Introduced as having held every significant position in economics within the United States Government, former Secretary of the Treasury and former Chief Economist of the World Bank Dr. Lawrence H. Summers gave a talk in Washington D.C. last week titled “Economic Statecraft and Global Order”.
Lawrence Summer’s talk was considered “provocative” by the Center for Strategic and International Studies.
The event consisted of a 45 minute talk followed by another 45 minutes of questions. Advancing in staccato rhythm, each paragraph by Summers unfolded a systematic approach to reasoning about the significance of foreign economic policy. Citing the history of the World Wars, the Great Depression and the fall of the Soviet Union, his unfurling thesis implied theories of how economic policy contributes to global outcomes: Summers advocates that more aggressive economic warfare between the 1880s and 1920s would have stopped the industrial advancement of Prussia, ultimately preventing World War I, and that the Third Reich and World War II was only made possible by The Depression and the oppressive terms purposefully advocated in the 1919 Treaty of Versailles.
This thesis culminates in our former Secretary of Treasury laying down his cards. Seventeen minutes into the talk he lays waste to the notion that political capital should be spent trying to advocate for US companies – he argues that at stake in trade negotiations and economic diplomacy is something higher than the mere success of American businesses. He criticises “competitive ‘win-the-game’ theory” and even posits that “Almost every policy sentence that uses the word competitiveness is misguided. It conjures the competition between companies, but that doesn’t apply to countries.”
And then says some curious things:
“There’s no a priori logic even in the narrow economic realm where we can assume we do well if another country’s economics prospects diminish.”
“Any paradigm around the notion that we want to win and we want others to lose is misguided in narrow economic terms and catastrophic in broader political terms. It is hard to imagine having harmonious relations with those whose economy it is our desire to suppress.”
“The objective of policy should be to foster a more integrated global economic system in which more nations and more people within nations have a stake in collective success.
In a phrase. It should be the promotion of shared prosperity.”
“Shared prosperity strategy that offers the best prospect for a successful integration of China into the global order.”
“The American posture, having designed a Pacific Trade Agreement, that was crafted in a way that whatever was legally possible made it not practically realistic for China to participate.
“Having done that when China sought to create an institution that invested in Asian infrastructure; for the US to allow an appearance to develop that it was working hard not just to not to participate but to discourage others from participating and then have our longest standing ally the Brits lead the charge of repudiation constituted one of the darker days of US economic diplomacy.”
“This I would submit is a matter of particular urgency at the current time when we are seeing for the first time this year capital flows from south to north – from downhill to uphill – on an unprecedented scale; complicating the matters of macroeconomic management through capital flight from emerging markets and current account deficits.”
“In a real sense the remainder of this decade emerging markets will probably be submerging markets.”
– Lawrence Summers, Center for Strategic and International Studies, Washington D.C.
What is Summer’s talking about? The United States strategy to destroy China’s economy, flirting with global economic collapse in the process, his argument entails, is neither a good strategy that advances US values nor a strategy that has gained us many allies.
The Asia Pacific arena in particular, and developing economies in the Asia Pacific more broadly, are projected to overtake the United States and the Atlantic as the center of the global economy. Soon the very vast majority – two thirds of all world trade – will be passing through the South China Sea.
The United States strategy has been, not colonialism or theft or international espionage, but abject destruction. Wielding the powers of the world’s most powerful lending, monetary and financial institutions, every measure has been taken to styme the rising power’s economy that left unchecked is certain to overtake the US. To deal with China, the United States has architected the Trans Pacific Partnership, which as Summers states was “crafted in a way that whatever was legally possible made it not practically realistic for China to participate.”
Of course, it isn’t just Summers saying these things. Robert Blackwill, former ambassador and National Security Council deputy for Iraq reporting to Condolezza Rice, and Ashley Tellis, National Security Council staff as Special Assistant to the President and Senior Director for Strategic Planning and Southwest Asia, codrafted a Grand Strategy Document Toward China out of the Council for Foreign Relations – an influential policy thinktank in Washington DC created after the First World War.
The opening paragraphs of this Grand Strategy Toward China quickly summarize its content:
“It has become something of a cliché to say that no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China. Like many clichés, this statement is true but not terribly useful, as it tells us little or nothing about the nature of the relationship in question.”
“Some point to history and argue that strategic rivalry is highly likely if not inevitable between the existing major power of the day and the principal rising power.”
“A number of policy prescriptions follow, including the adoption of policies designed to produce more robust economic growth in the United States; new trade arrangements in Asia that exclude China; a stricter technology-control regime affecting exports to China…”– “Revising US Grant Strategy Toward China”, Council on Foreign Relations(emphasis ours)
Summers also discusses how the United States sought to crush international investment banks organized by China – but lost face with the rest of the world and saw the international community rally against it. The United States has been rallying a whole-of-government effort to prevent China’s rise.
Statesmen, partnered with private hedge fund managers, are currently spending fortunes trying to deflate China’s currency so that the country implodes into an era of recession. They calculate that by around the middle of 2016 they can deplete China’s foreign currency reserves to the minimum levels required to operate trade and that after this they can devalue the Chinese currency by up to 40-50%, preventing China from graduating from a developing country to a developed one – what would represent the largest move of lower income people into the Middle Class in all of history.
The United States Fed continues to promise repeated rate hikes despite the danger that poses to the domestic economy. When these rates are hiked, a stronger US dollar makes it more difficult for US-dominated debt around the world to be paid off, as it effectively multiplies the cost of the loan. The anticipation of hikes, the burden they will cause for government budgets, and the relative devaluation of holding capital outside US dollars, causes capital flight increases out of China, Brazil, India, Turkey, Russia and other countries. Wealthy individuals who fear their fortunes may be ruined from the combinations of devaluing currency, increasing debts, and geoeconomic warfare delist their investments from the home countries. This flight of capital causes further complications for the victimized countries.
As a result of America’s policies, globally, for the first time in world history, investment capital will net be leaving developing countries for the developed world. Larry Summers calls this ‘downhill-to-uphill’, and pains that it deeply complicates the stability of the global economic system.
“If [China] were to build out Scarborough Reef like they have Firey-Cross Reef, like they have built out Woody Island, they would control the South China Sea against all of the militaries out there except for the United States military in all scenarios short of war. This has operations implications for me as military commander and strategic implications for the United States: when you consider the $5 trillion dollars of trade pass through the South China Sea every year.”
“Economics: I’m a supporter of TPP, I think it’s critical to our economic power. And at the end of the day The Rebalance [to Asia] is about economy. It’s not about China. It’s about us and the values we hold dear and what matters to us. And the biggest piece of The Rebalance is the economic piece.”
– United States Admiral Harry B. Harris
Harris goes on to note that we also have deployed the most sophisticated weapon systems the United States has developed to the region. China’s primary defensive weakness to external threats in modern warfare – were one to arise between it and the United States – is its dependence on easy-to-blockade ports and trade straits, the most important the Strait of Malacca. The United States regularly enumerates the foreign strategic assets it seeks to control: the Strait of Malacca made the 2008 list.
In addition to crippling China’s economy, which has in turn set the tides for a global and domestic recession, Harris explains that the United States is simultaneously committed to complicating China’s plans to build military outposts that protect its trade waters from blockades.
Lest one think the United States is not the aggressor in this exchange the high level strategies enumerated within the Grand Strategy Toward China report China as: pursuing maintenance of internal order, sustained high economic growth, peace around its periphery, and cement international status.
On the other hand the United States is recommended to “permit successful U.S. power projection even against concerted opposition from Beijing”, “U.S.-Asian alliances should be rebooted for offensive and defensive geoeconomic action. This intensified alliance focus should be as concentrated on geoeconomics as on political-military instruments”, “Strengthen the U.S. Military”, “increase the frequency and duration of naval exercises with South China Sea littoral states”, “working with the ROK (and Japan) to develop a comprehensive strategy for regime change in North Korea”, “substantially loosen its restraints on military technology transfer to India”, “regard Indian nuclear weapons as an asset in maintaining the current balance of power in Asia”, “possible future arms sales to Taiwan could include signals intelligence aircraft, transport aircraft, upgraded engines for F-16s, upgrades to frigates and other ships, and/or land-based missile defense systems.”
Lawrence Summer’s talk was considered “provocative” by the Center for Strategic and International Studies.
Not provocative because he wanted to export more pollution into developing countries. Not provocative because he wanted to sidestep sovereignty, impose rents, privitize resources, and collect profits from emerging nations.
Lawrence Summer’s talk was considered provocative by the Center of Strategic and International Studies because he reasoned that the US ought to allow the peaceful and uninterrupted development of China into a modern economy – even if that means losing global economic primacy. Provocative because he criticized the destructive measures the United States is taking to inhibit world growth for its own selfish and paranoid justifications.
P.S. The Washington Times published a report on these events, but with severely questionable journalistic ethics and standards: “Official: China stock crash is U.S. economic warfare“.