The Eagle, the Dragon and the Tiger

Filed in Case Studies by on 1st Nov 2010

The world’s geo-economic and geopolitical landscape is changing, especially in Asia. This has a growing impact that extends not only across Central Asia and the Middle East, but also to South-Central Asia, Africa, South America and the United States. These changes represent an ever-quickening shift of the economic centre of gravity away from the United States and European Union toward Asia. Two ancient Asian powers, like slumbering giants, have awoken from a long sleep. China and India, having chosen economic liberalisation, in 1978 and 1991 respectively, are showing unprecedented economic growth, and are rapidly taking on a greater role in the international economy.

China – The Dragon Stretches Its Wings

Dragon chinoisThe growth of China’s economy, and the energy demands to fuel it, are leading Beijing to seek out new sources of oil and natural resources in such far-off places as Nigeria, Zambia, South Africa, Kenya and Sudan. This suggests growing competition between China, the United States, the European Union and India for the resources needed to drive their economies. This became clear when China’s premier, Hu Jintao, travelled to Saudi Arabia in 2006 to find that several Saudi students spoke fluent Chinese. They had been sent to China several years earlier by the oil firm Saudi Aramco in preparation for doing future business with China (Molavi, 2007, p. A13). Such foresight and preparation are signs that what was once nascent recognition is now turning into a regional relationship with the potential to become more tightly integrated. An integrated economic region larger than the European Union or the North American Free Trade Area is increasingly closer to becoming a fait accompli. Already business leaders in such places as Saudi Arabia, Africa, Central Asia and Southeast Asia are recognising China’s potential.

Central Asia

China has a long view and apparently unending patience in bringing about the integration of disparate countries. It has also gone to great pains to expand its influence. The region of Central Asia is of particular interest. After the collapse of the Soviet Union in 1991, China approached not only Russia, but also the former Soviet Socialist Republics, especially Kazakhstan,Kyrgyzstan and Tajikistan, all of which touch China’s western border. Beijing was particularly interested in ensuring security for Xinjiang province, and focused on the clear demarcation of borders. However, while supporting border security, Chinaslowly embarked on a package of confidence-building measures that regional policy makers gradually embraced. Regional leaders also came together to ward off terrorism and religious extremism. In April 1996, the leaders of the five states met inShanghai and agreed to form a regional multi-lateral forum called the Shanghai Five. The remaining central-Asian state,Turkmenistan, has a policy of neutrality and did not join. In June 2001, Uzbekistan joined the group which then took the more formal name of the Shanghai Co-operation Organisation or SCO, effectively putting their past enmities behind them. This was clear at the 2003 Moscow summit meeting of the SCO when the group “expanded to embrace economic co-operation in the form of encouraging trade, investment, and infrastructure development among member countries and cracking down on the trafficking of illicit arms, ammunition, explosives and particularly narcotics from Afghanistan” (Chung, 2006, p. 9). In the years since, the group has played an increasingly greater role in regional affairs. The group’s members worked together to prevent cross-border smuggling and began to promote trade, investment and economic growth among member states. Since the group’s 2004 summit, “the SCO has initiated 120 projects related to customs co-operation, cross-border transportation, harmonisation of laws and regulations, energy and railway construction” (Chung, 2006, p. 10). It has also set a goal to have complete free trade for goods, capital and services by 2025. Since the Central Asian region is increasingly a source of oil and gas for China’s growing economy, such moves helped Beijing consolidate its position as a safe, reliable power and customer.China also persuaded the SCO to establish a regional counter-terrorism centre and in 2005, to agree to regular joint military exercises, thus the regional bloc has both an economic and military status. The formation of a regional bloc is beneficial forChina which sees Central Asia as the new Silk Road leading to Europe, and for Central Asia which gains access to a reliable market as well as access to the Pacific Ocean. “In Chinese terms, the five Central Asian countries are China’s friendly neighbours, and the development of a long-standing and stable neighbourhood and the development of mutually-beneficial relations with these countries is a key element in Chinese foreign policy” (Sun, 2004, p. 609).

China has been deft in its use of the Shanghai Co-operation Organisation to speed up and consolidate regional integration.Beijing has clearly embarked upon a policy of being a good neighbour, offering good terms to its friends, and taking pains to project an image of a safe, reliable, non-threatening power. “China’s leaders have given multi-lateral co-operation a prominent place in the country’s national security doctrine, which envisages the development of a virtuous cycle of mutual security through co-operative means” (Chung, 2006, p. 5). This growing international engagement shows that China is slowly, but surely, shaping its political and economic environment.

Southeast Asia

SE AsiaChina has also been active in integrating another important Asian region, namely Southeast Asia. Beijing’s approach was slow, steady and methodical, indeed, stealthy, due to initial underlying fear and discomfort of China on the part of south-east Asian and other countries. Southeast Asia also has strong trade links with the United States. However, several factors, not the least of which was insensitive U.S. action in the region, combined to slowly shift the region’s perception of trade opportunities. Throughout the entire process, China’s soft offensive has been the epitome of consummate diplomacy.

The states along China’s southern border make up an important economic club known as ASEAN. “The Association of Southeast Asian nations (ASEAN) agreed in 1992 to form the ASEAN Free Trade Area (AFTA), with the goal of eliminating barriers and achieving free trade by the year 2008” (Spero & Hart, 2003, p. 257). China, seeing this, began to quietly expand its influence in South-east Asia. In 1994, Beijing took part in committees dealing with trade and technology as a member of the Asian Regional Forum. Using the same approach it used in Central Asia, it focused on regional political and security concerns. During this period, trade between China and Southeast Asia amounted to some eight-billion dollars. This relatively low amount can be attributed to suspicion among ASEAN members of Beijing’s motives. After all, ASEAN was formed “at U.S.urging in 1967 to protect the region from Communist penetration” (De Santis, 2005, p. 26). China’s efforts were accepted only slowly. This was mainly due to its actions against pro-democracy protesters in Tien’anmen Square in 1989, and the influence of the United States and Japan in ASEAN’s economies. The United States having been instrumental in the formation of ASEAN, also guarantees its security. This led to uneasiness between China and ASEAN in 1992, when the United States sold F-16 combat planes to Taiwan. There will be a more detailed explanation on the military implications of this later.

In 1997, China took advantage of two events that provided openings to increase its reputation in ASEAN. The first was the Asian Crisis when the short-term movement of capital left too many export goods in Asia and drove up the value of local currencies.  “Because of close links between banks, governments and corporations — a situation known as crony capitalism — bank lending often was directed to favoured institutions without adequate attention to their financial soundness and sometimes based on corrupt practices” (Spero & Hart, 2003, p. 54). Local banks also had no experience in risk management so were unable to deal with the situation, leading the government of Thailand to devalue its currency. This led to a chain reaction of currency devaluations throughout Southeast Asia and South Korea. The resultant currency crisis caused economies inThailand, Indonesia, Malaysia, Taiwan and South Korea to contract sharply. The crisis also affected China, causing its export growth to drop to one-half of one per cent (0.5%) from 20 per cent, and foreign direct investment to hit a 20-year low. However, “Chinese GDP increased in 1997, 1998 and 1999 by 8.5 per cent, 7.8 per cent, and 7.0 per cent respectively” (De Santis, 2005, p. 24). China took a pragmatic approach in dealing with the second event in 1997, mainly by giving financial support to Thailand and Indonesia at the same time that the United States and other western economies brought in austerity measures to deal with the crisis. “In maintaining the value of the renminbi, the depreciation of which would have triggered further currency devaluations in the region, it demonstrated to the ASEAN community that it would not seek to exploit their economic misfortunes” (De Santis, 2005, p. 25). China consolidated its growing reputation of economic stability and friendship by helping to organise meetings between officials of ASEAN and the foreign ministers of China, Japan and South Korea aimed at averting any further economic upsets in Asia. By 1999, ASEAN included four other countries, Cambodia,Vietnam, Laos and Myanmar, formerly known as Burma. The last three are directly on China’s south-eastern border. Today,China has acquired a reputation as a reliable, friendly neighbour interested in ASEAN’S welfare. China’s gradual economic involvement with Southeast Asia was done slowly so as to gain trust from ASEAN countries and also not to alienate the United States and Japan.

China – Asia’s Regional Hegemon

ChinaGiven the regional integration in Central Asia and Southeast Asia as a result of Beijing’s diplomatic efforts, China has become the de facto hegemon for Asia. As we saw in China’s approach to both regions, hegemony involves a consensual component.  “In a hegemonic order, the dominant power makes certain concessions or compromises to secure the acquiescence of lesser powers to an order that can be expressed in terms of a general interest” (Cox, 1986, p. 783). This general interest is primarily economic, based on the prospect of phased-in free trade over Greater Asia by 2025.  However, free and open trade can not be assured without several other conditions. According to the theory of hegemonic stability, “the hegemon or leader has the responsibility to guarantee provision of the collective goods of an open trading system and stable currency. The theory assumes that a liberal economic system cannot be self-sustaining but must be maintained over the long term through the actions of the dominant economy” (Gilpin, 1987, p. 479).  (Gilpin, 1987) posits that a hegemon builds international political economics that favour not only its interests, but also its ideology. However, ideologies in Southeast Asia are not as close toChina as they are in Central Asia. China appears to have accepted the idea that the various states under its growing influence need not practice the same brand of politics as exists in Beijing. China’s pragmatic approach in attaining and consolidating sustainable economic co-operation appears to overlook different ideologies that do not affect it directly. Although such a realist position on China’s part is clearly yielding dividends in terms of more open trade and growing trust within Asia and beyond, China’s interests and power are not enough by themselves to sustain growing levels of trade. The tension between economics and politics is a varying constant in international relations. China has tried to alleviate this tension by slowly bringing into place a multi-lateral trade regime that responds to the economic needs of international trade. “A multi-lateral regime is a set of mutual expectations, rules and regulations, organisational plans, efforts, and commitments that has been accepted by a group of states with shared interests for the purpose of removing causes of conflict, promoting co-operation, establishing standard patterns of behaviour, and reducing transaction and research costs” (Chung, 2006, p. 4). Although the rise of economic prominence on the part of China, and also India, clearly suggest an eventual decline in the status of theUnited States as world hegemon over the next 30 to 40 years, it does not suggest that international economic co-operation with the U.S. and its allies will simply fade away. “Cooperation is possible after hegemony not only because shared interests can lead to the creation of regimes, but also because the conditions for maintaining existing international regimes are less demanding that those required for creating them” (Keohane, 1984, p. 489). However, for one hegemon to overtake another requires not only economic power but also substantial military power, reliable military alliances and the ability to project military might to protect world trade routes, quell conflict and ensure the stability necessary to international trade.

China’s military – The Malacca Strait

Malacca StraitThe prospect of China becoming a military power is one that causes uneasiness. “Survey results released by the BBC in 2005 show that although 49 per cent of respondents in 22 countries welcome China’s economic growth, most people feel negatively about the prospect of China significantly increasing its military power” (Zweig & Jianhai, 2005, p. 30). Nevertheless, Chinahas been quietly modernising its military and upgrading its defence capabilities. Based on China’s economic growth, and quiet, steady efforts at regional integration, this suggests a pattern of preparation, not for military aggression, but for maintenance of safe trade routes. This does not suggest that China has any plans to become belligerent. However, there are two areas where conflict could arise. Since China’s economy is increasingly dependent on oil, transport routes with the Middle East are especially important. Currently, the quickest route for oil tankers from the Persian Gulf to China is through the Strait of Malacca, through the South China Sea and along China’s east coast, through the Taiwan Strait. At the moment, the United States navy controls the Strait of Hormuz at the opening of the Persian Gulf through its naval base on the island of Diego Garcia in the Indian Ocean. India’s navy controls the western entrance to the Strait of Malacca which joins the Indian andPacific Oceans. Since oil is the lifeblood of China’s growing economy, and four-fifths of the oil it transports must go through this strategic strait, there is cause for concern in Beijing. President Hu Jintao reportedly refers to this as “the Malacca dilemma” (Zweig & Jianhai, 2005, p.30). From China’s point of view, this represents a major vulnerability, and a potential danger to its economy. China’s navy is relatively small in comparison with the U.S. and Indian navies so, in the short term, there is little that China can do to prevent any decision by the United States or India to disrupt its maritime oil deliveries through an overly-zealous control of the Malacca Strait. Therefore, China has taken several steps as if in preparation for such an eventuality. These steps include a decision to modernise its navy as well as its military. This appears to be an effort to ensure that Chinese naval vessels can deter American or Indian naval vessels from taking any action that would hinder the delivery of oil tankers destined for Chinese ports.

However, there is division within the American government over China’s intentions. A report prepared for the Pentagon states that “China is building strategic relationships along the sea lanes from the Middle East to the South China Sea in ways that suggest defensive and offensive positioning to protect China’s energy interests, but also to serve broad security objectives” (Zweig & Jianhai, 2005, p. 31). This includes helping Pakistan in the construction of a port at Gwadar, and holding negotiations to set up naval facilities in Bangladesh. China is also using its evolving influence in the new capital of Pyinmara, to set up monitoring facilities in Myanmar, well before the eastern approach to the Malacca Strait.

While Washington keeps a watchful eye on China’s military and trade developments, Mikkal Herberg, the director of the Asian Energy Security Programme at the National Bureau of Asian Research, suggests that China’s need for resources will have a new effect on how it conducts its foreign relations. In referring to energy in April 2005, he said “that he could not foresee any scenario that would not lead to confrontations between the United States and China” (Zweig & Jianhai, 2005, p. 31). However, that may be overstating the case. Considering that both China and the United States are dependent on oil and on maritime sea lanes, it is in both their interests to avoid conflict and to ensure safe, open sea routes.

China’s military – Taiwan

Taiwan ChinaThe second area where conflict between the United States and China could arise is over Taiwan. When China’s communist forces under Mao Tse Dung won over the Nationalist forces of Chiang Kai-shek in 1949, the Nationalist forces, or Kuomintang, fled to Taiwan, 145 kilometres off China’s east coast. The island had a one-party political system until the late 1980’s. The Kuomintang is currently the opposition party. Those Taiwanese who push for Taiwan’s independence are a cause of concern for China’s foreign ministry. China considers Taiwan a renegade province and has been willing to tolerate its antics with one exception. China has repeatedly said that it will attack Taiwan if it ever declares independence. The United States supported the government of Chiang Kai-shek for years, considering Taiwan an outpost of freedom from “Red China”, a reference toChina’s communist party. Though the phrase is no longer heard, politics on Taiwan tend to focus on China. Taiwanese who have strong feelings on the matter are divided into two groups; those who favour independence, and those not willing to risk conflict, who favour autonomy. As mentioned earlier, the United States sold F-16 combat planes to Taiwan in 1992. This has been a sticking point in relations between China and the United States leading to regular and testy diplomatic exchanges between the two. In 1996, China held military exercises in the Taiwan Strait which included live missile tests. The United States reacted by sending two aircraft carriers and accompanying warships to the area.

Recently, China deployed missiles along the coast just opposite Taiwan, prompting Taipei to announce plans to develop surface-to-air missiles capable of reaching the Chinese mainland.  “China has now deployed 980 such missiles, of which 100 are cruise missiles and 880 ballistic, Taiwan’s ministry says. The build-up has accelerated: there were 540 such missiles in 2003 and 190 in 1996” (Multiplying Missiles, 2007, p. 95). This has not stopped Taiwan’s president, Chen Shui-bien, of the governing Democratic Progressive Party, from proclaiming his wish for independence. During the first week of May 2007, the Bush administration informed Taiwan’s president to think in defensive rather than offensive terms, and to call off plans to develop such missiles. Taiwan insists, however, that the missile system it plans is defensive because it would be used only in the event that China attacks. China has made it crystal clear that it will attack if Taiwan declares itself independent. This raises a potential dilemma. While the United States tries to rein in President Chen Shui-bien, Taiwanese nationalists may be looking at the World Olympic Games to be held in Beijing in 2008. While the eyes of the world are on China, there is a possibility that Taiwan could use the games as a backdrop to declare itself independent, in effect, gambling that world attention will prevent China from attacking. That “raises the discomfiting prospect that unless cooler heads in Taiwan can prevail, China and Taiwanmay be headed for a cross-strait war” (Lind, 2006, p. 39). While China has warned Taiwan about what it will and will not tolerate, both the United States and China are faced with a major balancing act. A misstep by one or the other could harm the world economy. In terms of trade between the United States and China alone, this would have serious implications due to the industrial interdependence between the two countries. “The key fact is that there is hardly a complex product that rolls off an assembly line in the United States that does not contain multiple components from China, the absence of which would paralyze production, at least temporarily” (Lynn, 2005, p. 31). A misstep could also lead to a much wider conflict, destroying the international world trade system as we know it.

The direction in which the world economy is shifting is clear. The U.S. National Intelligence Council forecasts that China’s economy will overtake the United States economy by 2040. Economic growth in China has put it well on the way to achieving such a position. “Given its enormous population – and assuming a reasonable degree of real currency appreciation – the dollar value of China’s gross national product (GNP) may be the second largest in the world by 2020” (National Intelligence Council, 2004, p. 5). Economic forecasts also indicate that India will eventually become stronger than the U.S. economy. “The much higher U.S. per capita income, almost eight times that of China and roughly 11 times that of India, is partially offset by the much larger populations of the two Asian countries. But with per capita incomes in China and India likely to grow more rapidly than in the U.S., thus narrowing the large gaps in living standards, both Asian economies will eventually surpass theU.S.” (Sachs, 2004, p. 53). It is in the interests of both the United States as world hegemon, and China as Asia’s de facto regional hegemon, to ensure peace and stability so international commerce can continue to flourish. “While China struggles to manage its growing pains, the United States, as the world’s hegemon, must somehow make room for the rising giant; otherwise, war will become a serious possibility” (Zweig & Jianhai, 2005, p. 26). The National Intelligence Council echoes the same concern. “The process of globalisation, powerful as it is, could be substantially slowed or even reversed, just as the era of globalisation in the late 19th and early 20th centuries was reversed by catastrophic war and global depression” (National Intelligence Council, 2004, p. 1). Given the growing potential for a world crisis between the two powers over Taiwan, both states must make special efforts to prevent the situation from getting out of hand.Tigre

India – The Restless Tiger

While China has shown economic growth and slowly gained influence in Central and South-East Asia, over the past 15 to 20 years, another Asian power has also been gaining economic power. “China’s aggregate GNP has grown by about 10% a year since the late 1970s and India’s has grown by about 6% a year since 1991, compared with annual U.S. economic growth of about 3.5%” (Sachs, 2004, p. 53). In terms of growth, China currently has the edge over India. However, looking at the Chinese and Indian economies from another perspective, it is clear the two States are not on the same track in their approach. Even though there is greater foreign direct investment in China, leading to growth in export-led manufacturing, there are relatively few private firms in China making the goods being exported. India, however, has more private firms making exportable goods. This is because India has “developed much stronger infrastructure to support private enterprise. Its capital markets operate with greater efficiency and transparency than do China’s. Its legal system, while not without substantial flaws, is considerably more advanced” (Huang & Khanna, 2003, p. 74). Essentially, both China and India are dealing with conflicting legacies from the past which affect their approach to the future. China is still plagued by thinking from the Communist era while “democracy, a tradition of entrepreneurship, and a decent legal system have given India the underpinnings necessary for free enterprise to flourish” (Huang & Khanna, 2003, p. 76). The main difference between the two countries is that China, as a Communist country, governs from the top down, and India, as a democracy, governs from the grassroots up. This means that Indian entrepreneurs can act, profit and build on their ideas rather than have to deal with the heavy bureaucracy of an interfering state. India also has a different approach than China in the loans necessary to promote enterprise. “Only 10 per cent of credit goes to the private sector in China, even though the private sector employs 40 per cent of the Chinese work force. In India, entrepreneurs get more than 80 per cent of all loans” (Das, 2006, p. 5). This difference in approach has given India a lead over China in intellectual rather than industrial exports. Where China sells low-priced, labour-intensive goods to the west,India relies on selling hi-tech services. This has had a major impact in the United States which has lost tens of thousands of technical jobs to India. Despite such dislocations, the projected increase in trade over the long term from both India andChina, clearly suggests that it is in the interests of the United States to ensure that trade with both China and India remains open.

However, if trade is open for the United States and India and China, respectively, it is also open between China and India and other powers. This raises the possibility that China and India, in establishing closer economic relations may also find they have other interests in common. Both Russia and China, the largest members of the Shanghai Co-operation Organisation, have made efforts to curry favour with India. In late April 2007, Russia’s president, Vladimir Putin, visited New Delhi on a state visit, returning home with multi-million dollar contracts for India to build Russian warplanes and parts. In the same month,China’s president, Hu Jintao, also visited India, signing several million dollars worth of contracts and restarting talks to resolve a border dispute that has been outstanding since 1962. India and China could also grow closer due to their respective maritime interests, especially since at least 90 per cent of trade for both countries is by sea (Forsberg, 2002, p. 70).

The United States – The Wary Eagle

aigleAccording to the U.S. Naval Institute, the U.S. navy searched the Chinese vessel “Yinche” in 1993 on suspicion she was carrying chemical weapons to Iran. Despite diplomatic protests that the U.S. was violating the law of the sea, China could offer no naval support to the vessel and she was forced to submit to inspection. That in itself could be construed as reason enough for China to consider increasing its naval capacity. Beijing now has to be able to protect vessels carrying oil thousands of kilometres from the Persian Gulf to its east coast – a clear raison d’être to build up its navy. The U.S. Naval Institute points out several potential trouble spots along the route from the Persian Gulf to China’s east coast including the Malacca Strait, the Spratley and Paracel Islands in the South China Sea and the Strait of Taiwan. The Institute also notes that China has been building roads, and upgrading railways and port and storage facilities in Myanmar. “The main thrust of these projects has been to develop the ports of Myanmar and connect them, via rail and road as well as waterway, to the western Chinese provinces of Yunan and Sichuan. From there could come connections to the wider Chinese transport infrastructure. Such developments could have a tremendous impact on the flow of commerce between China and the Middle East as well asEurope” (Forsberg, 2002, p. 71). In short, China is building a shortcut, or second Silk Road, across Myanmar to southernChina which would allow it to develop its southern landlocked interior, store energy supplies from the Persian Gulf, and gain more security near the eastern entrance to the strategic Malacca Strait. Even though China could not divert all its oil shipments away from the Strait, Beijing would no longer be limited to only one route, and would then be able to concentrate its forces where they could be more useful. The U.S. Naval Institute suggests that as trade grows between China and India, and each benefits from greater access to the other’s market, they could eventually decide to share their naval responsibilities. Indiacould concentrate on the east side of the Strait of Malacca and China could focus on the South China Sea. This would give each continued access to the others market, greater security, and unhampered delivery of oil shipments through the Malacca Strait. Under such an arrangement “China will become more confident that the United States will hesitate to act decisively in theIndian Ocean. This will help to ensure that China’s Silk SLOC (Sea Lines of Communication) through Myanmar remains open despite possible crisis off the east coast” (Forsberg, 2002, p. 73). Such an alliance between China and India is not expected to occur soon. However, it is natural that as their economic power grows, both China and India will eventually try to counterbalance the United States. As Beijing and New Delhi slowly put past enmities behind them and gain respect for each other, it is a possibility that bears watching.

China, India and the United States – ménage à trois?

Dragon chinois 2 Tigre 2aigle 2 The build-up of China’s military, plus the potential for conflict over Taiwan, coupled with the growing political power of the Shanghai Co-operation Organisation, and the gradual shift of Southeast Asia into China’s sphere of influence, all put the onus on the United States as world hegemon, to ensure that no sudden surprises occur that could upset the world’s international economic system. To accomplish this, the United States has tried to give China and India a greater role in the world economic system. “In an attempt to ensure that these countries buy into the core tenets of the U.S.-created world order, Washington has tried to bolster their profiles in forums ranging from the International Monetary Fund (IMF) to the World Health Organisation, on issues as diverse as nuclear proliferation, monetary relations, and the environment” (Drezner, 2007, p.35). For the most part, world attention has been focused on the actions of the United States in Iraq, and its global war on terrorism. This means that many of Washington’s efforts to reconfigure U.S. foreign policy have passed almost unnoticed. Drezner (2007) maintains that with the U.S. reputation for acting unilaterally, Washington’s efforts risk being seen as another attempt to circumvent international law. “To overcome such scepticism, the United States must be prepared to make real concessions. If China and India are not made to feel welcome inside existing international institutions, they might create new ones–leaving the United States on the outside looking in” (Drezner, 2006, p. 36). One major effort of Washington’s ‘grand strategy’ that was clearly noticed was to sign a nuclear cooperation agreement with India. In December 2006, “President George W. Bush signed legislation passed by Congress allowing India to receive U.S. nuclear technology, materials and other related assistance to expand its civilian nuclear programme. The president’s hope is that, by boosting India’s much-needed energy resources and thereby bolstering its economy, the U.S. can help build India into a regional superpower to counterbalance China” (Ali, 2007, p. 39). This brings the United States into closer cooperation with India on both strategic and economic fronts, in addition to furthering the cause of nuclear non-proliferation, to which China is already a party. Washington’s decision clearly shows the value of trade over conflict. In basic economic theory, trade has a positive impact on the world, where the prosperity of one country depends on the prosperity of other countries. In real terms, the phrase ‘peace dividend’ should not be limited to the strategic calm after the collapse of the Cold War. “International trade, in being the principle (sic) guarantee of the peace of the world, is the greatest, permanent security for the uninterrupted progress of the ideas, the institutions, and the character of the human race” (Harlen, 1999, p. 736). This raises the prospect of multi-lateral governance as the United States, China and India strive for a more even distribution of power and influence. However, history suggests that the sharing of influence among such powerful states is not always possible. This suggests a choice between mass international conflict and compromise in the functioning of the world’s international economic system. “Although the United States will be unable to govern the system by itself, management and support for reforming multi-lateral regimes will be crucial to their success” (Spero & Hart, 2003, p. 395). Since the end of the Second World War, the United States has been able to provide and maintain conditions for an international liberal trade system with its leadership, standard currency and set of trade rules under the now-defunct Bretton-Woods Agreement. In recent years, the U.S. has acquired a reputation for making unilateral decisions such as bypassing the United Nations and relying on what the Bush administration calls “coalitions of the willing”. As the present gives way to the future, U.S., Chinese and Indian leaders would do well to consider a ménage à trois, and remember that unilateral behaviour, and resorting to nationalism rather than openness and dialogue is what leads to economic collapse and international war.



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