The United States government has decided it can no longer afford to fight two land wars at the same time. You may have missed that little news item from last week. And if you didn't miss it, you'd probably agree that for a nation over $15 trillion in debt, it's going to be pretty hard to pay for two big land wars, much less fight them. But still, that little fact, and what it means for Australia, is the subject of today's Daily Reckoning.
We're referring to President Obama's vision of US defence strategy in the 21st century. The President went over the Pentagon unveiled the document. It's called Sustaining US Global Leadership: Priorities for 21st Century Defence. Australians interested in what the next twenty years of gradually weaker US military power will look like ought to have a read.
The relationship between Australia, the US, and China is the single most important topic for Australians for the next twenty years, we'd contend. Sure, Europe's current crisis is the most important issue THIS year. But in the bigger picture, the economic and military rivalry between the US and China, and Australia's uncomfortable place in the middle of it, is going to have the biggest impact on your investments.
Don't get us wrong. The US isn't giving up on Asia-Pacific as its military gets smaller. If anything, it's double down. Or in the words of the Defence review, it's "rebalancing." The review states, with our own emphasis added in bold, that:
U.S. economic and security interests are inextricably linked to developments in the arc extending from the Western Pacific and East Asia into the Indian Ocean region and South Asia, creating a mix of evolving challenges and opportunities. Accordingly, while the U.S. military will continue to contribute to security globally, we will of necessity rebalance toward the Asia-Pacific region. Our relationships with Asian allies and key partners are critical to the future stability and growth of the region. We will emphasize our existing alliances, which provide a vital foundation for Asia-Pacific security.
One of those existing alliances is America's alliance with Australia. The President actually repeated this in his remarks at the Pentagon. He said, "As I made clear in Australia, we will be strengthening our presence in the Asia Pacific, and budget reductions will not come at the expense of that critical region."
The Marines are coming to Darwin!
Does this mean the US views China as an economic threat? A military threat? An economic partner? Or all three? Here's what the review has to say, specifically about China:
The maintenance of peace, stability, the free flow of commerce, and of U.S. influence in this dynamic region will depend in part on an underlying balance of military capability and presence. Over the long term, China's emergence as a regional power will have the potential to affect the U.S. economy and our security in a variety of ways. Our two countries have a strong stake in peace and stability in East Asia and an interest in building a cooperative bilateral relationship. However, the growth of China's military power must be accompanied by greater clarity of its strategic intentions in order to avoid causing friction in the region.
It's nice to hear that the US is thinking in "cooperative bilateral" terms. It's not nice to think about a US military that's increasingly made up of drones loitering at 35,000 feet all over the world with permission to rain down extra-judicial death on anyone the President (any President) classifies as a potential future terrorist threat.
The Chinese, for their part, are not impressed. There's been no official reaction from Beijing. But a commentary published by the official State media outlet Xinhua reported:
The U.S. role, if fulfilled with a positive attitude and free from a Cold War-style zero-sum mentality, will not only be conducive to regional stability and prosperity, but be good for China, which needs a peaceful environment to continue its economic development.However, while boosting its military presence in the Asia-Pacific, the United States should abstain from flexing its muscles, as this won't help solve regional disputes. If the United States indiscreetly applies militarism in the region, it will be like a bull in a china shop, and endanger peace instead of enhancing regional stability...
Over the past decade, the United States fought wars in Afghanistan and Iraq, which cost thousands of lives and over 1 trillion dollars. The two wars became a heavy burden for the United States and caused a tremendous amount of suffering for the two Asian countries. History teaches us that military intervention can't usher in lasting peace and prosperity in another country.
The United States should learn from its past painful experiences and play a constructive role in the Asia-Pacific instead of recklessly practising militarism. After all, might does not always make right.
The full US defence review doesn't come out for a few more weeks. But the battle lines, so to speak, are already being drawn. The US isn't willing to quietly as a military power in Asia-Pacific. China wants room to grow. Australia occupies a unique place somewhere in the middle.
There are so many aspects to this issue - and so many investment opportunities and risks associated with it - that we've decided to dedicate two full days to discussing it in depth. Each of the five editors at Port Phillip Publishing, plus a handful of carefully invited keynote speakers, will spend two days in Sydney discussing the premise of investment life "After America" at the Intercontinental Hotel on March 15th and 16th.
We're not expecting everyone to agree with the idea that America's best days are behind it. But we are expecting a rollicking and thoughtful few days. And we're expecting you'll be able to walk away from the closed-door sessions with a better understanding of what's to come and what to do about it now. Stay tuned for more details later this week.
In the meantime, if you want to be notified as soon as the 350 tickets are released for sale, go here and enter your email address. We'll notify you directly the day the After America conference opens its doors to the public. Tomorrow, more on economic rivals who desperately need each other. Until then...
Dan Denning
for The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Ross on 9 January 2012:
This article is incomplete and needs a more rigorous historical perspective.
There are many ways to skin the cat or lift the veil on US imperial designs upon Asia.
That the US has long been pursuing an active policy of both encirclement and containment is beyond doubt.
To trace the continuity of such efforts it is best to look at the longest running campaign efforts.
So let's look at the long run campaign on Tibet from impeccable US academic sources
KENNETH J. CONBOY AND JAMES MORRISON'S "THE CIA'S SECRET WAR IN TIBET"
https://encrypted.google.com/url?sa=t&rct=j&q=%22feet%20to%20the%20fire%3A%20cia%20covert%20operations%20in%20indonesia%22&source=web&cd=10&ved=0CFsQFjAJ&url=http%3A%2F%2Fwww.agentura.ru%2Flibrary%2FTHECIA.doc&ei=hB2_TqH-OuitiAfQqdz2BA&usg=AFQjCNHDVs3X7ADwu2IdzhWkV1q3BcRCwA&cad=rja
Comment by Ross on 9 January 2012:
While Conroy and Morrison capture all the acts of "daring do" of the CIA's Khampa usefull idiots (those with long run records of being more into booze, smuggling, and crime than purist Bhuddism) and their handlers the story of the India-China conflict is essentially fallacious.
Even though the Soviets were soliciting closer ties with India, and their relationship with China had become increasingly troubled, they still, as acknowledged by Conroy and Morrison supported the Chinese version of events regarding the border hostilities.
Conroy and Morrison do identify the clique of Kashmiri Brahmin players around Nehru that were duplitious and courted by Galbraith (the elder - just as the younger tried sticking it to the Pakistan-Pashto and promoting the same effort of a US-India alliance line of hostility toward China that the Indians would in both cases eventually use to double crosss the US after achieving territorial expansionism and hegemony over corridors to Kabul. The double cross would only be seen after they achieved their long run "Mumbai to Moscow (M2M) objective.
This story is brought to life by Maxwell in his account of the same India-China border dispute and has been suggested by former Australian foreign affairs staffer Gregory Clark to have been India-US subterfuge that was essential element in Australia's accession to join the US's invasion of Vietnam. Note too Nehru's cooperation cohosting Taiwanese intelligence and CIA operations in forward listening positions in the Conroy and Morrison account.
The Maxwell piece is located here:
https://chinaindiaborderdispute.files.wordpress.com/2010/07/neville-maxwell-chinas-india-war.pdf
The expansion of offensively oriented and long range deployable assets and logistics support by the Indian military must also be recognised as a key security challenge for Australia in the medium term. India's first endeavours would not be to attack defensively postured China, especially since their anti ballistic missile capability is immature and their industrial capacity to fight a long head-on-head campaign lags. They would prefer to fight a proxy war targeting Chinese resource and energy inputs.
More pressing however would be any firm alliance between India and the US that sought to cut off China from middle east energy sources. India needs 10 years to achieve the asset pre-eminence its order book already identifies and does not want to antagonise the Russians so it will resist US efforts to trigger such a crisis before the US's own currently overwhelmingly supremity in its military asset register degrades as it settles into a new normal of tax receipts and debt serviceability.
The theatre of choice for India to later target China in a proxy conflict after the failure in Afghanistan and the Xingang-Uighur/Tibetan insurrections would be in the Indian Ocean facing countries and supply routes that their military doctrine already calls for Indian naval supremacy from the East Coast of Africa to the West Coast of Australia. China in efforts to safeguard its own energy supply trades has just opened a facility in the Seychelles and is now firmly established as the most important alliance partner of Pakistan, Sri Lanka and Iran.
Comment by citizen2000 on 9 January 2012:
China has threatened world war III if America strikes at Iran's nuclear facilities. No one else has threatened us with world war for the last two decades yet China is surprised that we would feel threatened by their rapidly modernizing military. But where are they getting all that new technology to modernize their military? From American universities and corporations. It would be a whole lot cheaper for the US government to tell our own people to stop helping China's military than it would be to research new weapons systems to defeat them. Read more at http://www.china-threat.com
Comment by mick on 10 January 2012:
Comment by citizen2000
[QUOTE]But where are they getting all that new technology to modernize their military? From American universities and corporations[/QUOTE]
Not really, America gives missiles to Israel to (cough)defend itself from the Iranian boogeyman, but then descretely sells them to China........
http://www.veteranstoday.com/2011/12/23/breaking-patriot-missiles-seized-sold-to-china-by-israel/
.......so America could be attacked with it's own weapons.
The irony of it all......
Comment by Ned S on 10 January 2012:
Anytime I hear Hillary Clinton say "America has hydrocarbon interests in the region", I think The poor buggers in that region. America is starting to annoy me very severely. Yoo hoo boys and girls, we've got a UN - And it's about time it started pulling the US into line rather than doing what the US tells it.
Comment by Stingy on 11 January 2012:
The priority of the US is to protect their hold on global oil and to maintain their petrodollar as the only currency in which it is traded. How much military do they actually need for that?
Recent conflict in Iraq and Libya is suspiciously linked to their respective Despot's choice of currency for oil trade.
In the case of Iraq they wanted to use Euros and this was no secret at the time. In the case of Libya it has been hinted that they wanted to use a new gold-backed currency shortly before the uprising began. The groups initiating the uprisings were eventually linked to the US and the CIA.
The level of global response in each case eluded to currency as well.
In the case of Iraq, because they chose Euros, Europe did not want to get involved because it would benefit the Euro of course. Any country wanting to buy Iraqi oil would need to purchase Euros, making them stronger.
In the case of Libya, their choice of currency would have hurt everyone, therefore everyone got involved.
Result - oil continues to be sold globally in US dollars.
What about Afghanistan? Afghanistan is a strategic location for trade between east and west and always has been, hence the number of attempts throughout history to take over that little piece of land.
I may be crazy, and my cat often tells me I am, but it is all about the oil.
Comment by Rocket on 11 January 2012:
Its all a waiting game for China. They would be happy to wait 100 years to dominate the world economy if need be. The USA on the other hand only have about 10 years to retain superiority.
Comment by Ned S on 13 January 2012:
Hate to be the one to break this news to you Citizen2000, but the fact that some Yank sometime invented something doesn't mean that any jobs that might flow from the invention are destined to go to Yanks. You got to compete for those jobs just like all the knuckledraggers from the rest of the world.
As to your statement that "China has threatened WWIII" - It obviously hasn't - BUT if America should ever cut off China's oil supplies it is obviously begging for WWIII. So I'd cordially ask your nation to not do that please.