December 9, 2012


Forget the fiscal cliff: buy America (Philip Stephens, 12/06/12, Financial Times)

A year or so ago, the Beijing-based Chinese Institute for Contemporary International Relations made an unpublished assessment of the various components of US power. The CICIR serves China's intelligence agencies and has a reputation for unvarnished analysis. It found many more entries on the positive than on the negative side of the US balance sheet.

Some of these strengths speak for themselves. America's military reach will be unrivalled for decades. It has a stable political system. The country's demographic profile is significantly better than that of any potential rival. Washington sits at the centre of the world's most powerful alliance system. Its intelligence capabilities are unmatched. The US has huge advantages in technological prowess and intellectual resources. Around the world it exerts a strong cultural draw. It has a global outlook.

The Chinese identified some counterpoints: an underperforming economy, rising public debt and deficits, social polarisation and political gridlock in Washington. What's striking, though, is the qualitative nature of the pluses and minuses. The advantages are mostly permanent. The security afforded by geography is not something the US can lose. The same can be said for abundant natural resources and relative resilience against climate change. Compare this with the identified weaknesses. With a measure of political resolve, they are all more or less tractable.

The implications of the exploitation of unconventional oil and gas reserves has been underestimated. Most obviously, shale oil and gas will reduce dependency on Middle East petrocarbons. Over time that will encourage a scaling back in the US commitment to the region's security, freeing up economic and military resources for Mr Obama's pivot to Asia. Countries such as China that are heavily dependent on imported energy will be much more vulnerable to geopolitical shocks.
The big gain, though, comes in the form of the competitive stimulus promised by abundant cheap gas. The age of offshoring is likely to give way to the era of onshoring. The US growth rate will rise and the current account deficit will shrink.

Europeans are already complaining that cheap US gas is encouraging a flight of energy intensive businesses across the Atlantic. How can, say, Europe's chemicals producers - buying expensive Russian gas - compete with US rivals guaranteed access to cut-price feedstock.

Posted by at December 9, 2012 12:37 PM

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