Asia's problem a thorn in American global power

Asia's problem a thorn in American global power

By John Gray

LONDON: Asia's gathering depression is opening up widening cracks in American global power. Wall Street views Asia's crisis as the fire sale of the century -- a once-in-a-lifetime opportunity to buy up sizable chunks of its economies. It expects the crisis to end with the spread of the free market throughout Asia and a continuation of America's spectacular boom.

In reality, the U.S. is deeply vulnerable to worsening economic conditions in Asia and control of events is shifting to the Asian countries themselves. Far from inaugurating an era of American hegemony, the Asian depression may come to be seen as heralding its close.

The shift in relative power is well illustrated by President Clinton's current nine-day visit to China. Many purposes have been advertised for Clinton's trip, but its overriding objective must now be to forestall another devaluation of the Chinese currency.

Such a move by the Chinese government would have incalculably destabilising implications for the world economy. It could plunge the rest of Asia into a vortex of competitive devaluation and trigger a protectionist backlash in the U.S. Yet, though it appears to have succeeded in extracting an assurance from the Chinese government that it will not devalue, there is in truth very little the U.S. can do to stop it.

If China devalues it will be in order to stave off the risk of domestic unrest. China's rulers must have watched events in Indonesia with considerable interest and not a little foreboding. The fall of the Soeharto regime has shown them that even a long- standing authoritarian regime can be toppled suddenly by economic crisis.

With the privatization of state enterprises about to result in a shake-out of tens of millions of workers and the economy showing ominous signs of deflation, China's government will do everything in its power to prevent the numbers of jobless spiraling out of control.

No inducement that President Clinton can offer as he arrives bearing tributes in Beijing can match the threat to the survival of its rulers posed by rising unemployment.

The U.S. lacks the means to prevent a Chinese devaluation. But this is only a particular example of a more general truth. America can no longer dictate the policies of other sovereign states as it and the USSR did, with varying success, during the cold war.

The international system has become too anarchic for any state to be able to act as a superpower. Despite President Clinton's anguished pleas and the threat of economic sanctions, the U.S. has not been able to stop nuclear proliferation on the Indian subcontinent. Even America's leverage over economic policy in Japan is quite limited. If China devalues there will be little the U.S. can do to stop Japan letting the yen slide.

Asia's crisis shows how narrow are the limits of American power. Yet these limits are largely not noticed, or denied, in the U.S. American public opinion has not yet perceived any threat to the country's prosperity in the Asian meltdown.

Led by Wall Street, it sees Asia's crisis as proof of America's triumph. Indeed it is partly this faith that sustains America's booming markets. Wall Street's sky-high share prices have come to embody the American faith that the U.S. is exempt from history.

When that illusion is punctured by the knock-on effect of depression in Asia, American markets could suffer an historic rout.

Where does this leave Britain? Waning American power points towards deeper British integration in Europe. In stabler times Britain's dithering about EMU might be defensible. When the world economy is at risk it is reckless. The next leg of the Asian crisis could have a sharply recessionary impact on the British economy.

To wait on events is not sensible. The British government should make an unequivocal declaration of its intention to join the single currency. The euro zone faces some formidable problems and it cannot hope to insulate itself from global markets. But it will be a safer place to be when the U.S. bubble bursts.

-- Observer News Service