U.S. debt crisis: Implications for Asia
July 27th, 2011
05:56 PM ET

U.S. debt crisis: Implications for Asia

Editor's Note: David S. Abraham is a Hitachi International Affairs Fellow at the Council on Foreign Relations and previously worked at the White House Office of Management and Budget. Meredith Ludlow worked for Pacific Epoch, a China research firm, and the U.S. Department of Commerce in Shanghai.

By David S. Abraham and Meredith Ludlow – Special to CNN

More than simply a domestic economic issue, the continued unsuccessful attempts by congressional leaders to raise the debt limit is becoming a source of international political concern.

Specifically, Congress’ implication that the U.S. may not repay its debt unless the government restructures domestic spending is undermining American interests in Asia.

The concern is straightforward: if American lenders in Asia, especially China, cannot trust the U.S. on its word to abide by a financial contract then they will be less willing to trust the U.S. on defence, trade or other issues of strategic interest. For them, this ongoing debate is not about fiscal stability but is just another sign that America’s leadership is short-sighted, untrustworthy and declining.

In the view of its Asia neighbors,this abdication of responsibility by the U.S. to honour its commitments continues a trend of ineffective government decisions, exemplified by the missions in Afghanistan and Iraq — where, after nearly a decade, a decisive victory has not been achieved — and the bumbled Hurricane Katrina disaster response. The U.S. government has appeared as feeble at best and anemic at worse, while China’s government has achieved nearly double digit growth and successfully planned and met its five year goals.

Add to this the 2008 Financial Crisis, labelled in many circles as the ‘Lehman Shock’ or ‘Lehman Crisis’. In affixing an American firm’s name to the financial meltdown, the perception of blame clearly resides on U.S. shores. This, in turn, undermines economic liberalisation efforts and bolsters China’s case for a more controlled financial model. In their mind, and in the minds of other leaders, these events all contribute to a picture of an ineffective and now unreliable nation that has seen its better days.

In China, SINA blogs and nightly news programs are abuzz with discussion — not only doubting the intent and ability of the U.S. to repay its debt but questioning Beijing’s decision to continue to invest in U.S. treasuries. There are growing cries among the Chinese to move PRC holdings out of the U.S. and invest in Southeast Asian countries — where relations are expanding — or in other regions perceived as more reliable instead.

This comes at precisely the wrong time. U.S. Joint Chiefs of Staff, Admiral Michael Mullen stated this week that the U.S. needs ‘to make the relationship better, by seeking strategic trust’ with China. Adding, ‘A good bit of misunderstanding between the two militaries can be cleared up by reaching out to each other’. He may be right. But when China believes the U.S. government has such little regard for the more than US$1 trillion it owes them, China will trust America less on other matters, including military, where there is already skepticism, such as territorial disputes in the South China Sea. Earlier this month, Chinese army chief General Chen Bingde accused the U.S. of ‘sending the opposite signal to the world’ in conducting joint naval exercises with other ASEAN nations after assuring China it wouldn’t intervene.

But to prevent a geopolitical disaster in addition to a predicted economic calamity, the U.S. must raise the debt ceiling and ensure that the paying back of creditors is not held hostage to annual political machinations about America’s fiscal future. This must not be a monthly or annual sideshow. Congress should also delink the issues of paying back creditors to deciding which government programs it can afford — such discussions should be done during the annual appropriations process.

Undoubtedly, U.S. fiscal policy should receive vigorous examination and debate. Such discussion is the hallmark of a democracy. But U.S. leaders should realise that debating its intent to honour commitments not only makes countries weary of loaning the U.S. money it also undermines U.S. strategic interests.

The views expressed in this article are solely those of David S. Abraham and Meredith Ludlow.

soundoff (4 Responses)
  1. huyu

    The world should know that other than praises for our fellow men in other countries such as India, we Chinese have nothing to say about other inhabitants of our shared planet. We would always find faults with ourselves for only then we can strive to improve, even if it proves to be impossible. Certainly sticking our nose into other people's knickers is not one of our habits.

    But, commerce, we are most enthusiastic for.

    These are nice knickers indeed. I have in possession 1,000 different styles here to satisfy your most basic and the most exciting carnal needs. Drop a call, and we can do business, just like Lady Baroness T. said.

    We have so many our own problems, if you know them yourself, your mind probably will explode. Because of our retardedly developed venting machines and lack of such propaganda splendors like the Economist, the CNN, or Fox, we usually get off by breaking your nose; whenever, for some reason my spit flies off onto your fragranced face. Or sometimes chopping a few heads off, especially for some of our violent fellows and tradition seeking long-knife carriers. I sometimes wonder how the Messers like Mr. Hu, Wen, Ho, and Whi can ever sleep; the jobs have to be a life expectancy killer bordering on self-assisted suicide, and so little pay, and not even a mistress or two.

    If you see any Young & Restless (FengQing) like our proverbial Mr. Chris, just please please please, ignore him. How does he know that no one ever falls off the train in China while speeding at 200 miles per hour, and how would he know maybe some people prefer to sit on the roof of the train for a more splendid view, and indeed superior air to breathe in the scorching sun at a more leisurely pace.

    And indeed, on his miserly 5,000$ annual income, and a clear lack of in-the-know on our planetary affairs, how would he contribute to such galactical human endeavors as whether white cats are superior to the black cats, or the black ones to the white ones, or maybe even both. It is indeed much preferable to leave such high-intellectual exercises to our Mr. Chris' IQ beating western oratoriatators and Indian Brahmins.

    His patriotism is admirable, but it is not what most of us think in China. There is nothing in the world that we want other than to get the next bottle of Maotai (read expensive), my wife's next Gucci bag (fake actually), any my kids next lessons (rote learned anyways), the next car, the next house, or the next mistress (shhiii...).

    To claim that China will model this or that really is just a little bit over the top; our best known models are the ones most slimly clad, smiling splendidly, who whispers with that most tender, vibrating voice, while posing in the most fantastical ways at the Beijing Motor show. You see, that really got my plum in my mouth wriggling.

    For such mundane matters, we prefer to delegate to Uncle Sam. Nice Uncle indeed, who spends the body bags and money to trouble shoot for all us while we collect interests. It is a good bargain, we are already getting used to it.

    July 27, 2011 at 9:42 pm | Reply
  2. j. von hettlingen

    The chicken game played in the Congress undermines the country's strength as a whole and puts its creditworthiness at risk. What do the two camps gain? They will be judged by histroy for their shortsightedness.

    July 28, 2011 at 8:36 am | Reply
  3. kerwin

    I always wanted to go to a third world country, but thanks to Obama I don't even need to move. 🙂


    July 29, 2011 at 10:27 am | Reply
  4. Lord Jackson

    I feel what these writers be sayin. Summer time makes our leaders do some crazy things. Speaking of summer, time to drop my top and bump my system. Obama be lovin summer time like me.

    July 29, 2011 at 3:58 pm | Reply

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