Book Review: A Contest for Supremacy
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The announcement that the United States will base 2,500 troops in Australia is a public recognition of the contest between China and the US for power in the Pacific, where the US has long been dominant. For China, the troop deployment increases fears of encirclement. For the US, it reflects fears of being pushed out or neutralized in this key geography. For an in-depth analysis of what will be an increasing contest, Aaron L. Friedberg's new book is a superb resource. Friedberg, a former fellow at the Smithsonian Institution’s Woodrow Wilson International Center for Scholars, the Norwegian Nobel Institute, and Harvard University’s Center for International, took part in a “review of China's economic performance, political stability, strategic intensions, and military power" during the Clinton administration. This review was the start of the research that produced A Contest for Supremacy: China, America, and the Struggle for Mastery in Asia.
Friedberg is concerned that the American public is not aware of the extent and the ramifications of the contest between China and the US. This is partly the result of “the diplomatic happy talk from Washington," and the role of the corporate friends of China. The multi-economic dependence of China and the US has made a serious confrontation a possibility that most choose not to consider. But as A Contest For Supremacy describes, the US’ place in an even more important part of the world could be at risk. This could impact investors, not only in China, but also in Japan, Korea, Australia, Thailand, and beyond to Central Asia, and could happen without direct military action.
The book also touches on the question of whether the US is now set on a path of permanent decline, while China’s path rises. With respect to China, Friedberg sees the country as emerging out of “pretence of humility,” now “ready to assume its rightful place as a great power." A key question is whether China wants to become the “predominant power in East Asia, and perhaps in Asia at large." The Chinese military buildup is viewed as an "area denial capability" to keep the US from projecting its vast military power into this region. This includes missiles and more recently cyber war development, and could happen even while the US retains its military power edge. The US budget deficit financing demands may erode our military edge, and willingness to confront the China challenge.
For finance professionals and investors, " A Contest for Supremacy " is a log-tail risk in what is viewed as the opportunities of investing in China and Asia. But as the recent financial crisis and the current eurozone problems show, we cannot completely ignore this type of risk. As Friedberg states, “if current trends continue, we are on track to lose our geopolitical contest with China."