The US Needs to Change the Way it Deals With the Rest of the World–or it Risks Being Left Behind

obama_xi_meeting

On March 17 the Asian Infrastructure Investment Bank (AIIB) received a significant boost in international credibility when European nations, France, Germany and Italy followed the United Kingdom in joining the AIIB, despite stern criticism from the United States. These four countries are not only leading players in the European Union, but they comprise the 4th, 5th & 6th largest economies in the world (Italy is ranked 8th) and are among the US’ closest allies. More European countries are likely to follow suit as Switzerland and Luxembourg are preparing to do. Asian countries such as New Zealand, Thailand and Singapore have already joined, and staunch US allies South Korea and Australia seem likely also. The AIIB is a China-led international infrastructure bank, part of China’s challenge to the global financial monopoly enjoyed by the US, since the dollar is its reserve currency.

BRICS_heads_of_state_and_government_hold_hands_ahead_of_the_2014_G-20_summit_in_Brisbane,_Australia_(Agencia_Brasil)

China’s reasons for creating it’s own version of the World Bank (WB) are straight forward. The BRICS (Brazil, Russia, India, China, South Africa) have long resented the financial monopoly that western countries, particularly the US have in the WB and International Monetary Fund (IMF). The status quo was birthed by Bretton Woods system established in 1944. Critics point out it is no longer the 1940s and the system needs to reflect the changing balance of power in the 21st century.

Before the creation of AIIB the BRICS tried to work within the system by demanding a greater say in the IMF. In 2010 a deal was introduced to give emerging economies more power. But the US is the largest IMF stakeholder and US lawmakers must approve any such deal. Republicans consistently block its approval. American reluctance to reform led China to attempt to create a financial system not dominated by the West.

American criticism against the AIIB are concerns that the institution will not meet western standards on transparency, the environment and other issues. However BRICS leaders fire back that the US and Europe no longer have credibility to dictate such standards given their mishandling of the 2008 global financial crisis which caused economic chaos throughout the entire world.

In hindsight this development could prove pivotal for the future of the global economic system not only because it evidences China’s commitment to dismantle the dollar as the reserve currency, but given United States Treasury Secretary Jacob Lew’s public criticism of European countries joining the AIIB, it is increasingly evident, that the world is changing. Non-western countries are increasingly vying for a share of the geopolitical pie. If the world’s lone superpower wishes to retain considerable influence, American leaders would do well to recognize this and act accordingly. The longer it takes for the US to wake up to this new reality, the harder the fall will be and the less influence the US will be able to retain as global power continues to shift Eastward.

china_papersover_us If the US continues to block necessary reforms to the IMF and WB while criticizing European allies who join (for their own financial self-preservation), the fallout could potentially be momentous. At worst, the US creates a new layer to the developing geopolitical rivalry between the US-China and forces even the closest American allies to choose sides against the US. At best, the US jeopardizes the strength of the Trans-Atlantic alliance and being left behind as a new international system emerges, trapped in its web of denial.

The Event That Started It All

Postcard_for_the_assassination_of_Archduke_Franz_Ferdinand_in_SarajevoToday is the 100th anniversary of the assassination of Franz Ferdinand and his wife that set off the chain reaction of alliances that led to the outbreak of World War One.  On the evening of June 28, 1914, 19-year Gavrilo Princip, unknowingly changed the course of history that is responsible for the world order in which we live today.  If World War One did not happen, World War Two would not have happened.  The aftermath of World War Two resulted in the world order that we live in today.  From London, to Moscow, to Nairobi, to New Delhi, to Tokyo, to Tel Aviv to New York City, nearly every part of the world was somehow shaped into what it is today because of an assassination in Sarajevo that most Europeans did not care about, and hardly anyone outside of Europe even knew about.

Europe_1914

In 1914, Europe dominated the world with its overseas empires.  The present-day countries of Africa, Asia and Latin America were the colonial properties of Europe.  World War One lessened Europe’s hold on its colonies and planted the seeds for the independence movements that came in the years following World War Two.

The European continent was torn apart by World War One, and historians today continue to debate whether it was inevitable or could have been prevented.  Although the period between 1875-1914 is called ‘la belle epoque’ for its relative peace, this was largely confined to the upper classes of society.  Elsewhere, tensions in Europe were building over nationalism, colonial possessions, and monarchy vs democracy.  As World War One caused the demise many monarchies, which were replaced by dictatorships in a psuedo peace in a world economy battered by an economic depression.  World War Two would become the war between democracy and dictatorship.

Before World War One, the British Empire was at its peak, controlling 25% of the world’s population.  However its leaders worried about a rising Germany, whose leader Kaiser Wilhelm II wanted to supplant the British.  Rulers of the Russian and Austro-Hungarian empires were fearful of losing their great power status after a demoralizing loss to a nation presumed inferior, and centuries of domination, respectively.  France, having been humiliated in the Franco-Prussian war wanted a chance to redeem itself in on the world stage.

World War One is my favorite war but it does not get a lot of attention in the United States.  The little attention it does receive focuses on how they shaped the leading figures in World War Two and American intervention in 1917.  World War Two gets most of the attention in our classroom textbooks, movies and political discussions.  But being a European history nerd, I cannot help but delve into the root causes of the war that supposed “To End All Wars.”  Especially as the same themes and dynamics repeat themselves today.

Is Asia like pre-World War I Europe?

Shinzo-Abe1

Between the international headlines about the East China Sea and comments made at the World Economic Forum in Davos, Switzerland this week, it is very clear that China and Japan are not getting along.  The two countries have a history, which leaves many wondering if the two are on a collision course yet again.  China and Japan seem to disagree on everything, from the Senkaku/Diaoyu islands, to each country’s investment in Africa, to both countries investing more in their respective militaries, the list goes on.

At the World Economic Forum, Japanese Prime Minister Shinzo Abe compared the testy relationship between China and Japan to that between Britain and Germany which in part, led to the outbreak of World War I.  As someone endlessly fascinated with the Great War, I agree that the geopolitics of Asia is looking startlingly similar to that of Europe 100 years ago, but I disagree with the Japanese leader that China-Japan of today is Britain-Germany in 1914.

1002px-Map_Europe_alliances_1914-en.svgBritain’s inability to handle Germany’s rise was one of the major issues that resulted in World War I.  Beginning in the 19th century, Britain was the preeminent power in the world and controlled 25% of the world’s population with its superior navy.  Yet with the unpopular Boer war, Queen Victoria’s death and Kaiser Wilhelm’s no-so-hidden desire to establish a German Empire on par with the British Empire, Britain was insecure of its status. The fear of Germany overtaking them led British leaders to seek out an alliance with France, it’s 1000 year rival; and Russia, which was largely seen as a backward autocracy.

China’s_Critical_Sea_Lines_of_CommunicationA century later the world is in the same situation.  The United States, after being world’s preeminent power in the 20th century, in the 21st century faces losing that status.  At the moment China leads the way with an economy that is estimated to become the world’s largest before 2020, and other BRICS nations vying for power on the international stage.  However China’s rise has been met with skepticism, not just from the United States but from its neighbors.  Although its leaders insist on a peaceful rise, many argue its actions say otherwise, case in point being the dispute over the Senkaku/Diaoyu islands.  China recently set up a defense zone around the islands, leaving Japan and South Korea anxious.  Although Japan has shaky relationships with its neighbors in its own right, many are putting that aside to counter-balance China.

Recently PM Abe was a guest of honor in New Delhi on India’s Republic Day on Saturday. This after Japan’s defense minister was in New Delhi for talks on expanding bilateral defense ties.  The Japanese leader has long felt that India can provide a crucial counter-weight to China and so seeks to expand Japan-India ties.  India and China have a rivalry also, dating back to 1962 over a shared border.  Japan (and India) are also expanding their relationships with African countries, with both attempting to distinguish themselves from China’s widespread influence on the continent.

PM Abe is right that a war in Asia would spell disaster for the world. The rivalry between Britain and Germany was that between a longtime empire and an rising power–just as the tension between the US and China is today.  However as much as I understand PM Abe’s fear, I can see the seeds of war being planted already.  Japan is investing more into its military, solidifying alliances with other countries in the region and seeking to outdo China in Africa.  What is more startling is that Japan is not alone.

History has a way of repeating itself but never in the exact way.  So although there are some differences between Europe a hundred years ago and Asia today, the major themes remain the same.  The leaders of today will face the same decisions as leaders a century ago.  That leaves the question, can the world avoid making the same mistakes of the past?