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The 'Indispensable Nation'? US Partners Hop in Bed with China
By Russian Insider
This article originally appeared at the Lowy Institute for International Policy
It remains uncertain whether the Chinese-led AIIB initiative will complement or compete with the World Bank and Asian Development Bank (ADB) to meet Asia's capital investment needs. What is clear, however, is China's willingness to challenge America's long-established strategy of institutionalising power in a rules-based order.
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America's stated concerns with the AIIB are that it replicates existing global financial institutions, but lacks their transparency and accountability standards. Pressuring key allies to reject the AIIB has failed, with the British Government announcing its intention to be the 'first major Western country' to join and influence the bank's design and development. The US has accused the UK of 'constant accommodation' of China over a range of issues and 'virtually no consultation with the US' in this case. Australia nevertheless looks set to follow the UK decision as it moves towards signing a free trade deal later this year.
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American disquiet stems from more fundamental concerns than AIIB governance, and goes to the heart of its future regional and international engagement.
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A defining feature of American global strategy since 1945 has been building the architecture of global governance, including the Bretton Woods financial institutions, to facilitate its own international power. An example is the World Bank, which continues to weight the US vote heaviest at 16.42%, while China's vote is weighted third at only 4.91%. Such disparities are replicated in the Asian Development Bank and IMF.
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China resents the rigidity in global financial institutions for distorting its growing economic significance, which has now become a basis for challenging the legitimacy of the American-led international order. A recurrent theme of US regional policy is to strengthen a 'rules-based order' and enforce Chinese compliance with it. The case of the AIIB shows that China now seeks to define this order for itself, with the battle for influence in Asia increasingly fought through rules and institutions.
The AIIB choice encapsulates the dilemma facing the US-Australian alliance as a new Sino-US equilibrium is contested in coming years and decades.
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In a recent Lowy Institute Analysis. Alan Dupont identified Australian defence strategy in equivalent terms, but warned that: 'Maintaining and propagating a rules-based liberal, democratic order will be far more difficult in a world where Pax Americana is fraying at the edges.' There could be no clearer demonstration than America's closest allies supporting a key element of a Sino-regional financial order at the expense of US leadership.
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A US tactic for influencing international institutions has been to remain outside their formal constraints to increase its ability to develop them in line with US interests – what former US State Department legal advisor Harold Koh described as a 'flying buttress mentality.' A US official criticised the UK decision to sign up too readily on the basis that 'large economies can have more influence by staying on the outside and trying to shape the standards it adopts.'
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This approach presumes that other countries will recognise US support as indispensible – whether as a member, or through its external backing. The case of the AIIB reveals however that the perception of US power in Asia has receded such that its consent is no longer necessary to the success of a major regional institution. Choosing to conspicuously obstruct the AIIB has served only to accentuate the weakness of America's status as arbiter of regional order.
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For the US to maximise its leverage through a rules-based order it must accept the evolution of global finance to encompass the reality of growing Chinese power. Importantly, China continues to engage with existing global financial institutions even as it fosters parallel alternatives. The 2015 US National Security Strategy recognised the need to reform the World Bank and IMF to 'make them more effective and representative.' No such reforms have been forthcoming however, with the US Congress refusing to relinquish power that was crystallised in a previous era.
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American failure to reform global architecture cannot be repackaged as an obligation on Australia to uphold obsolete rules, and thereby risk financial and political isolation in its own region. The 'switch' in Australian Government policy probably owes more to the fraught nature of the choice than any supposed improvement in the Chinese proposal.
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The lesson is that there are limits to prolonging US power through international law and institutions. If Washington fails to adapt it will ultimately be China demanding fidelity to its rules-based order.
