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Whatever the high drama of an American election night, sooner or later officials have to get on with their jobs. In Asia, the second Administration of George W. Bush will face a series of challenges. The crucial relationship with China will make headlines, but Washington's leaders will also have to cope with unfinished business on the Korean peninsula, where North Korea's nuclear program remains untamed. The U.S. economy, too, is now intimately connected to that of Asia's. Here are some issues that will most absorb Washington in the next four years.
CHINA
Cementing a Relationship
Although America's relations with China are as comfortable as they've been in decades, President George W. Bush will have plenty to discuss with his counterpart, Hu Jintao. Yet the first thing he'll want to do is take stock of Hu himself—much as Bush searched for friendship in Vladimir Putin's eyes at their first meeting, in Ljubljana in 2001. Hu still hasn't visited the United States since assuming the presidency in 2003, and remains as enigmatic to Americans as he does to his own people. He has made three trips to Eastern and Western Europe and members of the ruling Politburo Standing Committee have made six more. China is clearly trying to exploit strains between Europe and the U.S., and has voiced its own gripes with the U.S. as well. Shortly before the election, China's most important foreign-policy mandarin, retired former Foreign Minister Qian Qichen, publicly criticized the "Bush Doctrine" for its "cocksureness and arrogance" and its quick resort to force.
Bush will meet with Hu at the APEC summit in Chile this month. The meeting will dwell on economics, a bone of contention between Washington and Beijing that Bush will have to address. China enjoyed a trade surplus with the U.S. of nearly $99 billion through August, and American industrial lobbies accuse China's low-cost labor force of stealing American jobs. Trade conflicts could strike early, as quotas on China's textile exports will end on Dec. 31. While Beijing is looking forward to selling more silks and underwear, the U.S. still enjoys "surge-protection" clauses that let it restrict imports from China. "We will be highly vigilant for new forms of protectionism," warns Sun Zhenyu, China's ambassador to the World Trade Organization.
Yet Bush will need China's cooperation. Both the U.S. and China want to block North Korea from developing nuclear weapons, and China has been instrumental in keeping North Korea at six-party talks aimed at ending the country's nuclear weapons program. Beijing and Washington share a deep unease at moves by Taiwan's President, Chen Shui-bian, which they see as steering his island toward independence. Washington would like Taiwan and China to resume negotiations, but, for now, that seems unlikely. America will therefore have to continue its policy of "strategic ambiguity," which does not define the circumstances under which the U.S. would defend Taiwan against Chinese force.
The greatest gift Hu Jintao could give to Bush would be political reform in China. That would enable America's leader to embrace Hu as a moral equal and prevent human-rights abuses in China from roiling the relationship. A bit of political goodwill would also work wonders during the rough spots that inevitably crop up between the U.S. and China—such as America's bombing of China's embassy in Belgrade in 1999 and the deadly collision of American and Chinese military airplanes in 2001. But such reforms seem unlikely, at least in the short term. Hu has shown no interest in weakening the Communist Party's control over China's society, and recently described Western-style democracy as a "blind alley" down which China would not walk.
KOREA
No End of Trouble
The U.S. President's North Korea crisis will likely look worse than the one George W. Bush faced when he first came to office. More than two years have passed since Washington confronted Pyongyang with evidence indicating that it was secretly working on a new nuclear weapons program. Since then, North Korea has pulled out of the Nuclear Nonproliferation Treaty, kicked out inspectors from the watchdog International Atomic Energy Agency, and boasted openly about refashioning used reactor fuel into bombs. Today, with perhaps as many as eight nuclear devices in the North Korean arsenal, the clock is ticking—the U.S. has said it cannot tolerate a nuclear-tipped North Korea, but it has failed to shut down the bomb factories. At some point the U.S. Administration will have to consider stronger medicine—sanctions, an economic blockade, even a military strike. Says Choi Jin Wook, a North Korea expert at the Korea Institute for National Unification: "Tensions will inevitably escalate."
Pyongyang will likely try to gain the upper hand next year with more brinkmanship, analysts say. "North Korea will deliberately provoke a crisis through a military show of force," predicts Dong Yong Seung, a North Korea watcher at the Samsung Economic Research Institute. The six-party talks between North Korea, the U.S., China, South Korea, Japan and Russia will likely resume, allowing all sides to pretend that the crisis is not a crisis. But there is little optimism the talks will produce results.
President Bush will be under pressure from China and South Korea to make concessions to Pyongyang, in the hope that it trades its nukes for massive amounts of aid. Seoul's increasingly close relationship with the North will make it harder for Washington to nail down a deal that leaves Kim Jong Il no wriggle room. But the new Administration is unlikely to back down from the position that any deal has to shutter North Korea's nuclear program for good.
So far, North Korea has pulled back from the brink by not formally declaring itself a nuclear power. It has also stopped short of proving conclusively that it has a nuclear bomb, despite widespread speculation that it would soon test such a device for the first time. Either move could unleash a nuclear arms race in Northeast Asia, as first Japan then South Korea might follow the North into the nuclear weapons club. That prospect is enough to keep the White House focused on the region.
PAKISTAN/AFGHANISTAN
Fragile Allies
For the next U.S. Administration, handling Afghanistan and Pakistan will require the deft touch of a demolition expert faced with a ticking bomb. In both countries, Washington is gambling on the survival of its chosen favorites—Afghan President Hamid Karzai and Pakistan's Pervez Musharraf. But this strategy has its risks; both leaders have been the targets of assassins, and there is a shortage of second-string choices suitable to Washington if either Karzai or Musharraf are killed.
Karzai won a comfortable victory in the October presidential polls, with 55% of the vote, but the process opened dangerous ethnic fault lines. Karzai was the overwhelming winner among his fellow Pashtuns, but he received less than 1% in the northern, Tajik-majority province of Panjshir. Washington can assist Karzai by speeding up the flow of foreign aid and by ensuring that it reaches the far corners of a country that has been ravaged by a six-year drought. With a little help from NATO friends, Washington must also extend the reach of the military civil-reconstruction teams into the mountainous provinces where they can disarm the warlords and build roads, schools and clinics. Armor-plated aid is needed to thrust into the southern and eastern regions where Taliban rebels find it easy to recruit Pashtun tribesmen who have received little relief from international agencies. Western diplomats in Kabul say that, at most, the Taliban, along with their allies al-Qaeda and renegade commander Gulbuddin Hek-matyar, are capable of harassing coalition and Afghan forces but not of conquering back towns and provinces.
The U.S. should discourage Musharraf from playing a double game with the Taliban. Some influential elements inside the Pakistani intelligence service and the military remain convinced that they can influence events in Afghanistan to Pakistan's benefit by backing the Taliban. Officials in Kabul are perplexed that Pakistan has failed to capture a single top Taliban commander, although U.S. and Afghan officials have evidence that dozens of rebel chiefs are living openly in the Pakistani border towns of Quetta and Peshawar. There is the perception in Kabul that, as one Afghan official put it, "if Islamabad can't have a satellite government in Afghanistan, their second option is to create chaos and keep the pot boiling."
Behind the scenes, the new U.S. Administration should help broker a settlement between India and Pakistan over the disputed Himalayan territory of Kashmir, says Riffat Hussain, professor of security studies at Islamabad's Quaid-e-Azam University. That would defuse tension between these two nuclear-armed enemies. A partial settlement over Kashmir could be one major surprise in the offing. Musharraf has suggested dropping Pakistan's insistence that a referendum be held among Kashmiris to choose whether they want the territory to belong to India or Pakistan. But President Bush will also have to decide whether to push Musharraf into establishing a timetable for the restoration of democracy in Pakistan. As opposition politician Chaudhry Nisar told TIME: "Why are the Americans boasting about bringing democracy to Afghanistan when nothing is being done in Pakistan?" By relying too heavily on Musharraf—and overlooking his authoritarian impulses—the U.S. has disillusioned many Pakistanis. With moderate political groups in Pakistan neutered, many of those dissatisfied with Musharraf are turning toward radicals with harsh, anti-American agendas.
ECONOMY
Financial Jitters
After years of surprisingly strong growth, Asian economies are slowing down. In October, Morgan Stanley downgraded its 2005 GDP growth forecast for the region (excluding Japan) to 5.5%, compared with 7.2% in 2004. The main culprits are the record-high price of oil, an expected weakening of the U.S. economy and an ailing dollar, which makes Asian products more expensive for U.S. consumers and curbs export growth. But a new factor putting the brakes on Asia is China. Over the past two years, soaring demand from China for everything from steel to palm oil to semiconductors has been the engine driving Asian economies. Fear of overheating, however, has forced Beijing's policymakers to curtail bank lending and new investment. For next year, Morgan Stanley expects China to grow at a still swift 7%, but that's much slower than the 9.5% forecast for 2004, and sluggish enough to dampen growth throughout Asia. Japan might be hardest hit. Though a sparkling recovery there had fueled hopes that more than a decade of stagnation had finally come to an end, Morgan Stanley estimates that the world's second largest economy will stumble to only 1% growth in 2005, from 4.4% this year.
Japan won't be the only country suffering. In late October, India's central bank lowered its GDP growth forecast for the current fiscal year to a range of 6-6.5%, citing a mediocre monsoon season and high oil prices. Last year, the economy grew 8.2%. Southeast Asia, too, will see a decline, from 5.8% growth this year to 4.4% in 2005, according to Merrill Lynch. In Indonesia, the region's most populous country, hopes are running high that new President Susilo Bambang Yudhoyono will push through tough reforms and woo back the investment needed to spur the sagging economy. But the biggest worry is the Philippines, where ballooning debt and endemic budget deficits are sparking fears that the country could slip into a debt crisis.
Nevertheless, China will be the biggest economic challenge facing the U.S. President. For the American public, China is replacing Japan as an economic bogeyman. Though the criticism isn't entirely fair, the fears of China's growing economic dominance in Asia are real. In the early 1990s, Japan's share of the deficit spiked at more than 50%, but it since has sunk to about 10%. Meanwhile, China's share has slowly crept upward, to more than 20%, and now represents the U.S.'s largest deficit with any country. The trend is set to continue as Beijing opens the mainland's economy to meet the terms of WTO membership. Bush will also have to keep a spotlight on the Chinese policy of pegging its currency, the renminbi, to the U.S. dollar. The Bush Administration has criticized Beijing for keeping its currency artificially undervalued, making Chinese-made products more competitive and investment in China more attractive. "The buildup of the deficit with China is becoming very serious," says Charles Chang, managing partner of investment consulting firm Accolade Inc. in Seoul. "The next President has to continue the effort to relax control of the renminbi."
Chinese officials argue that the mainland needs to fix major domestic financial problems, such as a banking sector riddled with bad loans, before tackling currency reform. In any event, President Bush will be able to push China only so hard. America is becoming more and more dependent on Asia for its own growth. U.S. companies, from General Motors to Motorola to McDonald's, are banking on China as a substantial source of future profits. Cheap imports of toys and electronics from China fill stores in the U.S. and help keep American consumers spending and supporting their own economy. And the Chinese government is the world's second largest foreign owner of U.S. Treasury bills, in effect funding Washington's ballooning budget deficit.
The U.S. President's policy toward that budget deficit could prove to be a major factor for the economies of Asia. If the deficit is steadily reduced, growth in the States might slow and drag down Asian economies with it. But if the deficit continues to expand, the impact might be even worse. Beijing and Tokyo might lose interest in buying U.S. government bonds, which would speed up the deterioration in the value of the dollar and exert painful pressure on the global economy. "If the U.S. continues with the current fiscal policy, the chance of a dollar crisis is high," says Kenneth Courtis, Tokyo-based vice chairman of Goldman Sachs Asia. "That would create a lot of turbulence in the region." None of which would be good for the new Administration.
OUTSOURCING
Anger Management
It's a sign of how heated a topic outsourcing became during the U.S. election campaign that even Osama bin Laden got roped into the debate. Claiming that George W. Bush should have used American troops to hunt down bin Laden in Afghanistan instead of handing over the task to local warlords, John Kerry charged that Bush had "outsourced the job of capturing [bin Laden], just like he outsourced a lot of American jobs." Kerry hammered Bush for not doing enough to stop the flight of American jobs to countries like India, and assailed a U.S. law that encourages outsourcing by allowing companies to defer paying taxes on money earned overseas. He said that if he were President it would take him "about a nanosecond" to decide to try changing the law.
That's why executives from India to the Philippines are greeting President Bush's re-election with a huge sigh of relief. During Bush's last term, the outsourcing industry in Asia grew at an astonishing rate. Tata Consultancy Services, India's largest exporter of software services, saw its revenues surge 44% between July and September this year, compared with the same period last year; revenues at Infosys, another major Indian tech firm, grew 51%. Many U.S. companies aren't just sending call-center jobs and low-end software programming abroad; they're using India's enormous pool of highly qualified and cheap labor to cut their research-and-development budgets. Google, for instance, opened an R.-and-D. center in Bangalore earlier this year to explore ways of improving its online search tools.
Asian outsourcing firms hope Bush will now give them a further boost by increasing the annual quota of American H-1B visas. Indian tech companies rely on these visas—which allow skilled foreigners to migrate to the U.S. for three years—to send teams of software engineers to clients' American offices for on-site training. But current U.S. law restricts the number of H-1B visas to only 65,000 a year—woefully inadequate to meet the Indian tech companies' needs. Without more visas, India's outsourcers will have to hire Americans to do their on-site work—which would significantly bump up their labor costs.
Under Bush, outsourcing should continue to fatten American corporate profits, but it also threatens to leach millions of jobs away from the U.S. service sector. The challenge for Bush is to ensure that American workers receive the higher education and vocational training they need, so that it's still worth paying them a premium. If he fails to do so, Asia will benefit.
- The Bush Administration faces some major challenges in Asia