Even if one’s only concern were federal debt and deficits, and even if one’s sole criterion for evaluating spending were long-term impact on fiscal health, there are a set of public investments—in infrastructure, in education, and in basic science and R&D—that will immediately stimulate growth while improving the U.S. debt-to-GDP picture over the longer term. Returning to more normal baseline averages in federal investments would help the United States confront its other major obstacle to long-term growth: its entitlement pressures. Recalling the Reagan-era R&D push of the 1980s, libertarian thinker and computer engineer Jim Manzi argues for a similar federal effort today, treating basic research outlays as “infrastructure” spending, akin to education, transportation, and utilities—all of which form the necessary ecosystem for an innovation economy.10 Manzi is correct: the United States should create a capital investments column in the national budget for education, infrastructure, and science R&D funding, committing to return to more normal historical funding levels for each. The United States should also get serious about addressing spiraling entitlement costs; as Erskine Bowles, cochair of the bipartisan Simpson-Bowles Commission, pointed out, the across-the-board cuts put in place by the 2012 sequester help neither objective.
POLICY PRESCRIPTION 2
The president must speak to geoeconomic policy.
The next president should lay out an affirmative vision for a geoeconomic-centered foreign policy—backed by a mandate for the changes, big and small, it will require of her or his foreign policy establishment. Without presidential geoeconomic leadership, Pavlovian political-military responses are likely to most often carry the day in Washington, and thus drive the bureaucratic responses to America’s external challenges.
POLICY PRESCRIPTION 3
The leadership of the Congress should schedule a comprehensive set of hearings on the potential of the United States to use economic tools to further U.S. geopolitical objectives.
Much of the needed U.S. geoeconomic agenda cannot be implemented without congressional approval. The Constitution gives Congress the preeminent role in U.S. trade policy, yet the last significant congressional overhaul came in the Trade Act of 1984. After thirty years, it is time for a broader legislative overhaul of the current legislative authorities governing U.S. trade policy.
POLICY PRESCRIPTION 4
Funds should be shifted from the Pentagon to be used to promote U.S. national interests through geoeconomic instruments.
The administration’s State Department budget request for fiscal year 2016 was $50.3 billion, while the Department of Defense’s total FY16 request was $585.2 billion.11 The State Department figure is 8.6 percent of the Defense Department’s request, a ratio that is incompatible with an era of geoeconomic power projection.
POLICY PRESCRIPTION 5
Develop a more concerted understanding of geoeconomics across all executive branch agencies with responsibilities in U.S. foreign policy and national security.
In order to discern when geoeconomics is at work and how it matters for U.S. foreign policy, the U.S. government first needs a common understanding of what geoeconomics is. Such a conceptual framework should, at minimum, be capable of distinguishing geoeconomic from non-geoeconomic instruments and influence, as well as determining what makes them more or less effective; it should also offer policy makers a means of evaluating geoeconomic policy options against other policy alternatives.
POLICY PRESCRIPTION 6
Pass TPP Round 1.
Geopolitical strategy by the United States in Asia cannot succeed without delivering on TPP Round 1, bringing a “comprehensive, high-standards regional trade agreement” to the region.12 Even though TPP began as a straightforward exercise in liberalizing trade barriers, its geopolitical stakes largely brought in as after-the-fact marketing to win the domestic support needed for its passage in Congress are now real, and were made all the more so by the Obama administration’s repeated emphasis. Certainly, TPP could have better prioritized certain U.S. geopolitical interests (and again, often in ways that would have also advantaged U.S. economic interests, tougher provisions on SOEs and currency as two examples). Still, the reality remains that TPP, however imperfect, is now the overriding geoeconomic component of the Asia pivot, tying together America’s friends in Asia and negotiating the terms of engagement between U.S. collaborators in the Western and Eastern Hemispheres.13
POLICY PRESCRIPTION 7
Conclude the TTIP agreement with America’s European allies.
Nothing else will so further transatlantic geoeconomic prospects—especially if both sides seek to make this a trade agreement that prioritizes geoeconomic aims in its design choices. Like the TPP accord, any deal of this magnitude will require strong and sustained presidential leadership, but this is especially true of an agreement that attempts to move beyond the twenty-five-year-old template of free trade agreements. One could imagine in TTIP explicit commitments to develop joint responses to economic coercion by third parties for geopolitical purposes. Lessons learned from the U.S.-EU sanctions efforts could be incorporated throughout the deal. An energy chapter could help spell out preemptive safeguards and common responses to future attempts at pipeline politics on the continent. Especially given the unlikelihood of finalizing TTIP by the end of President Obama’s term, there are fewer and fewer disadvantages to both sides exploring what a more sophisticated set of geoeconomic measures within TTIP might entail.
POLICY PRESCRIPTION 8
Reboot U.S. alliances for geoeconomic action focused as intensely on shared geoeconomic as on political and military challenges.
For a decade or more, America’s economic relationships with many of its closest allies have lagged behind security cooperation. With the EU, we should design TTIP not just as a means of reducing market barriers bilaterally but also as a vehicle to curb geoeconomic coercion and global market abuses, and to positively promote Western geopolitical interests (again, the United States and the EU could use the agreement to develop common responses to geoeconomic coercion applied by an outside party, whether that coercion happens to be directed against a state that is party to TTIP or against some third country that is not party to the agreement). Washington and Brussels should also develop a coordinated position on whether to accord China market economy status.
To push Europe to take responsibility for its core security interests, Congress, as part of reauthorizing NATO budgets, should require the secretary of state to certify that the EU has made substantial progress toward diversifying its energy supplies and building in greater resilience to threatened shutoffs—always, of course, with a presidential waiver. The degree to which companies have filled in behind any U.S. sanctions regime should also be considered when approving countries and companies, European and otherwise, for U.S. export licenses.
The same goes for our treaty allies in Asia. As noted above, finalizing a TPP Round 1 deal that includes Japan would be a significant modernizing force for the U.S.-Japan alliance. But it should not stop there. Washington should lead collective negative responses to economic coercion in the region. Recent U.S. efforts to expand economic engagement with the member countries of ASEAN will help, but it is likely that the United States will need to invent new sources of geoeconomic leverage and influence, drawing on treaty allies.14
With Canada and Mexico, while we should have used NAFTA’s twentieth anniversary to chart a new agenda for North American competitiveness, the case only continues to strengthen. In the words of former Mexican foreign secretary José Antonio Meade, NAFTA doesn’t need to be reopened per se, but rather built upon, constructing and revitalizing “the idea of a dynamic North America.”15 Invigorating the economies of Canada, Mexico, and the United States and forging a higher level of competitiveness should include rallying public support, eliminating transportation and services restrictions, building infrastructure for new trade corridors, melding North American regulatory requirements, and making antitrust policies continental.16
Such dee
per trade and investment ties, done well, should also come with updated standards for corporate governance, labor rights, and environmental protection (all areas where NAFTA remains well behind more recent trade agreements).17 Certain options building upon NAFTA, such as a possible North American Investment Fund under the auspices of the World Bank, could provide much-needed funding for U.S. infrastructure through the North American Development Bank.18 All these measures would not only strengthen the United States at home and thus improve its power projection capabilities but also ensure that America’s neighborhood is stable and prosperous rather than an uncertain diversion from the indispensable U.S. role in the world.
POLICY PRESCRIPTION 9
Construct a geoeconomic policy to deal with China over the long term.
America’s economic pivot to the Asia-Pacific has lagged behind our diplomatic and military investments. But more than any other region, economics is the coin of the realm in Asia. As we now work out the content of the rebalancing, our strategy must change to reflect this basic reality. Finishing the TPP is an indispensable element of this challenge, but too often TPP is couched in almost valedictory terms—touted as a “centerpiece” of America’s renewed regional presence. It needs to be construed and communicated, both in Washington and in the region, as more an opening act than a finale.
Washington should also outline clear, credible security parameters for resolving maritime and territorial disputes. Secretary Clinton drew praise from Republicans and Democrats alike for inserting the United States into the maritime disputes in the South and East China Seas, outlining a code of conduct but not taking a position on the disputes themselves (as Clinton asserted in 2012, “No party should take any steps that would increase tensions or do anything that would be viewed as coercive or intimidating”).19
But America’s more recent lack of focus on the region has undone this momentum, inviting escalations by an increasingly aggressive Chinese leadership. As scholars have rightly noted, China continues to work to “Finlandize” Southeast Asia, allowing regional governments to “maintain nominal independence but in the end abide by foreign policy rules set by Beijing.”20 China has heightened its use of geoeconomic incentives, both in its neighborhood and beyond, with the goal of increasing the stake other countries have in maintaining good relations with China.21 Little has been done—in Washington or elsewhere—to check China’s geoeconomic influence.22
To help give teeth to the current principles for resolving the region’s territorial disputes, the United States should build on recent warnings against the use of force, and make clear to Beijing that economic coercion, too, will have negative consequences. The United States should work to fortify countries, from Japan to India, against economic coercion—identifying their leading vulnerabilities and assisting with resiliency and diversification efforts to plug these exposures, as well as developing a policy across U.S. treaty allies in the region to ensure that if one ally suffers economic coercion, another doesn’t take advantage by filling in behind.
There are at least some promising data points. Some experts have looked at regional instances where countries on China’s periphery have realized their vulnerability to Chinese geoeconomic manipulation and have developed targeted policy responses. There is frequent discussion of the vulnerability of democracies versus nondemocracies to geoeconomic influence; Hufbauer, Schott, Elliot, and Oegg argue that democracies are fundamentally more susceptible to economic pressure than autocracies.23 Thus for democracies on China’s periphery, as is the case with democracies elsewhere around the world, there remain several frequently discussed geoeconomic defensive policy options: trading with a third party, import-substitution policy, or smuggling and resource conservation programming.24 What remains missing in these discussions, though, is how a democracy adequately mobilizes a populace and private sector it often cannot compel.25
At the same time, we should outline collaborative approaches to Beijing’s two largest sources of anxiety: securing China’s energy needs in exchange for a PRC foreign policy that abandons its recent aggressive streak and returns to a more moderate posture, and assisting with its transition to domestic consumption.26
POLICY PRESCRIPTION 10
In another aspect of rebalancing to Asia, the United States should make geoeconomic investments in India’s emergence as a Pacific power.
The last two U.S. administrations have rightly noted that the relationship between India and the United States is one of the defining partnerships of the twenty-first century. Washington has demonstrated commitments to help India graduate into the ranks of global actors—backing India’s bid for UN Security Council membership; supporting the four multilateral nonproliferation regimes; deepening defense cooperation, including in the Indian Ocean; initiating a trilateral strategic dialogue with India and Japan; and enhancing our coordination with India in the East Asia Summit, the Asian Regional Forum, the ASEAN Defence Ministers’ Meeting (ADMM-Plus), and other Asia security forums. Washington has launched all these initiatives despite the troubling fact that India is arguably the most difficult country in the world on the subject of trade. One hopes that under Prime Minister Modi this may eventually change.
Nevertheless, U.S. efforts to anchor India as part of a broader Indo-Pacific theater make sense for several reasons—they help reinforce Asia’s current stabilizing balance of power, and they offer ASEAN states a crucial means of diversifying their economic and security relationships. But so far, U.S. efforts have focused primarily on security dimensions. Washington needs to make similar investments on the geoeconomic side, especially when nearly every major U.S. initiative from Central Asia to the Pacific relies on India’s continued growth trajectory and cooperation: the U.S. New Silk Road vision (quite separate from China’s “One Belt, One Road” initiative which also stretches into Central Asia, and, as such, is sometimes referred to as China’s New Silk Road) seeks to tie Afghanistan’s future stability to the markets and values of India, and the Indo-Pacific Economic Corridor concept and the U.S. Expanded Economic Engagement with ASEAN seek to do the same for our partners in Southeast and East Asia. In this context, the United States should continue support for Indian infrastructure projects, building upon the Infrastructure Collaboration Platform agreed to by President Obama and Prime Minister Modi.27
With so much staked on an India that is growing economically and engaged regionally, supporting India in its bid for greater multilateral clout—backing New Delhi in its long-running desire to join the Asia-Pacific Economic Cooperation (APEC), for instance—would seem a minimum ante for the United States. We should also elevate our own economic engagement with India by launching a study group akin to the effort that laid the groundwork for the U.S.-EU trade agreement. The final pillar of U.S.-India strategy should be a maturing of the Indo-Pacific Economic Corridor. This vision of an economic corridor powered by new energy and transportation infrastructure would undermine Myanmar’s economic dependence on China and offer an answer to Beijing’s plans for its own corridor from the Indian Ocean to southern China.
Additional recommendations for the U.S.-India geoeconomic relationship could begin with a look at the use of collaborative development funds abroad.28 India is the top assistance power in its region; perhaps it is worth examining the potential for collaboration with the United States on aid to other countries of geopolitical importance. U.S. administrations should also not rule out the use of infrastructure development, modeling any such initiatives after Japan’s overseas development fund for India. India lacks the capital markets that would make it even more economically attractive, a gap the United States should be instrumental in helping to fill.
POLICY PRESCRIPTION 11
Construct a geoeconomic policy to deal with Russia over the long term.
One of the central truisms shared across virtually all schools of international relations theory holds that it is dangerous to reduce analysis of a country to the personhood of its leader. If there is an exception to prove this ru
le, it is found in Vladimir Putin’s Russia, where Putin is the best lens for understanding and predicting the country’s behavior. Many longtime Russia followers consider force and threats of force to be the only languages Putin reliably understands—and certainly there is much in the empirical record, much of it supplied by Mr. Putin himself, to support that view.29
Undoubtedly, Putin’s Russia is a case where a more robust geoeconomic approach by Washington and its European counterparts would require the backing of conventional military power in NATO. And happily, if slowly, the United States and the European Union are rallying a meaningful response to Russian aggression through NATO, centered in a new rapid reaction force expected in 2016 (a prototype of which became operational in January 2015).30 These NATO measures, together with intensive U.S.-EU efforts around sanctions, have formed the bulk of the U.S. response. Given the nature of the challenges presented, however—German chancellor Angela Merkel and President Obama were quite correct that there are no military solutions to these problems—and indeed the heavily geoeconomic strategy that President Putin has himself employed since his 2012 return to power, a narrow focus on military power and sanctions is not sufficient.
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