Washington's Eastern Sunset

The Decline of U.S. Power in Northeast Asia

Jason T. Shaplen and James Laney

From Foreign Affairs, November/December 2007

Summary:  After 60 years of U.S. domination, the balance of power in Northeast Asia is shifting. The United States is in relative decline, China is on the rise, and Japan and South Korea are in flux. To maintain U.S. power in the region, Washington must identify the trends shaping this transition and embrace new tools and regimes that broaden the United States' power base.

JASON T. SHAPLEN, a Policy Adviser at the Korean Peninsula Energy Development Organization from 1995 to 1999, is a Director at the nonpro?t organization Project Renewal. JAMES LANEY, U.S. Ambassador to South Korea from 1993 to 1997, is President Emeritus of Emory University.

Northeast Asia is in transition. After 60 years of U.S. domination, the balance of power in the region is shifting. The United States is in relative decline, China is on the ascent, and Japan and South Korea are in flux. The implications for Washington are profound: Northeast Asia is home to three of the world's 11 largest economies and three of its four largest standing armies.

For the past half century, the United States has relied almost exclusively on bilateral alliances to promote its interests in the area. But these are now under assault and will no longer provide a sufficient foundation for U.S. policy in the future. The forces driving the region's transformation are complex and include economic, security, demographic, and nationalist components. To maximize its influence going forward, Washington must acknowledge that the transition is inevitable, identify the trends shaping it, and embrace new tools and regimes that broaden the base the United States relies on to project power. With so many variables at play simultaneously, this will not be an easy task. The next five to ten years are critical. They will set the stage for the next half century or longer.

TRADING PLACES

The United States has dominated Northeast Asia economically since the end of World War II, gaining support for its policies there with trade and aid. Today, however, the United States is no longer as powerful; it now shares the stage with China.

In 2007, China's trade with Japan, the world's second-largest economy, surpassed U.S. trade with Japan for the first time since World War II. Similarly, in 2004 China replaced the United States as South Korea's largest trading partner. (In 1991, one year before it normalized relations with South Korea, China accounted for just over one percent of South Korea's exports, compared with 26 percent for the United States. By 2006, China accounted for almost 22 percent and the United States for just 15 percent.) Even if the recently negotiated U.S.-South Korean free-trade agreement is ratified, it will not return the United States to the top spot.

This decline in U.S. economic influence does not reflect a decline in actual trade between the United States and its Northeast Asian partners; that has grown impressively in absolute numbers. Rather, it is a decline relative to China's economic resurgence. Adjusted for purchasing-power parity, China's share of global GDP has grown from less than five percent in 1980 to approximately 16 percent today; by this measure, China ranks second only to the United States. Similarly, China's exports have surged from just over $150 billion in 1996 to almost $1 trillion in 2006, a five-and-a-half-fold increase.

To be sure, China's economic growth has some qualifiers attached to it. China needs to achieve an annual growth rate of about seven percent just to create enough jobs for the people entering its work force each year. Failure to grow at this pace would lead to increased joblessness and possibly domestic turmoil. China's growing stature as a trading power must also be qualified. As a recent Council on Foreign Relations task-force report on U.S.-Chinese relations noted, approximately 65 percent of the value of China's exports to the United States is accounted for by the raw materials, parts, and goods that China imports from other Asian nations.

Notwithstanding these factors, China's economic rise has altered the balance of power in Northeast Asia, with both negative and positive implications. From the United States' perspective, China's ascendance is a double-edged sword. On the positive side, U.S.-Chinese trade grew from $64 billion in 1996 to $343 billion in 2006, and U.S. GDP is 0.6 percent higher today than it otherwise would be as a result of trade and investment with China since 2001. In the past decade, U.S. exports to China have increased from just $12 billion to almost $55 billion -- an amount that exceeds U.S. exports to Argentina, France, Italy, Russia, and Spain combined. In fact, China is the fourth-largest market for U.S. exports and this year could surpass Japan as the third-largest. Finally, China has become the largest source of U.S. imports. Although the trade gap between the two countries (which amounted to $233 billion in 2006) is a major concern in Washington, cheap goods from China have helped keep a lid on prices for U.S. consumers.

On the negative side, China's economic ascendance means that an important lever of U.S. influence in Northeast Asia has been greatly weakened. This is particularly true given South Korea's simultaneous and equally dramatic economic rise. Washington can no longer rely on its economic muscle to persuade Seoul to embrace U.S. policies. Beyond being the 11th-largest economy in the world and a major holder of U.S. debt, South Korea now trades more with China than with the United States. As a result, South Korea is less dependent on Washington today than at any time since the end of the Korean War, particularly given its increased military capability (which is directly tied to its economic standing and ability to buy weapons). This, in turn, has increased Seoul's geopolitical options in the region. In recent years, the South Korean government has demonstrated this newfound strength by vehemently opposing the hard-line approach toward North Korea advocated by the Bush administration.