Here are 5 foreign-policy stories to watch in 2011:

The Stories to Watch in 2011

 

For every totally out-of-the-blue crisis that seizes the international agenda, there are some that everyone should have seen coming. Here are five foreign-policy stories to watch in 2011.

BY CAMERON ABADI

Triple-digit oil prices strangle the economic recovery

The global economy seems to be moving in the right direction, but that tenuous recovery could come quickly undone if the price of oil continues to rise. The price of a barrel of oil has been trending steadily upward at the conclusion of 2010: It stood at $91 as of Wednesday, Dec. 29, up 22 percent from a year earlier. With memories still fresh of the slowdown that accompanied the oil shock in 2008 -- when the price of a single barrel shot up to $145 and gasoline cost $4 a gallon in the United States -- you can bet that political leaders around the world will be keeping a close eye on the natural resource markets.

There's good reason to believe that prices won't rise quite as high as they did two years ago. Unlike then, a cushion of surplus oil wells stand ready in Saudi Arabia and elsewhere to fill almost any demand spurt in the coming year. In addition, oil companies are currently working furiously to expand the total supply of available oil even further: As FP's Steve LeVine has pointed out, the world's biggest oil companies are increasing their spending on international projects in 2011 by 17 percent. And according to the Wall Street Journal, the price increases are being driven less by insatiable economies than by financial investors, who are betting on higher future prices. Those speculators say they'll have a stabilizing effect on potential oil shocks, since they've created an incentive to buy oil now and store it for future use.

Still, energy costs are taking an ever-larger bite out of Americans' pockets, accounting for 5.5 percent of personal budgets in October 2010 -- up from 4.8 percent a year earlier, and uncomfortably close to the 6 percent share that's generally acknowledged to have a negative effect on consumer spending.



Merkel grabs final, destructive control over the euro

That the euro currency didn't entirely dissolve this past year is largely due to the monetary heroics of Jean-Claude Trichet, president of the European Central Bank. But with his final term coming to a close in October of next year, he won't be around much longer to defend his legacy. In fact, it increasingly seems that the greatest repudiator of that legacy, Bundesbank chief Axel Weber, will be the person tapped to replace him. That could spell renewed and deepened turbulence in the European Union, and might even trigger a second global recession and an unraveling of the eurozone.

Trichet was quick to realize that the nature of the crisis -- and the nature of the continent's byzantine political arrangements -- demanded that he unilaterally broaden his institution's narrow mandate: Rather than simply "maintain price stability," the Frenchman worked feverishly to keep Greece, Ireland, and other debtor nations from defaulting by keeping interest rates low, buying bonds from beleaguered countries, and contributing to a massive ad hoc bailout fund.

Those maneuvers may have kept the continent's currency from falling off the precipice, but they were controversial among the orthodox monetarists who have their base in Germany, and from among whom Angela Merkel is likely to select a candidate to become the new ECB chief. The favorite is assumed to be Weber, an academic economist who has been advising Merkel for years and was her choice to lead Germany's national bank. Weber has been running an unusually undiplomatic campaign for higher office, mincing few words in stating his opposition to Trichet's loose-money policies of the past several years.

Expect smaller European countries -- which stand to lose out if Weber were in a position to push through higher interest rates on the euro -- to put up a fight against his nomination. (The ECB president is selected in a majority vote by the leaders of those countries that use the euro.) And even some Germans have made it clear they think it would be a mistake: Former chancellor Helmut Schmidt recently warned that German central bankers were dangerous dogmatists. "In their innermost heart, they are reactionaries. They are against European integration," he told German newspaper Handelsblatt.

But Weber may be coming regardless: By continental convention, it's Germany's "turn" for a high-level European post. We should begin preparing to hear a lot more nein coming from Frankfurt next year.

The rise of the rest at the IMF: Strauss-Kahn moves out, emerging economies move in

Polls show that only one prominent figure in French public life could handily defeat sitting president Nicolas Sarkozy in his re-election bid in 2012. Fortunately for Sarkozy, that person is otherwise occupied, for now: Dominique Strauss-Kahn is busy running the International Monetary Fund (IMF) in Washington, D.C., where his term as managing director runs until late 2012 -- after the conclusion of the French vote.

And it's an especially hectic time at the IMF. The organization has been called in to help keep a growing number of countries from going bankrupt, including Greece, Hungary, Iceland, Ireland, Pakistan, and Ukraine. Strauss-Kahn is generally acknowledged to have done a commendable job throughout the crisis; whereas earlier IMF interventions routinely triggered protests, the most recent bailouts have been generally been embraced by the bailed-out countries.

If Strauss-Kahn does indeed depart the IMF next year, whoever takes over won't only be responsible for overseeing the organization's active programs around the world -- he or she would also be responsible for managing the delicate negotiations over the political composition of the multilateral institution. Over the past year, emerging economies have expressed their intent to challenge Europe's dominance over the 24-member board that governs the IMF. Indeed, if the top slot is open next year, other countries may formally object to Europe's traditional, informal prerogative to name a replacement. (Strauss-Kahn has acknowledged that such a challenge is inevitable, saying at the beginning of December that "the so-called agreement between the US and Europe whereby the IMF head was European and World Bank president was an American is over.")

Economists have warned that given the continued fragility of the international economy, this is no time for a succession crisis. "If turmoil continues on the markets, it won't be the time to have a huge diplomatic debate in the midst of a financial crisis," says Adam Lerrick of the American Enterprise Institute. That's why Strauss-Kahn may be under pressure from his fellow Europeans to stay put, the better to forestall institutional upheaval.

Strauss-Kahn has so far given few clear signs that he's decided to run against Sarkozy. But it's no secret that he's previously had the ambition to sit in Elysee Palace, and he has coyly declined to deny he's considering it this time around. ("It's not a given that the day when I have an answer to this question, I'm going to give it through the media," he told French public radio France Inter on November 15.) To take on Sarkozy though, he'd have to convince France's Socialist Party to select him as its candidate. That may be the toughest challenge of all: Though he's a long-time Socialist Party member, it won't be easy to convince the French left to vote for someone who has spent the last several years working to save the reigning capitalist order.

Cuba's Iron Curtain slips

Next year may bring perestroika to one of the world's final communist holdouts. Or not. But at its April 2011 meeting, the Cuban Communist Party is expected to approve a 32-page document that describes "guidelines for economic policy" in the face of Cuba's wealth of problems, which include a heavy reliance on food and energy imports, an inefficient export sector, crumbling infrastructure and a rampant black market. President Raúl Castro has already announced that the country should expect state-worker layoffs, agricultural reforms, and the creation of new licenses for some types of self-employment.

The Cuban government will also be looking to attract new foreign investors -- not least, so that the country's creaking energy and transportation infrastructure can be refurbished. Already countries like Brazil, China, and Venezuela have responded with bids to upgrade Cuba's ports and oil refineries. Other countries are also trying to get a head start in the new Cuban market: South Africa has forgiven $137 million in debt in order to improve relations, and France has restored its bilateral cooperation with Cuba after a seven-year freeze. (The United States, however, is unlikely to get in on the act: The incoming Republican chair of the House Foreign Affairs Committee, Ileana Ros-Lehtinen, has made it clear she intends to work to further isolate Cuba.)

It's an open question whether the Cuban government, much less Cuban society, is really ready for a major shift in the economic status quo. Foreign investment will pose a challenge to the autocracy that has reigned in Cuba for decades, as investors inevitably work to shape Cuba's future policy decisions. And after decades of being entirely dependent on the state for jobs (as well as nearly everything else, including food, education, and health care), Cubans may not make the transition to market-based thinking entirely seamlessly. Indeed, it's easy to imagine that they will respond to government layoffs not with entrepreneurial verve but with angry protests.

Iran races toward Israel's deadline

According to Jeffrey Goldberg's September 2010 cover story in The Atlantic, next year could very well be a decisive one in the protracted Iran nuclear crisis. Israeli officials told Goldberg that their deadline for seeking a peaceable end to the Iranian enrichment program is the middle of 2011 -- after which they will presumably set into motion a series of military air strikes to destroy Iran's nuclear infrastructure. And that, Goldberg writes, could easily lead to "a full-blown regional war that could lead to the deaths of thousands of Israelis and Iranians, and possibly Arabs and Americans as well." With Iran showing little inclination of arriving at a negotiated solution, that ominous result may not be far off.

Of course, that fate may still be avoided. The sanctions regime organized by the United States might convince Tehran to change its strategic calculus; Israel might eschew military attacks in favor of a combination of cyber warfare and covert operations, which seem to have proven successful over the past year; or it might be the White House that insists on conducting a military campaign of its own against Iran. What's clear is that in the year ahead leaders in Israel will be keeping a close eye on both Tehran and Washington.

Tunisian Wikileaks Putsch: CIA Touts Mediterranean Tsunami of Coups; Libya, Egypt, Syria, Algeria, Jordan, Italy All Targeted; US-UK Want New Puppets to Play Against Iran, China, Russia; Obama Retainers Cass Sunstein, Samantha Power, Robert Malley, International Crisis Group Implicated in Destabilizations

[Translate]

Webster G. Tarpley

TARPLEY.net

January 16, 2011

Washington DC, January 16, 2011 – The US intelligence community is now in a manic fit of gloating over this weekend’s successful overthrow of the Tunisian government of President Ben Ali. The State Department and the CIA, through media organs loyal to them, are mercilessly hyping the Tunisian putsch of the last few days as the prototype of a new second generation of color revolutions, postmodern coups, and US-inspired people power destabilizations. At Foggy Bottom and Langley, feverish plans are being made for a veritable Mediterranean tsunami designed to topple most existing governments in the Arab world, and well beyond. The imperialist planners now imagine that they can expect to overthrow or weaken the governments of Libya, Egypt, Syria, Jordan, Algeria, Yemen, and perhaps others, while the CIA’s ongoing efforts to remove Italian Prime Minister Berlusconi (because of his friendship with Putin and support for the Southstream pipeline) make this not just an Arab, but rather a pan-Mediterranean, orgy of destabilization.

 

Hunger revolution, not Jasmine revolution

Washington’s imperialist planners now believe that they have successfully refurbished their existing model of CIA color revolution or postmodern coup. This method of liquidating governments had been losing some of its prestige after the failure of the attempted plutocratic Cedars revolution in Lebanon, the rollback of the hated IMF-NATO Orange revolution in Ukraine, the ignominious collapse of June 2009 Twitter revolution in Iran, and the widespread discrediting of the US-backed Roses revolution in Georgia because of the warmongering and oppressive activities of fascist madman Saakashvili. The imperialist consensus is now that the Tunisian events prefigure a new version of people power coup specifically adapted to today’s reality, specifically that of a world economic depression, breakdown crisis, and disintegration of the globalized casino economy.

The Tunisian tumults are being described in the US press as the “Jasmine revolution,” but it is far more accurate to regard them as a variation on the classic hunger revolution. The Tunisian ferment was not primarily a matter of the middle class desire to speak out, vote, and blog. It started from the Wall Street depredations which are ravaging the entire planet: outrageously high prices for food and fuel caused by derivatives speculation, high levels of unemployment and underemployment, and general economic despair. The detonator was the tragic suicide of a vegetable vendor in Sidi Bouzid who was being harassed by the police. As Ben Ali fought to stay in power, he recognized what was causing the unrest by his gesture of lowering food prices. The Jordanian government for its part has lowered food prices there by about 5%.

 

Assange and Wikileaks, Key CIA Tools to Dupe Youth Bulge

The economic nature of the current unrest poses a real problem for the Washington imperialists, since the State Department line tends to define human rights exclusively in political and religious terms, and never as a matter of economic or social rights. Price controls, wages, jobless benefits, welfare payments, health care, housing, trade union rights, banking regulation, protective tariffs, and other tools of national economic self-defense have no place whatsoever in the Washington consensus mantra. Under these circumstances, what can be done to dupe the youth bulge of people under 30 who now represents the central demographic reality of most of the Arab world?

In this predicament, the CIA’s cyberspace predator drone Julian Assange and Wikileaks are providing an indispensable service to the imperialist cause. In Iceland in the autumn of 2009, Assange was deployed by his financier backers to hijack and disrupt a movement for national economic survival through debt moratorium, the rejection of interference by the International Monetary Fund, and re-launching the productive economy through an ambitious program of national infrastructure and the export of high technology capital goods, in particular in the field of geothermal energy. Assange was able to convince many in Iceland that these causes were not nearly radical enough, and that they needed to devote their energies instead to publishing a series of carefully pre-selected US government and other documents, all of which somehow targeted governments and political figures which London and Washington had some interest in embarrassing and weakening. In other words, Assange was able to dupe honest activists into going to work for the imperialist financiers. Assange has no program except “transparency,” which is a constant refrain of the US UK human rights mafia as it attempts to topple targeted governments across the developing sector in particular.

 

“Yes we can” or “Food prices are too damn high!”

Tunisia is perhaps the first case in which Assange and Wikileaks can make a credible claim to have detonated the coup. Most press accounts agree that certain State Department cables which were part of the recent Wikileaks document dumps and which focused on the sybaritic excess and lavish lifestyle of the Ben Ali clan played a key role in getting the Tunisian petit bourgeoisie into the streets. Thanks in part to Assange, Western television networks were thus able to show pictures of the Tunisian crowds holding up signs saying “Yes we can” rather than a more realistic and populist “Food prices are too damn high!”

Ben Ali had been in power for 23 years. In Egypt, President Mubarak has been in power for almost 30 years. The Assad clan in Syria have also been around for about three decades. In Libya, Colonel Gaddafi has been in power for almost 40 years. Hafez Assad was able to engineer a monarchical succession to his son when he died 10 years ago, and Mubarak and Gaddafi are trying to do the same thing today. Since the US does not want these dynasties, The obvious CIA tactic is to deploy assets like Twitter, Google, Facebook, Wikileaks, etc., to turn key members of the youth bulge into swarming mobs to bring down the gerontocratic regimes.

 

CIA Wants Aggressive New Puppets to Play Against Iran, China, Russia

All of these countries do of course require serious political as well as economic reform, but what the CIA is doing with the current crop of destabilizations has nothing to do with any positive changes in the countries involved. Those who doubt this should remember the horrendous economic and political record of the puppets installed in the wake of recent color revolutions – people like the IMF-NATO kleptocrat agents Yushchenko and Timoshenko in Ukraine, the mentally unstable warmongering dictator Saakashvili in Georgia, and so forth. Political forces that are foolish enough to accept the State Department’s idea of hope and change will soon find themselves under the yoke of new oppressors of this type. The danger is very great in Tunisia, since the forces which ousted Ben Ali have no visible leader and no visible mass political organization which could help them fight off foreign interference in the way that Hezbollah was able to do in checkmating the Lebanese Cedars putsch. In Tunis, the field is wide open for the CIA to install a candidate of its own choosing, preferably under the cover of “elections.” Twenty-three years of Ben Ali have unfortunately left Tunisia in a more atomized condition.

Why is official Washington so obsessed with the idea of overthrowing these governments? The answer has everything to do with Iran, China, and Russia. As regards Iran, the State Department policy is notoriously the attempt to assemble a united front of the entrenched Arab and Sunni regimes to be played against Shiite Iran and its various allies across the region. This had not been going well, as shown by the inability of the US to install its preferred puppet Allawi in Iraq, where the pro-Iranian Maliki seems likely to hold onto power for the foreseeable future. The US desperately wants a new generation of unstable “democratic” demagogues more willing to lead their countries against Iran than the current immobile regimes have proved to be. There is also the question of Chinese economic penetration. We can be confident that any new leaders installed by the US will include in their program a rupture of economic relations with China, including especially a cutoff of oil and raw material shipments, along the lines of what Twitter revolution honcho Mir-Hossein Mousavi was reliably reported to be preparing for Iran if he had seized power there in the summer of 2009 at the head of his “Death to Russia, death to China” rent-a-mob. In addition, US hostility against Russia is undiminished, despite the cosmetic effects of the recent ratification of START II. If for example a color revolution were to come to Syria, we could be sure that the Russian naval presence at the port Tartus, which so disturbs NATO planners, would be speedily terminated. If the new regimes demonstrate hostility against Iran, China, and Russia, we would soon find that internal human rights concerns would quickly disappear from the US agenda.

 

Key Destabilization Operatives of the Obama Regime

For those who are keeping score, it may be useful to pinpoint some of the destabilization operatives inside the current US regime. It is of course obvious that the current wave of subversion against the Arab countries was kicked off by Secretary of State Hillary Clinton in her much touted speech last week in Doha, Qatar last week, when she warned assembled Arab leaders to reform their economies ( according to IMF rules) and stamp out corruption, or else face ouster.

Given the critical role of Assange and Wikileaks in the current phase, White House regulations czar Cass Sunstein must also be counted among the top putschists. We should recall that on February 24, 2007 Sunstein contributed an article entitled “A Brave New Wikiworld” to the Washington Post, in which he crowed that “Wikileaks.org, founded by dissidents in China and other nations, plans to post secret government documents and to protect them from censorship with coded software.” This was in fact the big publicity breakthrough for Assange and the debut of Wikileaks in the US mainstream press — all thanks to current White House official Sunstein. May we not assume that Sunstein represents the White House contact man and controller for the Wikileaks operation?

 

Every Tree in the Arab Forest Might Fall

Another figure worthy of mention is Robert Malley, a well-known US left-cover operative who currently heads the Middle East and North Africa program at the International Crisis Group (ICG), an organization reputed to run on money coughed up by George Soros and tactics dreamed up from Zbigniew Brzezinski. Malley was controversial during the 2008 presidential campaign because of the anti-Israeli posturing he affects, the better to dupe the Arab leaders he targets. Malley told the Washington Post of January 16, 2011 that every tree in the Arab forest could now be about to fall: “We could go through the list of Arab leaders looking in the mirror right now and very few would not be on the list.” Arab governments would be well advised to keep an eye on ICG operatives in their countries.

Czar Cass Sunstein is now married to Samantha Power, who currently works in the White House National Security Council as Special Assistant to the President and Senior Director (boss) of the Office of Multilateral Affairs and Human Rights – the precise bureaucratic home of destabilization operations like the one in Tunisia. Power, like Malley, is a veteran of the US intelligence community’s “human rights” division, which is a past master of using legitimate beefs about repression to to replace old US clients with new puppets in a never-ending process of restless subversion. Both Malley and Power were forced to tender pro forma resignations during the Obama presidential campaign of 2008 – Malley for talking to Hamas, and Power for an obscene tirade against Hillary Clinton, who is now her bureaucratic rival.

 

Advice to Arab Governments, Political Forces, Trade Unions

The Arab world needs to learn a few fundamental lessons about the mechanics of CIA color revolutions, lest they replicate the tragic experience of Georgia, Ukraine, and so many others. In today’s impoverished world of economic depression, a reform program capable of defending national interests against the rapacious forces of financial globalization is the number one imperative.

Accordingly, Arab governments must immediately expel all officials of the International Monetary Fund, World Bank, and their subset of lending institutions. Arab countries which are currently under the yoke of IMF conditionalities (notably Egypt and Jordan among the Arabs, and Pakistan among the Moslem states) must unilaterally and immediately throw them off and reassert their national sovereignty. Every Arab state should unilaterally and immediately declare a debt moratorium in the form of an open-ended freeze on all payments of interest and principal of international financial debt in the Argentine manner, starting with sums allegedly owed to the IMF-World Bank. The assets of foreign multinational monopolistic firms, especially oil companies, should be seized as the situation requires. Basic food staples and fuels should be subjected to price controls, with draconian penalties for speculation, including by way of derivatives. Dirigist measures such as protective tariffs and food price subsidies can be quickly introduced. Food production needs to be promoted by production and import bounties, as well as by international barter deals. National grain stockpiles must be quickly constituted. Capital controls and exchange controls are likely to be needed to prevent speculative attacks on national currencies by foreign hedge funds acting with the ulterior political motives of overthrowing national governments. Most important, central banks must be nationalized and reconverted to a policy of 0% credit for domestic infrastructure, agriculture, housing, and physical commodity production, with special measures to enhance exports. Once these reforms have been implemented, it may be time to consider the economic integration of the Arab world as an economic development community in which the foreign exchange earnings of the oil-producing states can be put to work on the basis of mutual advantage for infrastructure and hard commodity capital investment across the entire Arab world.

The alternative is an endless series of destabilizations masterminded by foreigners, and, quite possibly, terminal chaos.

Think Again: American Decline? THIS TIME IT IS FOR REAL!

Think Again: American Decline

This time it's for real.

BY GIDEON RACHMAN 

"We've Heard All This About American Decline Before."

This time it's different. It's certainly true that America has been through cycles of declinism in the past. Campaigning for the presidency in 1960, John F. Kennedy complained, "American strength relative to that of the Soviet Union has been slipping, and communism has been advancing steadily in every area of the world." Ezra Vogel's Japan as Number One was published in 1979, heralding a decade of steadily rising paranoia about Japanese manufacturing techniques and trade policies.

In the end, of course, the Soviet and Japanese threats to American supremacy proved chimerical. So Americans can be forgiven if they greet talk of a new challenge from China as just another case of the boy who cried wolf. But a frequently overlooked fact about that fable is that the boy was eventually proved right. The wolf did arrive -- and China is the wolf.

The Chinese challenge to the United States is more serious for both economic and demographic reasons. The Soviet Union collapsed because its economic system was highly inefficient, a fatal flaw that was disguised for a long time because the USSR never attempted to compete on world markets. China, by contrast, has proved its economic prowess on the global stage. Its economy has been growing at 9 to 10 percent a year, on average, for roughly three decades. It is now the world's leading exporter and its biggest manufacturer, and it is sitting on more than $2.5 trillion of foreign reserves. Chinese goods compete all over the world. This is no Soviet-style economic basket case.

Japan, of course, also experienced many years of rapid economic growth and is still an export powerhouse. But it was never a plausible candidate to be No. 1. The Japanese population is less than half that of the United States, which means that the average Japanese person would have to be more than twice as rich as the average American before Japan's economy surpassed America's. That was never going to happen. By contrast, China's population is more than four times that of the United States. The famous projection by Goldman Sachs that China's economy will be bigger than that of the United States by 2027 was made before the 2008 economic crash. At the current pace, China could be No. 1 well before then.

China's economic prowess is already allowing Beijing to challenge American influence all over the world. The Chinese are the preferred partners of many African governments and the biggest trading partner of other emerging powers, such as Brazil and South Africa. China is also stepping in to buy the bonds of financially strapped members of the eurozone, such as Greece and Portugal.

And China is only the largest part of a bigger story about the rise of new economic and political players. America's traditional allies in Europe -- Britain, France, Italy, even Germany -- are slipping down the economic ranks. New powers are on the rise: India, Brazil, Turkey. They each have their own foreign-policy preferences, which collectively constrain America's ability to shape the world. Think of how India and Brazil sided with China at the global climate-change talks. Or the votes by Turkey and Brazil against America at the United Nations on sanctions against Iran. That is just a taste of things to come.

"China Will Implode Sooner or Later."

Don't count on it. It is certainly true that when Americans are worrying about national decline, they tend to overlook the weaknesses of their scariest-looking rival. The flaws in the Soviet and Japanese systems became obvious only in retrospect. Those who are confident that American hegemony will be extended long into the future point to the potential liabilities of the Chinese system. In a recent interview with the Times of London, former U.S. President George W. Bush suggested that China's internal problems mean that its economy will be unlikely to rival America's in the foreseeable future. "Do I still think America will remain the sole superpower?" he asked. "I do."

But predictions of the imminent demise of the Chinese miracle have been a regular feature of Western analysis ever since it got rolling in the late 1970s. In 1989, the Communist Party seemed to be staggering after the Tiananmen Square massacre. In the 1990s, economy watchers regularly pointed to the parlous state of Chinese banks and state-owned enterprises. Yet the Chinese economy has kept growing, doubling in size roughly every seven years.

Of course, it would be absurd to pretend that China does not face major challenges. In the short term, there is plenty of evidence that a property bubble is building in big cities like Shanghai, and inflation is on the rise. Over the long term, China has alarming political and economic transitions to navigate. The Communist Party is unlikely to be able to maintain its monopoly on political power forever. And the country's traditional dependence on exports and an undervalued currency are coming under increasing criticism from the United States and other international actors demanding a "rebalancing" of China's export-driven economy. The country also faces major demographic and environmental challenges: The population is aging rapidly as a result of the one-child policy, and China is threatened by water shortages and pollution.

Yet even if you factor in considerable future economic and political turbulence, it would be a big mistake to assume that the Chinese challenge to U.S. power will simply disappear. Once countries get the hang of economic growth, it takes a great deal to throw them off course. The analogy to the rise of Germany from the mid-19th century onward is instructive. Germany went through two catastrophic military defeats, hyperinflation, the Great Depression, the collapse of democracy, and the destruction of its major cities and infrastructure by Allied bombs. And yet by the end of the 1950s, West Germany was once again one of the world's leading economies, albeit shorn of its imperial ambitions.

In a nuclear age, China is unlikely to get sucked into a world war, so it will not face turbulence and disorder on remotely the scale Germany did in the 20th century. And whatever economic and political difficulties it does experience will not be enough to stop the country's rise to great-power status. Sheer size and economic momentum mean that the Chinese juggernaut will keep rolling forward, no matter what obstacles lie in its path.

"America Still Leads Across the Board."

For now. As things stand, America has the world's largest economy, the world's leading universities, and many of its biggest companies. The U.S. military is also incomparably more powerful than any rival. The United States spends almost as much on its military as the rest of the world put together. And let's also add in America's intangible assets. The country's combination of entrepreneurial flair and technological prowess has allowed it to lead the technological revolution. Talented immigrants still flock to U.S. shores. And now that Barack Obama is in the White House, the country's soft power has received a big boost. For all his troubles, polls show Obama is still the most charismatic leader in the world; Hu Jintao doesn't even come close. America also boasts the global allure of its creative industries (Hollywood and all that), its values, the increasing universality of the English language, and the attractiveness of the American Dream.

All true -- but all more vulnerable than you might think. American universities remain a formidable asset. But if the U.S. economy is not generating jobs, then those bright Asian graduate students who fill up the engineering and computer-science departments at Stanford University and MIT will return home in larger numbers. Fortune's latest ranking of the world's largest companies has only two American firms in the top 10 -- Walmart at No. 1 and ExxonMobil at No. 3. There are already three Chinese firms in the top 10: Sinopec, State Grid, and China National Petroleum. America's appeal might also diminish if the country is no longer so closely associated with opportunity, prosperity, and success. And though many foreigners are deeply attracted to the American Dream, there is also a deep well of anti-American sentiment in the world that al Qaeda and others have skillfully exploited, Obama or no Obama.

As for the U.S. military, the lesson of the Iraq and Afghan wars is that America's martial prowess is less useful than former Defense Secretary Donald Rumsfeld and others imagined. U.S. troops, planes, and missiles can overthrow a government on the other side of the world in weeks, but pacifying and stabilizing a conquered country is another matter. Years after apparent victory, America is still bogged down by an apparently endless insurgency in Afghanistan.

Not only are Americans losing their appetite for foreign adventures, but the U.S. military budget is clearly going to come under pressure in this new age of austerity. The present paralysis in Washington offers little hope that the United States will deal with its budgetary problems swiftly or efficiently. The U.S. government's continuing reliance on foreign lending makes the country vulnerable, as Secretary of State Hillary Clinton's humbling 2009 request to the Chinese to keep buying U.S. Treasury bills revealed. America is funding its military supremacy through deficit spending, meaning the war in Afghanistan is effectively being paid for with a Chinese credit card. Little wonder that Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, has identified the burgeoning national debt as the single largest threat to U.S. national security.

Meanwhile, China's spending on its military continues to grow rapidly. The country will soon announce the construction of its first aircraft carrier and is aiming to build five or six in total. Perhaps more seriously, China's development of new missile and anti-satellite technology threatens the command of the sea and skies on which the United States bases its Pacific supremacy. In a nuclear age, the U.S. and Chinese militaries are unlikely to clash. A common Chinese view is that the United States will instead eventually find it can no longer afford its military position in the Pacific. U.S. allies in the region -- Japan, South Korea, and increasingly India -- may partner more with Washington to try to counter rising Chinese power. But if the United States has to scale back its presence in the Pacific for budgetary reasons, its allies will start to accommodate themselves to a rising China. Beijing's influence will expand, and the Asia-Pacific region -- the emerging center of the global economy -- will become China's backyard.

"Globalization Is Bending the World the Way of the West."

Not really. One reason why the United States was relaxed about China's rise in the years after the end of the Cold War was the deeply ingrained belief that globalization was spreading Western values. Some even thought that globalization and Americanization were virtually synonymous.

Pundit Fareed Zakaria was prescient when he wrote that the "rise of the rest" (i.e., non-American powers) would be one of the major features of a "post-American world." But even Zakaria argued that this trend was essentially beneficial to the United States: "The power shift … is good for America, if approached properly. The world is going America's way. Countries are becoming more open, market-friendly, and democratic."

Both George W. Bush and Bill Clinton took a similar view that globalization and free trade would serve as a vehicle for the export of American values. In 1999, two years before China's accession to the World Trade Organization, Bush argued, "Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy.… Trade freely with China, and time is on our side."

There were two important misunderstandings buried in this theorizing. The first was that economic growth would inevitably -- and fairly swiftly -- lead to democratization. The second was that new democracies would inevitably be more friendly and helpful toward the United States. Neither assumption is working out.

In 1989, after the Tiananmen Square massacre, few Western analysts would have believed that 20 years later China would still be a one-party state -- and that its economy would also still be growing at phenomenal rates. The common (and comforting) Western assumption was that China would have to choose between political liberalization and economic failure. Surely a tightly controlled one-party state could not succeed in the era of cell phones and the World Wide Web? As Clinton put it during a visit to China in 1998, "In this global information age, when economic success is built on ideas, personal freedom is … essential to the greatness of any modern nation."

In fact, China managed to combine censorship and one-party rule with continuing economic success over the following decade. The confrontation between the Chinese government and Google in 2010 was instructive. Google, that icon of the digital era, threatened to withdraw from China in protest at censorship, but it eventually backed down in return for token concessions. It is now entirely conceivable that when China becomes the world's largest economy -- let us say in 2027 -- it will still be a one-party state run by the Communist Party.

And even if China does democratize, there is absolutely no guarantee that this will make life easier for the United States, let alone prolong America's global hegemony. The idea that democracies are liable to agree on the big global issues is now being undermined on a regular basis. India does not agree with the United States on climate change or the Doha round of trade talks. Brazil does not agree with the United States on how to handle Venezuela or Iran. A more democratic Turkey is today also a more Islamist Turkey, which is now refusing to take the American line on either Israel or Iran. In a similar vein, a more democratic China might also be a more prickly China, if the popularity of nationalist books and Internet sites in the Middle Kingdom is any guide.



"Globalization Is Not a Zero-Sum Game."

Don't be too sure. Successive U.S. presidents, from the first Bush to Obama, have explicitly welcomed China's rise. Just before his first visit to China, Obama summarized the traditional approach when he said, "Power does not need to be a zero-sum game, and nations need not fear the success of another.… We welcome China's efforts to play a greater role on the world stage."

But whatever they say in formal speeches, America's leaders are clearly beginning to have their doubts, and rightly so. It is a central tenet of modern economics that trade is mutually beneficial for both partners, a win-win rather than a zero-sum. But that implies the rules of the game aren't rigged. Speaking before the 2010 World Economic Forum, Larry Summers, then Obama's chief economic advisor, remarked pointedly that the normal rules about the mutual benefits of trade do not necessarily apply when one trading partner is practicing mercantilist or protectionist policies. The U.S. government clearly thinks that China's undervaluation of its currency is a form of protectionism that has led to global economic imbalances and job losses in the United States. Leading economists, such as New York Times columnist Paul Krugman and the Peterson Institute's C. Fred Bergsten, have taken a similar line, arguing that tariffs or other retaliatory measures would be a legitimate response. So much for the win-win world.

And when it comes to the broader geopolitical picture, the world of the future looks even more like a zero-sum game, despite the gauzy rhetoric of globalization that comforted the last generation of American politicians. For the United States has been acting as if the mutual interests created by globalization have repealed one of the oldest laws of international politics: the notion that rising players eventually clash with established powers.

In fact, rivalry between a rising China and a weakened America is now apparent across a whole range of issues, from territorial disputes in Asia to human rights. It is mercifully unlikely that the United States and China would ever actually go to war, but that is because both sides have nuclear weapons, not because globalization has magically dissolved their differences.

At the G-20 summit in November, the U.S. drive to deal with "global economic imbalances" was essentially thwarted by China's obdurate refusal to change its currency policy. The 2009 climate-change talks in Copenhagen ended in disarray after another U.S.-China standoff. Growing Chinese economic and military clout clearly poses a long-term threat to American hegemony in the Pacific. The Chinese reluctantly agreed to a new package of U.N. sanctions on Iran, but the cost of securing Chinese agreement was a weak deal that is unlikely to derail the Iranian nuclear program. Both sides have taken part in the talks with North Korea, but a barely submerged rivalry prevents truly effective Sino-American cooperation. China does not like Kim Jong Il's regime, but it is also very wary of a reunified Korea on its borders, particularly if the new Korea still played host to U.S. troops. China is also competing fiercely for access to resources, in particular oil, which is driving up global prices.

American leaders are right to reject zero-sum logic in public. To do anything else would needlessly antagonize the Chinese. But that shouldn't obscure this unavoidable fact: As economic and political power moves from West to East, new international rivalries are inevitably emerging.

 The United States still has formidable strengths. Its economy will eventually recover. Its military has a global presence and a technological edge that no other country can yet match. But America will never again experience the global dominance it enjoyed in the 17 years between the Soviet Union's collapse in 1991 and the financial crisis of 2008. Those days are over.

Chinese President Hu Jintao highlighted moves to turn the "yuan" into a Global Currency

Chinese President Hu Jintao Highlights Need for U.S.-China Cooperation, Questions Dollar

By ANDREW BROWNE

BEIJING—Chinese President Hu Jintao emphasized the need for cooperation with the U.S. in areas from new energy to space ahead of his visit to Washington this week, but he called the present U.S. dollar-dominated currency system a "product of the past" and highlighted moves to turn the yuan into a global currency.

"We both stand to gain from a sound China-U.S. relationship, and lose from confrontation," Mr. Hu said in written answers to questions from The Wall Street Journal and the Washington Post.

Mr. Hu acknowledged "some differences and sensitive issues between us," but his tone was generally compromising, and he avoided specific mention of some of the controversial issues that have dogged relations with the U.S. over the past year or so—including U.S. arms sales to Taiwan that led to a freeze in military relations between the world's sole superpower and its rising Asian rival.

On the economic front, Mr. Hu played down one of the main U.S. arguments for why China should appreciate its currency—that it will help China tame inflation. That is likely to disappoint Washington, which accuses China of unfairly boosting its exports by undervaluing the yuan, making its products cheaper overseas. The topic is expected to be high on U.S. President Barack Obama's agenda when he meets Mr. Hu at the White House on Wednesday.

Mr. Hu also offered a veiled criticism of efforts by the U.S. Federal Reserve to stimulate growth through huge bond purchases to keep down long-term interest rates, a strategy that China has loudly complained about in the past as fueling inflation in emerging economies, including its own. He said that U.S. monetary policy "has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level."

Mr. Hu's responses reflect a China that has grown more confident in recent years—especially in the wake of the global financial crisis, from which it emerged relatively unscathed.

Mr. Hu reiterated China's belief that the crisis reflected "the absence of regulation in financial innovation" and the failure of international financial institutions "to fully reflect the changing status of developing countries in the world economy and finance." He called for an international financial system that is more "fair, just, inclusive and well-managed."

Mr. Hu, who also heads China's ruling Communist Party, rarely interacts with the international media. The Wall Street Journal submitted a series of questions to China's Foreign Ministry for Mr. Hu to answer. The Washington Post also submitted questions. The Foreign Ministry supplied Mr. Hu's responses to seven questions—but did not address questions about imprisoned Nobel Peace Prize winner Liu Xiaobo, China's growing naval power and complaints about alleged Chinese cyberattacks, among others.

Mr. Hu's veiled criticism of the Fed reflects widespread feelings among developing nations that U.S. interest-rate policy is devaluing the dollar, prompting flows of capital overseas and creating inflation elsewhere. China and other developing countries would like the Fed to factor in those consequences when it makes decisions. Fed officials counter that their mandate is to bolster the U.S. economy and that a stronger U.S. economy is in the interests of China and other countries, which depend heavily on trade and investment from the U.S.

This could be a major issue of contention between Messrs. Hu and Obama. The U.S. blames Chinese currency undervaluation—not Fed policy making—for worsening competitive and inflation problems overseas.

Some of Mr. Hu's most significant comments dealt with the future of the dollar and currency exchange rates.

"The current international currency system is the product of the past," he said, noting the primacy of the U.S. dollar as a reserve currency and its use in international trade and investment.

The comment is the latest sign that the dollar's future continues to concern the most senior levels of the Chinese government. Beijing fears not only that loose U.S. monetary policy is fueling inflation, but that it will erode the value of China's holdings of dollars within its vast foreign-exchange reserves, which reached $2.85 trillion at the end of 2010.

China's central bank governor, Zhou Xiaochuan, created an international stir in March 2009 by calling for the creation of a new synthetic reserve currency as an alternative to the dollar. Mr. Hu's comments add to the sense that China intends to challenge the post-World War II financial order largely created by the U.S. and dominated by the dollar.

Mr. Hu called attention to China's accelerating effort to expand the role of its own currency, describing recent moves to allow greater use of the yuan in cross-border trade and investment—while acknowledging that making it a fully fledged international currency "will be a fairly long process."

China's moves already have spawned a thriving market for offshore trading of yuan in Hong Kong, and are widely seen as first steps toward making the yuan an international currency in line with China's new prominence as the world's second largest economy. Mr. Hu offered an enthusiastic endorsement of what are officially described as currency "pilot programs." They "fit in well with market demand as evidenced by the rapidly expanding scale of these transactions," he said.

Mr. Hu didn't signal any changes on the most sensitive aspect of China's currency policy: the exchange rate.
Last week, U.S. Treasury Secretary Timothy Geithner reiterated the U.S. position that a stronger yuan is in China's own best interests, because it would help tame rising inflation that has become a key risk to China's rapid growth, which is underpinning the global economic recovery. A stronger yuan would reduce the price of imports in local-currency terms.

But Mr. Hu shrugged off the U.S. argument, saying that China is fighting inflation with a whole package of policies, including interest-rate increases, and "inflation can hardly be the main factor in determining the exchange rate policy."

Further, Mr. Hu suggested that inflation was not a big worry, saying prices were "on the whole moderate and controllable." He added: "We have the confidence, conditions and ability to stabilize the overall price level."

The U.S. argues that the yuan's real exchange rate—that is, the exchange rate as adjusted for the higher inflation level in China than the U.S.—is rising at a 10% annual rate. Treasury officials have argued to China that its policy options are limited—either it can boost the exchange rate to fight inflation, or inflation will effectively boost the value of China's currency.

While the U.S. says some Chinese economic officials buy that argument, it hasn't been widely adopted within China, as Mr. Hu's comments illustrate. But the U.S. feels that economics and time are on its side. Even so, the administration and Congress will continue to press China to boost the pace of its currency appreciation.
Mr. Hu renewed a Chinese pledge to offer a level playing field in China for U.S. companies, which have complained about aggressive Chinese moves to usurp their technology and shut them out of massive government-procurement contracts.

"All foreign companies registered in China are Chinese enterprises," Mr. Hu said, responding to concerns that China discriminates in government procurement against foreign businesses as part of its drive to encourage so-called indigenous innovation.

He added: "Their innovation, production and business operations in China enjoy the same treatment as Chinese enterprises."

The U.S. has been pressing China to revamp its plans for indigenous innovation, which foreign companies say put them at a disadvantage in competition with China's state-owned firms, which limits the types of government development projects and requires that companies get government approval to participate. China has pledged to join the World Trade Organization's government procurement agreement, which limits a country's ability to discriminate. But the U.S. and other countries say that so far China's WTO offer is inadequate because it exempts provinces, municipalities and state-owned enterprises. Last month China pledged to amend a buy-Chinese provision. During the Hu visit, the U.S. hopes to see some other commitments on this front from China.

Mr. Hu began his answers with a relatively upbeat assessment of China-U.S. relations, which he said had "on the whole enjoyed steady growth" since the start of this century.

He spoke of expanding cooperation from economy and trade into new areas like energy, infrastructure development and aviation and space. "We should abandon the zero-sum Cold War mentality," he said, and "respect each other's choice of development path."

On the diplomatic front, Mr. Hu entirely glossed over what has been one of the most dramatic developments of the past year—a series of disputes between a more assertive China and its neighbors that has given the U.S. an opening to shore up its relations with a part of the world that felt neglected by Washington while it fought wars in Iraq and Afghanistan.

In the past year, China has feuded with Japan over the seizure of a Chinese fishing boat and its crew off disputed islands; opened deep differences with South Korea because of its subdued response to military provocations by North Korea; and alarmed countries in Southeast Asia by declaring the South China Sea and its energy and mineral riches one of its "core interests."

"Mutual trust between China and other countries in this region has deepened in our common response to tough challenges, and our cooperation has continuously expanded in our pursuit of mutual benefit and win-win outcomes," Mr. Hu said, ignoring the regional turmoil.


—Jason Dean in Beijing
and Bob Davis in Washington
contributed to this article.