Asia Rising: The Increasing Relevance of East Asia in Foreign Policy

In late May, Putin and Xi Jinping signed a massive 400 billion dollar natural gas deal in Shanghai. For the next thirty years, new pipelines will pump trillions of cubic feet of natural gas from Russia’s Gazprom, the world’s largest natural gas extractor, to the China National Petroleum Company (CNPC). While the agreement certainly comes at a critical time for Putin strategically as he counters US and EU sanctions, it is representative of a larger global trend: an economic, political and defensive shift toward the East.

Putin has been pushing for an energy deal with China for nearly ten years, and rightfully so. China, and Asia more broadly, has a vast market for oil and natural gas with its megacities and booming economy. The deal between Gazprom and CNPC gives Russia a foot in the door of this profitable energy market. Providing up to 20% of China’s natural gas needs, the deal finally solidifies the Sino-Russian alliance that Putin has been advertising. What’s more, the two countries will be paying with their own currencies, the ruble and yuan, completely bypassing the American dollar, which is traditionally used in energy transactions. Although the dollar has long been the international reserve currency of choice, Russia’s VTB and the Bank of China’s decision to trade in domestic currencies stresses the exclusivity of the Eurasian trade deal; the US is not welcome. Although this alone does not significantly destabilize the petrodollar, it certainly undermines American relevance in the deal and indicates Putin’s increasing focus on relations with Asia.

Putin’s meeting with Xi Jinping also comes on the heels of Obama’s four-country Asia tour in April. After a canceled trip to Asia during the October government shutdown, Obama’s tour demonstrates the president’s desire to make good on his foreign policy goal to “pivot to Asia.” In his visit to Japan, South Korea, Malaysia and the Philippines, Obama focused on strengthening economic and military relationships. The trip resulted in increased numbers of American military personnel and equipment stationed in the region; yet, thus far, Obama’s plans for future economic partnerships have not been realized.

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President Obama is the first American president to visit Malaysia since Lyndon B. Johnson in 1966. 2014. (Flickr Creative Commons/The White House)

Neither the Malaysian nor Japanese leadership approved Obama’s Trans-Pacific Partnership (TPP) to increase connectivity between the Asian and American economies. Despite domestic backlash from Democratic Senators and Congressmen, Obama has continually pushed for more economic cooperation across the Pacific. Obama, like Putin, hopes to benefit from the expanding Asian markets; the TPP would eliminate tariffs between the US and several Latin American and Asian states. According to Don Emmerson, a political scientist at Stanford, “Americans cannot afford to deny themselves…the opportunities for trade and investment” present in Asia, but Asian leaders, however, seem less enthusiastic. In Japan, Abe refused to join the partnership due to the protected five sacred areas of Japanese agriculture. In Malaysia, political “sensitivities” and economic concerns also halted progress. The TPP has major implications for American and Asian economies (Japan is America’s biggest trading partner in Asia aside from China). Thus, although no agreement was reached during the tour, the American, Japanese and Malaysian leaders promised to continue negotiations. These promises give President Obama a glimmer of hope that soon the Asian governments will be more receptive to the partnership. It should be Obama’s mission, then, to adjust the TPP to be more beneficial for all states involved, especially those with heavily protected domestic industries.

TPP negotiations were also designed to reestablish American’s military presence in East Asia. The US military will continue to maintain operational control of the Demilitarized Zone between North and South Korea. This agreement gives the US command of South Korean troops in the event of war with North Korea. In Japan, Obama reassured Prime Minister Shinzo Abe that the Senkaku Islands (or the Diaoyu Islands, as they are known in China) would fall under American protection in the case of a threat. These uninhabited islands have long been disputed by Japan and China, who both claim ownership of them. Obama’s declaration of support for Japan’s sovereignty in the maritime dispute is a signal of disapproval to China, whose military actions in the East and South China Seas concern many Asian states. As expected, China was not pleased by Obama’s remarks.

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The Senkaku/Diaoyu Islands, located in between Japan and China. 2012. (Wikimedia Commons/Voice of America)

Obama’s actions in the Philippines were also bad news for China. The United States and the Philippines, which has experienced their own territorial disputes with China, responded with a 10-year defense treaty, the first since the 1990s. The treaty again serves as a counterweight to China. Yet, none of Obama’s military agreements should come as a surprise considering the staggering growth of China’s military budget. In 2014, China plans to spend $132 billion on defense, a 12.2% increase from 2013 – although most critics agree that the real number is significantly higher.

These figures make China impossible to ignore. Combine the country’s military expansion with its rapidly growing GNP and it becomes one of the greatest forces in the world today. China’s enormity and consequent impact on its neighbors, from Japan to the Philippines to Russia, have forced other world powers to readjust. Putin and Obama have played their hands, each trying to get ahead in the Asia-Pacific. Putin’s natural gas deal has created a buffer for conflicts in Europe and Obama’s efforts to increase economic cooperation and American military presence in Asia also indicate increased interest in Asia. It remains to be seen how other world leaders will react to the growing relevance of East Asia in global issues.

In early May, European Union (EU) leaders met with Shinzo Abe to reaffirm their positive relationship. At the meeting, the leaders discussed further economic and political ties, although no specific agreements were signed. The leaders of the EU and the Association of Southeast Asian Nations (ASEAN) will also hold a summit in October. Will Europe, like Russia, turn to China, Asia’s largest power, or invest in ties with other East Asian nations alongside President Obama? Regardless, it is clear that the “turn to Asia” is a legitimate and global phenomenon.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff and editorial board.

Should Food Fill Stomachs or Gas Tanks?

Under a new U.S. Renewable Fuels Standard (RFS) program, created by the Energy Policy Act in 2005, the US became the world’s largest producer of ethanol fuel. By 2007, a second government mandate, the Energy Independence and Security Act (EISA), was passed which expanded the RFS program requiring 36 billion gallons of renewable fuel be used by 2022.While corn ethanol is not directly outlined under these policies, 98% of the biofuels produced and blended into gasoline in the US originate from corn. This de facto directive for corn ethanol has had negative impacts on global food market prices. In 2012, we experienced the worst global drought of the last half-century. With the US being the world’s largest exporter of corn, and their mandated 40% allocation of its corn for ethanol use, the already pressured corn prices skyrocketed.

In the past decade, prices of oil and food have significantly risen to historic levels. Because of the inextricable link between food and energy markets, the grain market has experienced volatility over the past six years. As a commodity susceptible to weather, it is apparent how much recent climatic events have distorted global grain inventories. This consumption mandate has turned out to be the most significant driver of ethanol demand, corn demand and corn prices as we can see the global food crisis correspond with the US expansion of corn ethanol in 2007. Agricultural commodity prices broke record highs in ’07-’08, in ’10-’11, and again with the US drought in 2012.

The most ethically heated issue with the RFS mandate is that corn is diverted away from the global food supply and towards the US’ domestic energy chain. This policy has had harsh repercussions on developing countries, which spend a much greater portion of their income on food and energy than the developed world. While the world’s wealthy states can substitute higher priced foods from elsewhere, the world’s poor cannot. As a country that sends almost a billion dollars annually in food aid to help the developing world feed itself, why does the US divert food into their energy chain and consequently increase the global price of food? Is putting food in gas tanks an ethical energy policy, food policy, and foreign policy? Pitting food policies against energy policies is illogical and proving to be destructive, thereby increasing vulnerability to weather risks suggesting the EISA/RFS is an unpredictable law.

The RFS/EISA has become a source of debate amongst Americans: some want it repealed; others want it left untouched. There is, however, little discussion on what a repeal would look like apart from a complete shutting down of the policy. Phasing out the RFS year by year – effectually reversing the policy over time – could provide a concrete policy solution.

Powerful industries and advocates have been created under US ethanol production, and with the current rise in vocal opponents of the RFS, these industries and advocates sense a direct threat. Removing newly engrained policies is politically difficult. However, if the US were to phase out the EISA year by year, it would help mitigate the economic and political shock currently felt by corn farmers and ethanol reliant industries. Reducing US ethanol commitments over time, thus reducing the amount of corn in gasoline, would also help alleviate pressures on global food prices.

An emerging development in America’s energy landscape, that poses a legitimate challenge to the use of food in gas tanks, has been the discovery of significant new natural gas reserves. This immense supply has been identified and tapped, subsequently forcing US natural gas prices down to attractive levels relative to both oil prices and international natural gas spot rates. The security, predictability and location of this supply are by far superior to that of global oil.

Already there are industry efforts to convert engines to burn natural gas and establish infrastructure to distribute it. This will take time and investment but represent a kind of phase-in calendar that could offset the phase-out use of ethanol. Moreover, converting vehicles to natural gas would create jobs: drilling, distribution, infrastructure and conversion. It would not encroach on food supply, or on American foreign policy, other than to reduce a reliance on foreign oil.

While there are some environmental concerns, natural gas is the cleanest burning and most efficient of all hydrocarbons and offers an environmentally preferred alternative to higher carbon emitting gasoline. While understanding the recent moratoriums on fracking in certain US states, US shale oil expansion has OPEC members and Gazprom taking notice.

In an energy hungry world, America has the opportunity to phase out ethanol and phase in an abundant, available, cleaner and less expensive fuel that is more secure. It might alleviate pressure on energy for others worldwide, as a gallon of gas not consumed in the US becomes available to others. Moreover, it would return the use of corn to the food chain where it belongs.