Commentary

Troubled Triangle: Economic Constraints on Delhi, Beijing and Washington

Pundits and policy experts speak often about the crucial triangular relationship in Asia involving the United States, China and Japan. But there is another strategic triangle that may become even more important in the coming decades: relations involving the United States, India and China. All three countries have high-priority geopolitical goals, but all three are encountering economic headwinds that may impose constraints on their ability to achieve those objectives.

Speculation was rampant not long ago that India was the next country to join the ranks of elite world powers, but adverse economic trends over the past year or so have muted such speculation. During 2013, economic growth rate slowed dramatically and the rupee plunged in value on world currency exchanges. Part of the steep decline was the result of the widespread perception that the US Federal Reserve was about to taper its easy monetary policy, a step that would have damaging implications for India and other developing economies. Fed Chairman Ben Bernanke’s announcement in late September that tapering would not take place in the near future temporarily eased concerns about the value of the rupee, but it remains to be seen if that is more than a brief reprieve for the currency’s problems.

Like Delhi and Beijing, Washington faces the likelihood of having to dial-back its strategic commitments and ambitions.”

Moreover, the reasons for India’s economic and financial troubles go beyond worries about an adverse change in Federal Reserve policy. The malaise also is partly the result of profligate spending by government leaders who assumed the soaring pace of economic expansion would never diminish and they, therefore, need not worry about mundane matters like budgetary discipline.

India’s financial troubles have important diplomatic and strategic as well as economic implications. At a minimum, it may require political leaders in Delhi to scale- back ambitious efforts to build a more modern, powerful military with power-projection capabilities beyond India’s immediate neighborhood. In recent years, Indian forces have undertaken more wide-ranging missions, including combating piracy in Southeast Asian waters. That trend may now have to slow as Delhi must give higher priority to restoring healthy domestic economic conditions.

If India is not yet about to enter the ranks of the world’s great military powers, there likely will be policy reconsiderations in both Washington and Beijing. For well over a decade, US policy makers have viewed India as a probable security competitor to China and even as an emerging strategic counterweight to Beijing. Even if that development did not produce a de facto US-India alliance, India’s economic and military rise, combined with the country’s history of border disputes and other frictions with China, suggested that Delhi’s enhanced power would benefit US interests and at least give Beijing some additional concerns. Such expectations now seem excessive, or at least premature.

The just-concluded summit between President Obama and Indian Prime Minister Manmohan Singh was certainly cordial, but the primary focus was on expanding trade ties and other economic cooperation between the two countries. Discussions about security cooperation dealt largely with matters in South Asia or more general threats, such as terrorism. There was little indication of a mutual goal to contain China’s power.  The only partial exception was Obama’s expression of pleasure at Delhi’s decision to participate in the “Rim of the Pacific” naval exercises that the US Pacific Command will host in 2014.

India is not the only power in the strategic triangle dealing with a possible mismatch between geopolitical goals and underlying economic capabilities. Both China and the United States have economic worries of their own and may have to face some hard choices about strategic goals.

In recent years, greater Chinese assertiveness has been evident in several arenas. Beijing has pushed its territorial claims in the South China Sea to encompass nearly all of that body of water and its potential mineral riches, much to the worry and annoyance of such rival claimants as Vietnam, the Philippines and Malaysia. Beijing’s boldness has been even more evident in its dispute with Japan over the Diaoyu/Senkaku islands in the East China Sea. That quarrel has led to several nasty confrontations over the past 18 months. In addition to its greater assertiveness regarding territorial disputes, Beijing has stepped-up its geopolitical initiatives in Central Asia, the Middle East, Africa and South America. In short, China has begun to act like a great power with global ambitions. Annual double digit increases in military spending for nearly two decades have produced a modern, increasingly capable Chinese military to lend those ambitions some credibility.

But economic trends over the past two years may make it more difficult for Beijing to continue that course. The growth rate of the Chinese economy has dropped from the 10-11% range to around 7%; and that’s if the Chinese government’s economic statistics are truthful, a point that a growing number of economists in the United States and elsewhere question.

Even if the 7% figure is accurate, that growth rate, while still robust, raises greater concerns about maintaining domestic social and political stability. A large and growing middle class may well begin to resist devoting so much national wealth to the military at the expense of domestic needs. China’s military budget is already second only to that of the United States. At a minimum, a more subdued rate of economic expansion may force Beijing to be more cautious about pursuing several ambitious geopolitical objectives simultaneously — especially at the risk of antagonizing Japan and other neighbors.

The United States also faces the prospect of dealing with the strategic implications of economic constraints. Washington acts as though it still is in the midst of what Washington Post columnist Charles Krauthammer termed the “unipolar moment” following the collapse of the Soviet empire. Not only does the United States maintain all of its Cold War-era alliances, but it has greatly expanded its role in the Middle East and Central/Southwest Asia, and even created a new Africa Command for the military. And under President Obama, Washington embarked on a “strategic pivot” to East Asia — an enhanced military emphasis on that region with an unsubtle motive to block China’s growing influence.

But there are indications that the unipolar moment already is coming to an end. Washington’s finances are a mess, with annual budget deficits soaring to well over $1 trillion during the Great Recession and still hovering just under that figure. Even the modest cuts in the rate of military spending under the sequestration requirements earlier this year drew howls of protests from the Pentagon and its supporters. Yet even under the most optimistic defense spending projections, the days of high single-digit annual increases (the norm since the 9-11 attacks) will not continue. That fiscal reality raises serious questions about whether the strategic pivot to East Asia and the massive commitments in the Middle East and other regions can be sustained, much less increased.

Like Delhi and Beijing, Washington faces the likelihood of having to dial-back its strategic commitments and ambitions. That may actually be a blessing in disguise; all three countries face pressures to give higher priority to economic goals and cooperation rather than pursuing geopolitical rivalries. But whether blessing or curse, economic constraints will certainly have an important impact on policy decisions and on the evolution of the strategic triangle.

Ted Galen Carpenter, a senior fellow at the Cato Institute, is the author of nine books and more than 500 articles and policy studies on international affairs.