquire its first four F-35 fighters for $124 million apiece or about ¥10.2 billion each, at the then-prevailing exchange rate of 82 yen to the dollar.  Had they been acquired at today’s exchange rate of 98 yen to the dollar, each new fighter would have cost ¥12.7 billion, almost 25 percent more.

Though Japan’s Ministry of Defense still considers the F-35 fighter as vital to keep a rising China and resurgent Russia at bay, it has already begun to rethink the timing of its purchases.  Originally, Japan planned to complete the acquisition of 42 fighters by 2021.  But given the rising costs, Tokyo might decide to stretch out aircraft deliveries until 2023.   For many of today’s defense planners, it seems wise to include not only include smart weaponry, but also smart currency hedges in one’s arsenal.  The costs of war remain variable.

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Turning Point: Japan’s Upper House Election and National Security

On Sunday, July 21, the Japanese electorate propelled Prime Minister Shinzō Abe’s Liberal Democratic Party (LDP) (together with its partner, the New Komeito Party) to the majority in Japan Diet’s House of Councillors (or upper house).  The victory ends the parliamentary impasse, in which the LDP controlled the lower house and its opponents the upper house.  The biggest issues of the election were Abe’s “three arrow” economic policies and how he hopes to restore Japan’s national power grid.  But many also saw the election as a referendum on Abe’s plans to boost Japan’s self-defense forces and possibly even amend Article Nine of the country’s constitution, which renounces the threat or use of force to settle international disputes and prohibits Japan from establishing formal armed forces.

Though the victory was not large enough to immediately pass a constitutional amendment, it has raised concerns among those Japanese who oppose any revision to Article Nine.  They worry that Japan could experience a resurgence of its pre-World War II militarism or, at the very least, could be pulled into foreign conflicts by its main ally, the United States.  Others, however, are open to amending the constitution; they believe the document, largely written by American lawyers in the occupation authority, should better reflect the needs and will of the Japanese people.  And an increasing number wonder whether the real question is not why Japan should consider amending its constitution, but rather why it has not already done so?  Many young Japanese (like many young Germans) wonder how long their country must repent for and be constrained by the sins committed by their forbearers nearly 70 years ago.  They would like Japan to become, in Abe’s words, an “ordinary country.”

Of course, the debate within Japan has not occurred in isolation.  There have been calls from abroad for Japan to better meet its international security obligations as a major developed country.  After the Persian Gulf Conflict in 1991, some (mainly Americans) found fault with Japan’s contribution to the Coalition war effort, which came largely came in the form of dollars (over $10 billion of them), rather than soldiers.  By the early 2000s, Japan had begun to send small military detachments overseas, usually in clearly defensive, humanitarian, or peacekeeping roles.  Its ground forces were deployed to Iraq as part of the reconstruction effort after 2003 and its maritime forces escorted allied shipping through the Indian Ocean.  And since its inception, Japanese warships have participated in the multinational anti-piracy patrol in the Gulf of Aden.

But it has been Japan’s increasingly worrisome security environment over the last several years that has really spurred many Japanese to reexamine the role of their self-defense forces and seriously consider changes to Article Nine for the first time.  North Korea’s unusually prolonged saber rattling this past spring only served to underscore their heightened sense of insecurity.  Despite Japan’s alliance with the United States and much bandied-about American pivot to Asia, other powers in the region seem bent on exploiting Japan’s pacifism.  Since the mid-2000s, Japan has closely monitored a rise in Russian incursions into Japanese airspace as well as a steady increase in the number of Chinese warships that pass near its southern islands and, in some provocative cases, circumnavigate Japan’s home islands.  And, of course, over the last year tensions between China and Japan have risen as a result of their territorial dispute in the East China Sea, which includes the sovereignty over the Senkaku (Diaoyu) Islands.  Indeed, in the week prior to Sunday’s election, China began drilling for oil in a disputed area of the East China Sea, prompting Japan to dispatch a geologic survey ship.

Even so, any overhaul of Japan’s self-defense forces will take time.  It took almost a decade for Japan’s annual defense white paper to even acknowledge that a rising China presented new challenges, presumably because Tokyo wanted to reduce the potential for Chinese backlash against Japanese commercial interests in China.  Following the Cold War, far more Japanese have been concerned about reviving their national economy rather than their national security.  Most believed that the qualitative superiority of Japan’s self-defense forces was sufficient to ensure their safety.  But after years of under investment, together with China’s rapid military modernization and Russia’s revival, Japan has seen its qualitative margin eroded.  And given the recent behavior of its neighbors, a growing number of Japanese feel that more attention must be given to national defense, either with or without an amendment to Article Nine.  The Japanese media frequently reports on the strains that constant patrolling of disputed airspace and waters have put on Japan’s self-defense forces and coast guard.  At a practical level, there is much to do, even apart from new hardware procurement—from making Japan’s self-defense forces work together more jointly to deciding how (and under what circumstances) they would be used.  If tangible progress is made, then the election will have proven itself to be a turning point for Japanese national security.

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Looper: The Asian Financial Crisis Redux?

Financial crises and their associated economic disruptions (or vice versa) can alter the international political order among countries by changing their relative power relationships.  What precipitates these crises and disruptions have many origins; but in many cases their underlying causes slowly build up pressures that suddenly erupt in a ruinous episode.  Decades of declining economic productivity, big budget deficits, and an overvalued currency eventually led Russia to default on its sovereign debt in 1998.  Following on the heels of the demise of the Soviet Union, the default led Russia into a particularly nasty recession as well as a particularly dark eclipse of its power across Asia and Europe for over half a decade.

Another crisis that began a year earlier, the Asian financial crisis, also changed what many had at the time expected to be the political trajectory of Southeast Asia.  The proximal cause of the crisis was the devaluation of Thailand’s currency, when its central bank ran short of U.S. dollars needed to defend its pegged exchange rate.  That triggered several similar crises across Asia and ultimately derailed Southeast Asia’s “tiger economies.”  Also derailed was the internal stability that Southeast Asian governments had attained after decades of conflict during the Cold War.  After the crisis, Indonesia’s long-ruling President Suharto was removed from office, and Malaysia’s equally long-serving Prime Minister Mahathir Mohammed was weakened (leaving office in 2003).  Thailand, whose prosperity in the early 1990s allowed it to become the first East Asian country to acquire an aircraft carrier in 1997, saw its wider ambitions thwarted.  Indeed, most countries in the region turned inward, as they shelved military modernization plans and their citizens clamored for political change.  On reflection, had the region made those military investments and developed the political self-confidence that often comes with internal stability, it would have been in a better position to balance China’s rise today.

Instead, Southeast Asia grasped at China’s refusal to devalue its currency during the crisis as a sign of friendship and inspired hope that they need not balance China’s rise and could assimilate their giant neighbor into the region’s multilateral norms.  Fifteen years on, that hope has proven misplaced.  China emerged from the Asian financial crisis relatively unscathed and ultimately became more assertive.  While it had to write off a mountain of bad loans on the balance sheets of its state-owned banks, Beijing really had no other choice, since those banks play a key policy role in its management of the Chinese economy.  Fortunately for China, continued foreign direct investment and major domestic infrastructure spending allowed it to grow out of its economic problems.

Southeast Asia was not so fortunate.  As the economies of countries like Thailand expanded during the first half of the 1990s, they also attracted a great deal of speculative investment and credit.  Eventually Thailand’s economy cooled, as less productive investments were made, U.S. interest rates rose, and Japan sharply devalued its currency.  As a result, the stability of Thailand’s leveraged economy and the ability of its central bank to defend its exchange rate peg became dubious—prompting money to flow out of the country and credit to suddenly contract.  A similar logic played out in other East Asian economies, causing a domino effect that engulfed Indonesia, Hong Kong, Laos, Malaysia, the Philippines, and South Korea.  Within a few months, local currencies plummeted, hundreds of businesses were shuttered, and millions found themselves unemployed.

Today, economic clouds are once again gathering over East Asia.  And Mark Twain’s quote seems particularly apt: “history does not repeat itself, but it does rhyme.”  The region’s economic growth is slowing.  Yet Southeast Asian countries continue to pile high consumer and sovereign debt.  They are even considering issuing U.S.-dollar denominated obligations, which are more difficult to pay off if their local currencies devalue.  But, of course, that may not occur this time, since the countries of Southeast Asia learned to amass large U.S. dollar reserves to forestall any run on their currencies.  As China and Taiwan showed during the 1997 Asian financial crisis, large U.S. dollar reserves can help avert the worst effects of such an event.

But such financial defenses are now starting to be tested, as Japanese Prime Minister Abe Shinzō’s economic policies have caused the yen to sharply fall against currencies across Southeast Asia (whether intentional or not).  As a result, Southeast Asian exporters are feeling the strain and have already called upon their respective central banks to match the Japanese effort.  But without an overt exchange rate peg to defend, Southeast Asian central banks have more leeway than they did in 1997.  And fortunately for them, U.S. interest rates are unlikely to jump in the coming year.  Still, the groundwork for a second Asian financial crisis is in place.  This time, China may not be spared, as many of its exporters are already barely profitable, the structural distortions in its economy are as big as ever, and it seems to lack a clear way to grow out of the next crisis (apart from even more domestic infrastructure spending).  But should Southeast Asia again turn inward, the United States should be prepared to do more to maintain the region’s balance of power.  A wider Asian financial crisis that ensnares Japan or South Korea may require an even larger American effort.  But this does not mean that American military power will be what is needed.  Rather, the region’s countries are keen on other sorts of American engagement, particularly economic ones.  And it is precisely those ties that will be most wanted if a crisis does occur.

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North Korea Moves to War Footing

It seems like we’ve all seen this movie before.  North Korea feels affronted and blusters; South Korea and the United States respond with negotiations and a concession or two; China and Russia seek a peaceful resolution (plus the survival of their buffer neighbor); and Japan just wants the problem to go away, which it does—until the next time North Korea feels affronted.

But this time North Korean Supreme Leader Kim Jong-un has ratcheted up tensions beyond the country’s usual bluster.  On March 11 North Korea invalidated its sixty-year armistice with South Korea.  And after the participation of two B-2 nuclear-capable bombers during a joint exercise between American and South Korean forces, on March 29 Pyongyang declared a “state of war” between it and South Korea, threatening to strike not only its southern neighbor, but also the United States (nominally Alaska, Guam, and Hawaii, since North Korean missiles can only reach that far).  With a modern military of its own, South Korea has vowed to respond if attacked.  And, of course, there are about 25,000 American troops stationed in the country, too.

So what strategy should the United States pursue in this latest crisis on the Korean Peninsula?  Surely, in crafting its approach, Washington should keep in mind its most important long-term interest in the region which, in my opinion, is the strengthening of the American alliance with South Korea and Japan.  That alliance is crucial to counterbalance a rising China and resurgent Russia in Northeast Asia.  But to arrive at a practical strategy for this crisis, it is informative to start by considering some strategic extremes and what effect they may have on that alliance:

The United States could advance an escalatory strategy to demonstrate to North Korea that it cannot continue to bluster at every perceived slight.  And if war comes, so be it.  The United States has adequate anti-ballistic missile defenses aboard Navy warships to defend Hawaii and Army air defense batteries could be dispatched to protect Alaska and Guam.  Of course, Seoul may not feel as secure if North Korea launches a large-scale conventional attack or nuclear weapons against it; but more likely Pyongyang will take more limited military action.  Such an outcome would likely lead South Korea and Japan to further bolster their defenses, though perhaps not with nuclear weapons (unless North Korea uses them first).  And a militarily stronger South Korea and Japan could better maintain the balance of power in Northeast Asia, removing some of the burden from the United States.

At the other end of the spectrum, the United States could adopt an appeasement policy—giving North Korea what it wants in exchange for a de-escalation of tensions—and return to waiting for Kim Jong-un’s regime to collapse.  While appeasement may not please the American ear, it is an option that would remove the specter of armed conflict and would be practical if one believes that time is on one’s side.  Of course, there may be a big knock-on effect: America’s guarantee of extended deterrence would ring a bit hollower in South Korea and Japan (not to mention in Taiwan, the Philippines, and Southeast Asia).  Still, South Korea and Japan would likely further bolster their defenses, this time probably with nuclear weapons.  In this case, the balance of power outcome in Northeast Asia might still resemble the former, but the level of trust among South Korea, Japan, and the United States would likely suffer.

Ultimately, the approach the United States will take is likely to fall in between the two extremes.  The Obama administration’s “strategic patience” is one.  It seeks to break the cycle of North Korean bluster by simply waiting for North Korea to back down and seek negotiations without any concessions from South Korea or the United States.  Kim Jong-un is now putting that strategy to the test.  In the meantime, the United States deployed F-22 fighters to South Korea on Sunday.

However this crisis ends, South Korea and Japan are likely to strengthen their armed forces.  In the long run, that should benefit the United States, if it can keep the alliance strong.  So, in dealing with this crisis, Washington would be wise not to take an approach without first learning and integrating the views of South Korea and Japan—because not only will they bear most of the consequences (both intended and unintended) of any strategy to deal with North Korea, but also the United States would benefit from avoiding any approach that may create divisions between it, South Korea, and Japan, and in doing so inadvertently weaken the alliance that is so vital for the broader regional balance of power.

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Winds of Change: Comparative Energy Security Policies

The meltdown of three reactors at Japan’s Fukushima Dai-Ichi nuclear power plant, following the Tōhoku earthquake and tsunami on March 11, 2011 (3/11), was a terrible event.  But for some renewable energy advocates, it also created an opportunity.  There was an immediate revulsion toward nuclear power around the world.  Even in France where three-quarters of the country’s electricity comes from nuclear power, popular opinion unambiguously swung against its continued use.  Across the border, Germany abruptly declared that it would abandon nuclear power and hasten its transition to renewable energy sources such as wind and solar.

How countries change their reliance from one energy source to another is often a hotly debated issue.  Nuclear power was once heralded as a low-cost and environmentally-friendly energy source—a way to end the need for dirty coal and oil.  But after Three Mile Island’s partial meltdown in 1979 and Chernobyl’s catastrophic meltdown in 1986, nuclear power fell out of favor.  But by then, many countries, including Japan and Germany, had already integrated nuclear power as part of their national energy mix and change would entail costs.  But what those costs would be were uncertain.

Until the Fukushima Dai-Ichi meltdown, Japan operated 50 nuclear power plants, generating 30 percent of the country’s electricity.  In fact, in 2002 the Japanese government sought to increase the share of nuclear power in the country’s energy mix to 40 percent by 2017.  Similarly, Germany operated 17 nuclear power plants, providing almost 20 percent of the country’s electricity.   For years, conventional energy supporters and renewable energy advocates clashed over just how quickly and how painful a transition from nuclear power to renewable energy sources would be.  Conventional energy supporters warned of a major economic shock if such a transition was not done gradually.  Meanwhile, renewable energy advocates played down the potential for economic pain after a transition was made.

But after Japan’s 3/11 disaster, both sets of advocates were proven wrong (and right).  The warning from conventional energy supporters was disproved first.  Within two months, Japan shut down 33 nuclear power plants, and two years later only two remained in operation.  Meanwhile, in Germany, eight nuclear power plants that were offline for testing or repair were kept shuddered.  A combination of increased use of coal-fired power plants and renewable energy sources and energy conservation measures—particularly stringent ones in Japan—made up for much of the electricity shortfall.  The economies of both countries muddled through 2011; no economic calamity ensued.

However, renewable energy advocates were also shown to be off the mark.  Two years on, the sudden change from nuclear energy to other energy sources has gradually eroded both countries’ economic competitiveness through higher electricity prices.  As a result, Japan has begun to look to imported natural gas, shipped to the country as liquefied natural gas (LNG).  Japanese electric utilities now seek LNG sources for new gas-fired power plants.  But despite long-term LNG contracts, such plants do expose the country to natural gas price and currency fluctuations over time.  For example, the recent 10 percent decline in the Japanese yen vs. the U.S. dollar pushed up natural gas prices roughly the same amount because natural gas is priced in U.S. dollars.  Japanese industry has long worried about the impact of higher energy costs and has begun to lobby its government to restart idle nuclear power plants.  And with the Japanese economy trapped in multi-decade stagnation, Tokyo seems willing to try, not only to help Japanese industry, but also raise consumer consumption.

Similarly, electricity prices in Germany are now 15 percent higher than the average in the rest of the European Union.  German consumers already pay more for electricity than most other Europeans and have seen their electricity bills climb 40 percent over the last five years to pay for renewable energy subsidies.  Hence, some in Germany have come to wonder whether its Energiewende [energy transition] will lead to lower future economic growth as businesses—particularly those in energy intensive sectors such as machinery and steel—have shown signs of disinvesting in Germany and locating elsewhere.

Moreover, Germany’s shift to renewable energy sources has made the country’s electrical grid more difficult to manage.  The amount of electricity put on a gird must precisely match the amount that is consumed; otherwise variations in voltage could cause rolling blackouts.  Unfortunately, wind and solar energy sources can only generate electricity intermittently.  So even as these sources have become a larger part of Germany’s energy mix, the country’s electrical grid needs a way to smooth out their unpredictability.  That can only be done with conventional energy sources.  And since Germany is committed to phasing out its coal-fired power plants, it is now reconsidering the potential of fracking to fuel gas-fired power plants.

Thus, while it is possible to quickly change from one energy source to another without major mishap, the process cannot escape market fundamentals altogether.  Japan and Germany still need reliable and cost-effective energy sources to remain industrially competitive in the world.  Otherwise some industries will migrate to comparable countries, like the United States where fracking has contributed to a revival of American industrial production.  Renewable energy sources have demonstrated that they can meet a substantial share of modern electricity demands, but certainly not all or even the bulk of it—at least not until an innovator creates the better battery.

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