The case for American engagement in Asia: the Australian perspective

Asia Foundation, San Francisco

Speech, check against delivery, E&OE

15 September 2011

Recent decades have given us a taste of what peace means.

These decades have not been without conflict, but more and more, nations have seen the benefits that come from peaceful economic development.

The Asia Foundation’s goal of a peaceful, prosperous and open Asia-Pacific has been slowly taking shape over the past decades, as democracy and economic development have spread through the region.

But as we’ve been reminded again in recent days, a decade on from September 11, even in a time of peace, we need to remain vigilant.

ECONOMIC CHANGES

Today, in a time of rapid change, we’re witnessing unprecedented shifts in global economic power — shifts that ask us to look again at our peace, to ask what this generation can do to keep building that peace.

Economic power is shifting to Asia, not gradually, but dramatically, on a scale measured in months and years.

Let me say at the outset that for Australia, the economic growth in Asia does not detract from our crucial economic relationship with the United States.

Investment between us is now at $960 billion, dwarfing, by way of comparison, the mutual investment between Australia and China which stands at $31 billion.

Direct Australian investment in the US increased each year through the recession, to a point where some 9,000 Australian companies, including small, high-tech enterprises, now do business across the United States.

Some large entities operating in the US are Australian: look at Westfield, the largest American shopping centre owner.

Australia is an emerging energy superpower.

We’re the largest coal exporter.

When the Olympic Dam expansion is finished, we’ll be the largest uranium exporter. And we are a major exporter of energy.

US companies are key partners for Australia.

Looking ahead a decade, given the investments Conoco-Phillips and Chevron have on their books, we will likely be the world’s largest exporter of LNG.

America will remain a key economic partner for Australia for as long as any of us will be around.

But we also need to recognize that the global shift in economic weight is real.

At the turn of the century, China was a mere 3.7 per cent of global GDP. India was less than half that.

Within the next five years, those two countries alone will account for 15 per cent of the global economy — a trend that will magnify over coming decades.

Consider this: 9 of the 10 busiest seaports are in or on the edge of Asia: Singapore, Shanghai, Hong Kong, Shenzhen, Busan, Guangzhou, Dubai, Ningbo, Qingdao.

Rotterdam clings on, as the 10th busiest seaport in the world: the only remaining entrant from North America and Europe.

The Asian share of total global goods and services exports is continuing to grow: from 25.7 per cent in 2000 to 30.3 per cent in 2010.

Capital is flowing in new ways, too.

Asian countries held 16.6 per cent of global foreign exchange reserves in 2001. Now they hold 39 per cent.

China’s foreign exchange reserves stand at US$3.2 trillion — about 50 per cent of its GDP.

This is the greatest ever accumulation of foreign exchange reserves in economic history.

Sovereign wealth funds from China, Korea, Singapore and the Gulf, among others, have become major investment and acquisition players in the past decade.

Money is both flowing into and out of Asia in unprecedented quantities.

US direct investment stock in China has jumped nearly 6-fold in the decade to 2010, an annual trend growth of 21 per cent.

US investment in India has gone up even faster — a more than 10-fold increase, 28 per cent a year.

The G7’s share of total global inward FDI has fallen from 57.3 per cent in 2000 to 38.3 per cent last year, as the Asian share has risen.

The G7’s share of outward FDI has fallen too, from 72.3 per cent to 55.9 per cent.

The clear strategic shift we are seeing is Asia’s re-emergence as the major global economic force after an interruption of 200 years.

According to OECD estimates, Asia was 65 per cent of the global economy in the year 1500.

After 1820, as the West industrialised, that share fell dramatically.

It bottomed out at 18.5 per cent in the days after World War II.

Today, the same figures put Asia at 41.8 per cent of the world economy, and growing — the highest level since the mid-1800s.

As economic weight shifts to Asia, the strategic centre of gravity is shifting from the Atlantic to the Pacific and Indian Oceans.

The deep shifts in the prevailing power relativities are as profound as any over the past 150 years, when America surpassed Britain as the world’s largest economy.

They are profound because they are altering the way nations see themselves and the way they act on the international stage.

Asia is becoming more confident about how it wields its new-found economic influence around the world.

This was becoming true even before Lehman Brothers fell, but the financial crisis has accelerated the change, as emerging economies find their feet faster than the developed world.

It goes without saying that China and India are the main drivers of the new ascendancy.

China's economic miracle has been a profound transformation, and has deservedly won the world's attention.

Putting China and India in the same breath in many ways obscures the differences between their economies, but India has also enjoyed strong and sustained growth, and has bounced back fast from the economic crisis.

Its young and growing population is one of its great strengths.

Other nations in the region continue to be major factors in the global economy too.

Japan, of course, remains one of the biggest economies in the world, and Korea will continue to grow strongly.

Behind these giants, there is another tier of emerging economies that aren't in the press to the same degree, but who have been through great reforms and are reaping the benefits of those policy decisions now: Indonesia, Vietnam, Thailand and potentially the Philippines.

The Gulf states — with their significant capital stocks — will also play an important strategic role in the future of the global financial system.

What's critical about the transformations taking place in Asia is that they are not just about emerging countries gaining economic strength, relative to other players.

Their very societies are changing, as greater incomes flow to Asia's burgeoning middle class, which is set to outnumber that in the rest of the world within the decade.

Indonesia, Malaysia, Thailand — even Cambodia could have a significant middle class by 2030.

Indonesia's could be 50 million strong.

As a group of nations, ASEAN is going to be an even more significant player than it has been to date.

The political, economic and cultural implications of a newly-empowered Asia will be profound, as new ideas and new energy transform our world.

THE GEO-STRATEGIC RAMIFICATIONS

But as nations change, so too do relations between nations.

The emergence of new powers inevitably brings new strategic complexity, as the power relativities of the 20th century give way to the new ones.

Asia will be vulnerable to a host of strategic uncertainties, arising from the need for new powers to integrate into the global economic and political order, and for the established powers to accommodate them.

The potential for misunderstanding — and the consequences of miscalculation — is also vast.

Tensions like those we see in the South China Sea, the East China Sea, the Korean Peninsula and the Persian Gulf may become even more difficult to manage.

Make no mistake: these aren’t just regional problems.

Questions about the future of the South China Sea touch on every regional country’s future, given their global strategic and economic significance.

This theme isn't new, but what I can tell you about this strategic shift is that we — Australia and the United States — will face it as allies.

Sure, there is the possibility of instability in our region.

But we've faced the possibility of conflict — and actual conflict — together in the past.

Many different tests, circumstances and challenges have put the acid to our alliance since the ANZUS treaty was signed, 60 years ago.

We've been reminded again that the only time the ANZUS treaty has been formally invoked was ten years ago this week — in response to the attacks on September 11.

But military and intelligence cooperation with the US continues across a wide range of theatres within the framework of the Alliance.

Here in San Francisco — where the ANZUS treaty was signed, all those years ago — I'm reminded that Australian and American servicemen and women have fought, flown, sailed and — I'm reliably informed — surfed together since the Pacific War.

Today, that Alliance continues to grow in meaning and intensity.

We are fighting together in Afghanistan; working together against global threats like piracy; and responding together to natural disasters across the region.

For us, for our relationship, the end of the Cold War hasn’t meant a downgrading of the importance of our Alliance — if anything, it’s become more intense and more important.

So as we face the challenges of the 21st Century — the challenges of the shift of power to Asia — we will do so together.

We’re working together to ensure our forces are aligned in the right way to provide for the national security of our two countries, and to help us shape the emerging regional environment.

Our forces have to be able to respond to the range of contingencies that can arise in our region, including humanitarian assistance and disaster relief.

Increasingly, we aren’t just working with each other, but with other regional players.

I'm not just talking about the Pacific, or the Asia-Pacific.

The critical region for our future now extends to include the Indian Ocean as well.

The growing strategic importance of the Indian Ocean starts with India's rise.

India is the largest democracy in the world.

Forecast to be the third largest economy in the world in coming decades, it is in the interest of both the United States and Australia for India to play the role of a major international power.

For now, India’s focus remains South Asia.

But its strategic weight is increasing with its increasing economic size and strength.

India is increasingly looking east with interest, both for strategic and economic reasons, and because of long-standing cultural connections.

But the importance of the Indian Ocean also lies in its unique role in maritime security and sea lines of communication for a much larger group of economies, both in Europe and Asia.

Lying between the Middle East energy sources and the dynamic global engine room of Asia, its importance grows with each passing year.

The pressures on the Gulf and West Indian Ocean choke points will intensify, as India grows and East Asian centres of growth remain reliant on Gulf energy and African resources.

In the 21st Century, questions of resource, energy and food security are becoming more vital than ever.

As Robert Kaplan says, the Indian Ocean is once again at the heart of the world, as it was in ancient and medieval times.

THE ROLE OF THE UNITED STATES

The United States has been a guarantor of security and economic prosperity in the Asia-Pacific for decades. 

But the 21st Century will demand more.

As the world changes, it's even more critical that the US builds its engagement with our region.

As the United States transitions back from tough and unforgiving wars in Iraq and Afghanistan, it might seem tempting to resist the case for further international engagement.

President Obama has already rightly intensified US involvement with East Asia.

It remains the case, in one way or another, that the United States is vital in solving common problems collectively.

No other power is able or willing to support essential global public goods — like the free movement of trade, capital and people around the world.

Sea-lane security, regional security in critical regions like the Gulf, open markets, the reserve currency, deep and liquid capital markets — who else provides these global public goods?

America has faced these questions before.

On the eve of entry into World War II, Henry Luce's seminal editorial in Life magazine on the American Century was much more than a statement about relative power, as America assumed its position in the new order.

It was a call for American leadership in international affairs.

It is in America’s interest and the world’s interest to provide that leadership — because in its absence, the risks grow that we will see destabilisation that threatens us all.

The interdependence of our economies has been shown clearly by the financial crisis, and a collapse in the conditions for open trade would be an economic disaster for all trading nations.

I share President Obama's view that America can neither retreat from "responsibility as an anchor of global security" nor "confront... every evil that can be found abroad".

But President Obama talked of the need for a "more centered course" — and that lies in a deep US engagement in Asia.

I believe the vast majority of the countries of Asia welcome that continued and expanded American strategic role in our hemisphere.

As Indonesia’s President Yudhoyono said in November 2008, as the financial crisis was wreaking havoc upon us, “none of these global challenges can be addressed by the world community without having America onboard. And conversely, none of these issues can be resolved by the United States alone.”

And as Lee Kuan Yew said a year later, “the consensus in ASEAN is that the US remains irreplaceable in East Asia.”

In the 21st Century, the US needs substantial, sophisticated, nimble engagement in the region.

This will be a century of variable geometry, where America's role will evolve as geostrategic realities shift.

This will require the full set of the instruments of state power: diplomacy, aid, military capabilities, support for open markets, resistance to mercantilism.

The challenges facing American statecraft are formidable.

Now is not the time for America to begin to convey the idea to the world that the US is turning inward.

President Obama has observed that America needs to put its economic house in order.

Current US difficulties — the challenge of restoring balance to the budget, the cross-aisle fights that have played out in recent months — are legitimate political questions.

They are important questions, about how to get people back to work, how to get the economy moving again, how best to allocate your resources.

But it is important that they not be allowed to signal change to the fundamental reality that the US is an economic, military, technological and political superpower.

The drawdown of US forces in Afghanistan, like the earlier return from Iraq, represent a refocusing of US assets as those tasks make a transition and other priorities emerge.

The US remains the pillar of the global economy and security, the only power than can prosecute both.

As Vice-President Biden said during his recent visit to China: “No-one has ever won betting against the US economy.”

The US market still has the power to affect us all, even the dynamic economies of India and China, as well as emerging countries like South Africa, Brazil, and Indonesia.

The role the US has played in events this year in Egypt, Tunisia, Syria and Libya was another demonstration of the importance of US international engagement — and the rewards it can bring.

It is now imperative to intensify focus on the Asia-Pacific and the Indian Ocean, so that the strategic stability underpinning long term economic growth can be sustained into the future.

This is the stuff of great power politics: leadership that doesn’t just deal with today’s exigencies, but looks decades and more into the future.

America did this with the Marshall Plan.

America did this with containment of the Soviet Union.

America did this with the opening to China.

And America must continue to do this into the future.

The United States for example doesn’t need to make a choice between the Middle East and Asia.

The US will always have vital interests in the Middle East.

The Middle East Peace Process remains an issue of enduring importance, and America’s support of economic and political institutions that align with its values will continue to see the spread of democracy.

But American policy attention also needs to fully embrace the deep changes underway across Asia, the Pacific and the Indian Oceans.

The US has already begun that pivot.

The Indian Ocean will be part of that transition.

President Obama has recognised how important this shift is, which is why he’s made such a priority of Asia.

As I’ve been saying to European colleagues in recent months, Asia is a dynamic market — but it’s also a dynamic strategic environment.

And the truth is that long term global stability and prosperity in the 21st century will be shaped in large part by the maintenance of strategic stability and prosperity in Asia.

And that is why American leadership in Asia is more important now than at any time since the Second World War.

THE REGIONAL RESPONSE

Governments across the region are keenly aware of the great changes taking place and are working to ensure stability in the years and decades ahead.

November’s East Asia Summit is a step on that road.

In Asia, we don’t have the strong institutional mechanisms that the West now takes for granted, themselves born out of great challenges of the past.

Our region clearly needs a new kind of architecture.

Other models, no matter how useful they have been in the contexts in which they’ve evolved, are relevant to other regions of the world, to other traditions.

We’re inventing something new here.

The road to the regional architecture we need is going to be a long and winding one.

In the 21st Century, building a common security culture has become ever more important.

With such a high diversity of cultures, political systems and historical experiences, Asia has chronically under-developed security arrangements.

Fixing this is a task of truly global significance, not just something that will be good for our region.

That’s why we’ve argued, since taking office in 2007, for the importance of a pan-regional institution, what we called an Asia Pacific community.

We need the right tools to deal collectively with the range of traditional and new-found security issues that confront the region: the proliferation of nuclear weapons, maritime security, climate change and resource security.

The practices of consultation, cooperation and dialogue can help address security challenges as they arise — excising or minimising their scope before they fester into wider problems.

ASEAN has already been the region’s great success story.

Consider those countries four decades ago: a series of states who often found themselves in conflict with each other.

Now, economic integration, stability and prosperity are the norm across the bloc — as income has flowed, so has peace.

Through ASEAN, an extraordinary thing has happened over the past four decades: a series of competitive states has been brought together on a common playing field, where the rules, benefits and costs of working together have been more explicit.

ASEAN was established partly as a bulwark against destabilising outside competition, and it remains a cornerstone in our effort to build economic integration, stability and prosperity.

Across the wider Asia Pacific region, the shape of the pan regional institutions we need is beginning to emerge.

With the US to take part in the EAS in November, as well as Russia, that forum now has the right membership and mandate to tackle the range of economic, social, political and security challenges we face.

Now that the US will play a part in the EAS, it becomes critical to build the political security agenda of that body, and to strengthen its role in encouraging economic integration.

Here is an opportunity to address challenges like natural disasters and the effects of climate change.

We need to strengthen the institutional structures of the EAS, and build links between it and other critical regional forums like the ASEAN Regional Forum, and the ASEAN Defence Ministers’ Meeting Plus.

US involvement in EAS signals an American determination to remain engaged in our region — and to play a leadership role in the region’s future.

US co-operation in our region — with all the members of the East Asia Summit — is one way the US exercises leadership, to promote normative behaviour, cooperative actions and peaceful settlement of disputes.

By promoting a rules-based global order, by increasing the security transparency and building on the economic interdependence between the US and the region, particularly with China, we’ll deepen political trust and military-to-military confidence.

The long, difficult process of building the right security architecture for our region can only succeed with strong US involvement, with China, India, Japan, Indonesia and all the regional players.

The US needs to underwrite this process, with its military capability, diplomatic muscle and sense of fairness.

This is a task we — as an alliance — can see through.

The EAS is the next opportunity for us to provide leadership.

We can work together more on maritime security, and disaster response.

In responding to any crisis, the first 48 hours is critical, getting people and supplies to where they are needed is the challenge.

When the March 11 disasters struck Japan, the sea and airlift capabilities of the US Pacific Command and the dedication of its people made a crucial difference.

My overall point is this: Without continuing, substantial US engagement in the region, the world will become a more dangerous place.

The US has already made huge efforts — with positive results — in becoming more engaged in the region over past years.

We need that US presence to continue to grow, to provide a predictable, stable and open environment in Asia.

Only if the US is actively involved in the diplomacy of the region will we have a secure future.

Following US military drawdown in Iraq and Afghanistan, Congress may be tempted to return those capabilities to the continental US or render them as savings to the budget.

We in Australia understand these pressures.

But as a friend and ally of the United States, we would caution against such courses of action.

To do so would be to not fully engage in helping shape the Asia Pacific Century — the great global, strategic and economic phenomenon of our time where US leadership is essential.

CONCLUSION

The challenge for us all is great — a truly Pacific Century or the slow, steady decline into conflict and the collapse of open markets.

And for this challenge to be properly met, strong American leadership and capabilities into the future are essential.

Thank you.

END

Media enquiries

  • Minister's office: (02) 6277 7500
  • DFAT Media Liaison: (02) 6261 1555