SPECIAL REPORT THE PACIFIC November 15th 2014 THE PACIFIC AGE 20141115_SRPacific.indd 1 04/11/2014 11:39 SPECIAL REPORT THE PACIFIC The Pacific Age Under American leadership the Pacific has become the engine room of world trade. But the balance of power is shifting, writes Henry Tricks WILLIAM HENRY SEWARD was no misty-eyed dreamer. It was whaling, or what he eulogised as “the chase of the whale over his broad range of the universal ocean”, that first drew his attention to the Pacific. He was a visionary, though. The man who became Abraham Lincoln’ssecretary of state in 1861 and bought Alaska from tsarist Russia in 1867 knew what America had to do to take advantage ofthe openingofthe Pacific. It need- ed to build on the Gold Rush spirit in California; finish a transcontinental railway to carry people and freight from one side ofAmerica to the other; dig a waterway through Central America for ships to pass through; and acquire Pacific territories like Ha- waii and Midway as maritime hubsoftrade and security. All this was done either within his life- time orwithin a few decades of it. He was also itching to wield America’s nascent power and saw the Pacific as the place to do it. In a speech to Congress in 1852 he predicted that the Europe-cen- CONTENTS tred Atlantic would decline in im- portance “while the Pacific 3 History Ocean, its shores, its islands and Galleons and gunships the vast regions beyond, will be- come the chief theatre of events 4 Economic integration in the world’s great hereafter”. The flying factory Commerce, he added, would be 6 Free-trade pacts the “great agent of this move- America’s big bet ment” and would flourish be- tween America and China. 8 Maritime power The Pacific evokes that kind Your rules or mine? of enthusiasm. It is a 64m square 10 North American energy mile (165m square km) blank on Oil and water the map (except for a plethora of small islands), bigger than the world’s entire landmass. Still, at times it 11 Latin America seemed as though its destiny would never arrive. The refrain, “The Medi- Pacific pumas terranean is the ocean of the past, the Atlantic is the ocean of the present 12 Chile and China and the Pacific is the ocean of the future,” first heard more than 100 years ¡Salud! ago, is still repeated today. Yet exactly halfa century after Japan “rejoined the world” (in the phrase of Ian Buruma, a writer) by hosting the Olym- 13 The future of the region pics in 1964, the Pacific Age has now clearly arrived. Japan’s economic Merchants or missionaries? powermay have peaked 25 years ago, but it produced a trans-Pacific com- petition that now has America and China vying with each other for the ACKNOWLEDGMENTS title of the world’s largest economy (at purchasing-power parity). All three Pacific nations trade vigorously with one another. Many people helped in the prep- At the same time trade has surged into the farthest reaches ofthe Pa- aration of this report, not all of them acknowledged in the text. The cific (see charts, next page). Since the 1970s trade across the Pacific has far author would like to express outrun the Atlantic sort. China, forinstance, has taken its hunger forhigh- A list of sources is at particular thanks to Manu Bhaska- protein food and raw materials to Latin America and become the biggest Economist.com/specialreports ran, Parag Khanna, Patrick Low, tradingpartnerofdistantChile. Byone estimate, in 2010 itpromised more Shuichiro Megata, Edward Melillo, An audio interview with Charles Morrison, Davíd Najera, loans to Latin America than the World Bank, the Inter-American Devel- the author is at Christopher Nelson, Mio Otashiro, opment Bankand the United States Export-Import Bankcombined. Economist.com/audiovideo/ Jonathan Pollack and Vivek Whadwa. Such connections have made the developing rim of the Pacific a 1 specialreports The Economist November 15th 2014 1 SPECIAL REPORT THE PACIFIC 2 growth factory. Whereas the United States’ economy grew by an lengingas they’ve been since APEC was established in 1989,” says average of1.6% a yearoverthe past decade and the European Un- Alan Bollard, the organisation’s executive director. ion’sby1.7%, Latin America’sexpanded by4.6%, EastAsia by5.4% There are complex counter-currents. Many East Asian and South-East Asia by 5.9%. The 21 economies of the largest countries worry that America’s commitment to the region could trans-Pacific grouping, Asia-Pacific Economic Co-operation be put at risk by more immediate threats in the Middle East and (APEC), account fornearly halfofglobal trade. This special report Ukraine. At the same time they do not want America to provoke will refer to them as “the Pacific”, though they exclude the trop- China by becoming too involved. The rhetoric has recently been ical Oceanian economies. “The region comprises not only the turned up. Chuck Hagel, America’s defence secretary, wagged a world’s ‘factory floor’ but also its most important sources of ser- finger at China when he told a gathering of military chiefs at the vices, technology and investment, and final-goods markets,” Shangri-La dialogue in Singapore in May: “One of the most criti- writes Peter Petri, an international-trade economist. cal tests facing the region is whether nations will choose to re- It has also seen an astounding increase in prosperity. In solve disputes through diplomacy and well-established interna- poorer parts of Asia the size of the middle classes—those living tional rules and norms or through intimidation and coercion. on $2-$20 a day—has increased sevenfold since the turn of the Nowhere is this more evident than in the South China Sea.” In millennium. In Latin America it has doubled. Parts of Malaysia his own speech a day later, Lieutenant-General Wang Guan- have become so bourgeois that taxi drivers moonlight as sales- zhong, head of the Chinese delegation, retorted: “Assertiveness men of smart apartments overlooking the Strait of Malacca, one has come from the joint actions of the United States and Japan, ofthe world’s busiest trade routes. not China.” Both America and China know how important it is to keep Recently the tensions have spread to the economic sphere, this economic engine running, so in public they generally use too. China has interrupted investment and trade with neigh- moderate language about each other. In 2011 Hillary Clinton, bours who stand up to its territorial assertiveness, such as Japan, then America’s secretary of state, explained President Barack the Philippines and Vietnam. China and America each have Obama’s “pivot” to Asia in an article in Foreign Policy: “We all their own plans forturning the Pacific into a giant free-trade area know that fears and misconceptions linger on both sides of the that both see as a test of their influence in the region—and in the Pacific. Some in our country see China’s progress as a threat to wider world. The Obama administration says it wants to forge a the United States; some in China worry that America seeks to trade pact with the world’s most sophisticated rules in the Pacif- constrain China’s growth. We reject both those views.” China’s ic: the Trans-PacificPartnership. ItcharacterisesChina aswanting president, Xi Jinping, at a meeting with Mr Obama in California to perpetuate a model ofstate capitalism. last year, responded in kind: “The vast Pacific Ocean has enough Fred Bergsten ofthe Peterson Institute forInternational Eco- space forthe two large countries ofChina and the United States.” nomics in Washington describes the overlapping commercial and strategic concerns as a juggling tournament. “We’re in the Choppy waters middle of an historic transformation of the economic architec- Yet just when the Pacific Age should be celebrating its half- ture ofthe whole Pacificregion. There are competingmodels and century, the region is showing signs of strain, from increased ri- high politics. It’s a very complex set ofballs in the air,” he says. valry between the superpowers and emerging nationalism in Ja- Pacific history—an underdeveloped field of study com- pan, China and elsewhere to sudden squalls in places like Hong pared with that of the Atlantic, as its scholars dolefully note—is Kong, Thailand and, as ever, North Korea. “The shifting land- awash with big-power rivalries (see box, next page). For centu- scape in the Asia-Pacific and associated risks are about as chal- ries European powers were carving it into monopolistic trading 1 2 The Economist November 15th 2014 SPECIAL REPORT THE PACIFIC 2 enclaves that they defended ruthlessly. The only free-traders matism, peace, rule oflaw and education. At the same time Pacif- were pirates. The risks ofhistory repeating itselfare palpable. icLatin American countriesare lookingto EastAsia for economic Many argue that the ocean’s most vulnerable spot is its lack models. of robust institutions to ensure fair play. They point to the Atlan- Even China’s “state capitalism” may be exaggerated. In a tic Charter, forged in 1941in the heat ofwar by Winston Churchill new book, “Markets over Mao”, Nicholas Lardy, an American and Franklin Roosevelt, that laid down rules to prevent territori- economist, crunches the numbers to argue that the secret ofChi- al aggression, reduce trade restrictionsand ensure freedom ofthe na’s success is private business, not the state-owned giants. Priv- seas. All ofthese are live issues in the western Pacific today. ate firms have become “the major source of economic growth, Mr Bergsten says the “obvious cultural affinities” across the the sole source of job creation and the major contributor to Chi- Atlantic that produced the charter, and institutions such as na’s still-growing role as a global trader”, he writes.