Feral cats, beware

Asia Times

With the US government firmly on the back foot in Iraq and President George W Bush rendered a lame duck by a Democratic Congress, the end of the American century is approaching rather faster than previously expected. [1] My characterization of the United States as Garfield may have been too gentle in the context of what is likely to happen going forward, when the cat becomes feral. The death of any superpower usually carries with it a combination of military and economic defeats and, as with the Soviet Union's demise in the 1990s, America's decline will prove equally cruel.

Iraq has descended into a civil war in recent weeks, as a feckless US military attempts to recover lost ground with the same failed tactics of the past few years. Albert Einstein defined insanity as doing the same thing over and over again but expecting a different result. Bush, reeling from stunning losses in mid-term elections, had to fire defense chief Donald Rumsfeld, but has since failed to signal any changes in strategy. The matter may not be entirely up to him as insurgents and terrorists, sensing a potential shift in US strategy, have stepped up their attacks to record levels. This makes an early US exit not only more likely, but also more ignominious.

For a people imbued with a sense of infallibility, this turn of events would be nothing short of a catastrophic reality check. As with the end of the Vietnam conflict, it might take 10 years or more for any resurgence in national optimism in the US. The difference is that this time around, putative successors are much better positioned to inherit the mantle of superpowers.

Echoes elsewhere
The impact of a significant foreign-policy setback is hardly minor for any economy, and will be quite marked for the US economy. A decline in government spending on the "military-industrial complex" would reduce profits for many US companies, especially the ones that tend to fund policymakers or send their executives into politics.

The downward adjustment of such sectors would, however, pale in comparison to the impact of reduced optimism at the top level. Simply put, US consumers would be less likely to spend on new houses, cars or home improvements. The notion of "keeping up with the Joneses", which underpins vast swaths of the US economy, would operate in reverse under such circumstances, with people cutting their spending in competition.

Financial markets are already signaling the possibility that the US confronts a recession at home, as the US dollar has declined sharply in recent days. While the prestige factor mentioned above is only part of the story, the other part is the likely monetary easing that makes the currency less attractive going forward. Stock markets have also seen a wobble in recent days.

The immediate impact of a decline in the US economy is of course negative for exporting countries, including China, Japan and pretty much the whole Middle East. However, to the extent that China and India continue to build their infrastructure, and allow their currencies to appreciate against the US dollar, one can expect increased consumption from these countries to take up the slack created by the US decline. The worst-positioned countries are those that do most of their business with the US today, namely those in Latin America.

Some financial commentators have pointed out that a falling US dollar is good for the country's exports. This might be the case when a country produces anything that others want to buy, but that's largely not the case with the US. In a previous article, [2] I wrote:
The US has lost its competitive edge in manufacturing ... The simple fact is that after the Cold War ended, US innovation stopped dead in its tracks. Evaluate the engineering aspects of any American car, and you are likely to walk away completely unimpressed. A six-liter engine used by US car companies produces the same power as an engine half that size from the Germans, and one-third of the size by the Japanese (tuned, admittedly). Leave out engineering, and simple design dynamics don't work either - Detroit has not produced a single desirable car in the past decade.

The United States came to the forefront of righting human-rights wrongs such as racism, but only when its economic prosperity was threatened by the status quo. Now, America's lost competitiveness in manufacturing comes alongside its declining demographics (when keeping immigrants out of calculations), and rising threats from the likes of India and China in all areas of the global economy that it currently dominates. In this high-pressure economic environment, rising geopolitical risks argue for an unwelcome acceleration of the country's transition. Much like a worker who becomes a wife-beater when threatened with losing his job, the US lashes out, with its anger directed toward garnering any resource advantage that it can to lengthen its reign at the top.
As I pointed out then, the US is unlikely to go quietly into the night. It will attempt to lash out at the rest of the world, particularly at its potential successors - the Eurozone, Russia and China.[3] Of these, the Eurozone has neither the military nor social mandate to pose a strategic counterbalance to the US. This leaves Russia and China to consider. I have already written about the latter in the aforementioned article, concluding that China would make necessary accommodations to its currency and economic policy to avoid confrontation with the US. Russia's role, though, is more intriguing.

Russia's sinister game
That President Vladimir Putin has stepped up his great Asian game comes as no surprise in the context described above. To a large extent, his strategy has been shaped by the impact of a dying Soviet Union on the national psyche, something that he has personally mourned more than once. A shameful withdrawal of the US from Iraq guarantees a strong role for his country in the immediate aftermath, particularly given the proximity of concerns with Iran, whose potential to disturb southern Russian regions has never been doubted in Moscow.

The assassinations of various dissidents, including journalist Anna Politkovskaya and former KGB spy Alexander Litvinenko, show a return to the "bad old days" of the KGB under Josef Stalin and Leonid Brezhnev, while apparent intransigence on energy businesses show that the Kremlin is keen to maximize every advantage it perceives. What this means for Putin himself is a matter of much conjecture, but it seems a fairly safe bet that he will not slide into oblivion quite as easily as president Boris Yeltsin did.

At the logical extreme, one can expect that Russia will hold Europe hostage with its gas supplies, while increasing its shrill behavior on world forums against US interests. This would in turn cause the US to dial back its old suspicions on Russia. The nomination of Robert Gates (of "Mikhail Gorbachev is a fraud" fame) as US defense secretary makes it ever more likely that the US would prefer to pick battles with known enemies, particularly one that appears to be so willing to become recognized once again as the strategic counterbalance to the US.

The only event that could derail this train would be a large terrorist attack on Russia, perhaps mounted by Chechen Muslims. [4] Similarly, a bigger attack on the US may make Americans more amenable to concessions for the Russians, making any conflict escalation unlikely.

Over the longer term, though, Russia's tilt toward regaining the Soviet Union's lost dominance is ill-conceived for both historical and demographic reasons. However, it provides just enough breathing room for China to emerge fully into the limelight. For this reason, more than anything else, China's foreign policy in the next few months is likely to "encourage" adventurism on the part of the Russians, while playing lip service to the United States.

Notes

1. Garfield with guns, Asia Times Online, September 2.

2. In-Sen!, Asia Times Online, September 16.

3. China's four-play, Asia Times Online, November 11.

4. It is interesting to note that Alexander Litvinenko alleged that it was the KGB rather than the Chechens who bombed Moscow apartment buildings.