The decision by the United States Federal Reserve to raise interest rates is newsworthy, and not only for this month. The US economy is at last recovering — with some sturdiness, even if not strongly. This marker can be seen in a longer trajectory.
Keeping rates to a historical low was key to responding to the global financial crisis. A graduated return to more normal rates can be read as an exit from a near decade of unorthodox responses and uncertainties that followed the crisis.
We may be at the end of something, though neither easily nor without anxieties. There is, moreover, no return to the pre-crisis past. Then, globalisation and growth was enjoyed by most with relative stability, built on the basis of American supremacy.
Today, despite America’s positive signs, the world lacks a strong engine. Economic doldrums, moreover, have come together uncomfortably with political shocks. Look at Europe.
The region has veered from one crisis to another, coming back from the brink — but still without solution. Add then the horror of the attacks on Paris — the worst suffered by a major capital since 9/11. Factor in the Syrian conflict too.
This year witnessed hundreds of thousand migrants making a fraught journey across the continent in search of a safer future. How to respond to their plight has divided opinions across both geographic and ideological lines. Europe’s essential leader, Angela Merkel of Germany, is weaker as a result.
Many more millions of refugees wait in neighbouring Middle Eastern countries and Turkey. The US and its allies are also brought into this tense arena with Russia. Already, Turkey has downed a Russian jet that entered its airspace. More broadly, anxieties grow about the intentions of President Vladimir Putin’s Russia, post Crimea.
These events may seem far away but Asia is not immune. Terrorist networks are not contained within borders. Financial flows and our economies too are interdependent and relentlessly borderless. There are also questions about American capacity to fully engage the region when so much elsewhere commands its urgent attention.
What we have come to learn in 2015 is that Asia is not ready to go ahead without the US. Economically, countries that soared ahead in the past decade, such as China, have since slowed and shown frailties. Further shocks may await if the US rates prompt more capital to exit emerging regional markets.
Uncertainties multiply when we consider that financial policies and rates in Europe and Japan remain low and loose while China navigates between slowing growth and the need for reform. In these major economies, different and significant policy decisions are being taken, yet each is fluid and uncoordinated.
This region has also experienced a rise in strategic and security tensions. For much of the year, the spotlight harshened on the competing claims to the South China Sea. More generally, as 2015 marked the 70th anniversary of the end of World War II, unsettled ghosts have haunted relations, especially between China and Japan.
In the not so distant past, there would have been a single and accepted answer to these questions of growth and stability — and the region could look to the US to assure and, if necessary, intervene.
This continues in part but there are signs of coming change. Since the global financial crisis, others have narrowed the gap and it is now conceivable that China will emerge as the main player in the region. Two markers in 2015 provide evidence of this: The birth of the Asian Infrastructure Investment Bank (AIIB) and events in the South China Sea.
The US stayed out of the AIIB and reportedly asked its allies to follow suit.
Yet, the vast majority of Asians joined — not because of love for Beijing but in recognition of a real need to finance infrastructure development. The final sting to American diplomacy came from the United Kingdom, which has for so long claimed a special relationship with Washington.
The UK signed onto the AIIB and hastened the decision among many other Europeans. Moreover, the David Cameron government this year bald- facedly courted President Xi Jinping during his visit to the country.
The UK is not alone. China’s economic clout, despite slowing growth, is now something no one can ignore and most will seek to benefit from.
Beijing’s political intentions remain controversial, especially over claims in the South China Sea. Alarm bells have sounded, and the American response has shifted. When China and Vietnam were in a push-and-shove last year, there was near inaction from Washington. But this year, much effort was expended to bring up the issue, even at China’s discomfort.
Beyond words, the US undertook a “freedom of navigation” patrol into disputed waters. On economic engagement with the region, the US with Japan finally pushed through negotiations for the Trans Pacific Partnership to deepen economic integration with 10 other countries, excluding China.
The US-China competition is not like the Cold War, given their interdependence. But it is real and, even as the world struggles with economic and political challenges, there is no accepted global leadership. There is instead growing contention and assertion — which also involves Japan, Europe and Russia.
The global and regional order is under pressure and is changing. But the shape of the future and pace of change remains uncertain. China and Asia’s rise is not inevitable, as China’s slowing growth shows. Nor should we underestimate America’s ability to recover.
In a world hunting for growth, an American economic recovery is to be welcome. Yet, what is good for the US may no longer automatically and without reservation be good for the rest. Economic recovery coupled with an American reassertion of supremacy may no longer be acceptable to all and instead trigger more contention.
Smaller countries cannot directly control what these major powers do and yet will be affected. This is especially for those in Asia.
Proximate to China’s growth and with American “rebalancing” to the region, Asians must consider how they can and must respond.
ABOUT THE AUTHOR:
Simon Tay is chairman of the Singapore Institute of International Affairs, an independent and leading think tank in Asia, and Associate Professor of the National University of Singapore Law School. This is the first of a two-part commentary, to be followed by a look ahead to 2016 for ASEAN. This article was originally published in TODAY on 30 Dec 2015 and was also featured by The Malaysian Insider on 1 Jan 2015.
Photo Credit: Federal Reserve Bank, United States Government
