Economic Priorities and Geopolitical Advantages

After World War II, the structure of geopolitical competition changed. New economic strategies created extraordinarily high growth rates that enabled countries to become major powers quickly by focusing on economic development. Exceptionally destructive new military technologies made traditional geopolitical strategies, organized around military power and territorial expansion, very dangerous and expensive. The leading powers, Japan, South Korea, Indonesia, the United States, and eventually China, became those who exploited the new economic opportunities most successfully. As a result, Asia enjoyed half a century of more stable domestic politics, regional peace despite local upheavals, and, perhaps, the most extraordinary improvement in living conditions in human history. But the new century brought a weakening of economic-oriented strategies in Japan, the United States, and China and a corresponding worsening of traditional geopolitical tensions. More recently, Japan has embarked on one of the greatest economic gambles in history, China is attempting to rejuvenate economic reform at home and geoeconomics abroad, while the United States struggles to revive its domestic economy and pursue trade liberalization despite partial immobilization by a polarized Congress.

On some levels, little has changed in US-China relations, the core of trans-Pacific politics. Since the time of Richard Nixon, US policy has remained largely consistent through Republicans and Democrats of various kinds. The United States seeks to welcome China into the post-World War II framework of institutions, while hedging against the possibility that this once revolutionary instigator might take a troublesome turn. Likewise, China has joined the institutions it once sought to overthrow, abandoned revolutionary proselytizing, and settled most of its land borders to its neighbors’ satisfaction. Its economic success has accelerated neighbors’ growth, greatly improved the prospects of the poorest raw material producers of Africa, Asia, and Latin America, and, despite some valid complaints, enhanced Americans’ prosperity. These continuities testify to wise leadership on both sides of the Pacific.

Today’s challenges do not seem particularly formidable compared with those of the past. Today’s territorial waters issues are disturbing but less dangerous than the earlier crises over Taiwan. Controversies over currency are fading. Yet Sino-American distrust steadily worsens, complicated increasingly by nationalist Japanese rhetoric and immoderate Chinese escalation of conflicts. Beneath the manageable controversies are deeper tides. The danger is growing that leadership in various countries will not be up to the task of keeping these troubles under control.

Historical Perspective

Chinese-American-Japanese relations have developed within a new context that differentiates the post-World War II era from all previous eras. Traditionally, the way to become a great power was to build up your military, invade your neighbors, seize their assets, tax their peasants, then repeat. After World War II, two trends transformed the context of international competition. First, Japan showed that is that it is possible to grow 10 percent per year. Previously, the economic foundation of the British Empire had been 2 percent annual growth and of American global leadership 3 to 4 percent annual growth. After the Meiji Restoration, Japan managed to grow 4 percent for an extended period but could not sustain that. After 1955, it managed to grow 10 percent per year for two decades. Because of this, it quickly became recognized as one of the world’s three great power centers notwithstanding its diminutive military.

Second, military technology became so destructive that pursuing geopolitical ambitions through traditional military conquests of territory in the manner of wartime Japan and Germany now was likely to produce only Pyrrhic victories at best. Of course, the most destructive new technology was nuclear weapons, but conventional capabilities have also become vastly more destructive, so that pursuit of geopolitical objectives through traditional conventional warfare may also lead to Pyrrhic victories or defeat. George W. Bush’s failed foray into Iraq and the debunking of certain colleagues’ convictions that the United States could impose democracies by force in the Middle East and elsewhere, exemplify the new situation. This is particularly true because weaponry has become not just more destructive but also more democratized and depersonalized. Individuals and relatively small groups now have access to substantial destructive power, while from drones to IEDs to cyberwar, the violence of much modern weaponry is now detached from the individual who is deploying it, increasing the costs, particularly to a big power, of seeking geopolitical stature primarily by traditional military means or through territorial acquisition.

These developments restructure the geopolitical game. Of course neither geopolitical ambitions nor military conflict have been abolished, but rational leaders must now invest much more heavily in economic development as compared with military buildups and territorial conquest than before. Established powers still fear rising powers, as happened with Athens and Sparta, and rising powers may threaten fundamental interests of the established powers, as happened with prewar Japan and Germany, but the rational strategies of both are different when economic progress is so clearly the key to relative power. Economic strategies do not replace military strategies, just as military power was never divorced from sound economic management, but the balance shifts.

To say this is not a variant of the discredited liberal interdependence theory that economic interdependence will preclude war. That theory holds, in effect, that strong mutual economic interests will override geopolitical ambitions. What I am arguing is that it is now possible to achieve geopolitical ambitions, even dominance, primarily through economic means, and, moreover, states pursuing stature primarily through traditional means of military conquest or intimidation are more likely to fail.¹

The Era of Competition through Growth

The Korean and Vietnam wars were traditional conflicts fought in traditional ways, but the larger Asian and global game has been driven by economic strategies. Japan’s focus on rapid growth from 1955 to 1975, and the (obsolescent) image of superior management that it sustained through 1989, made Japan one of the world’s great powers, even though Japan’s military was severely constrained. Even Americans were frightened by Japan’s success. A scare literature developed, expressing concern its economic superiority would make it the world’s dominant power. Some authors even predicted that America would inevitably fight a war with Japan.²

South Korea learned from the Japanese example. Under Syngman Rhee, South Korea gave priority to the military at the expense of economic development and political values. As a result, it fell further and further behind North Korea in both military power and political stability. It then tried to focus on democracy, a priority that, under the circumstances, led to disorder, inflation, and geopolitical weakness. Finally, Park Chung-hee refocused the nation’s priorities on economic development, at the cost of drastically reduced military budgets and curtailed democracy. Quickly South Korea became superior to North Korea in political stability and diplomatic stature, by growing its economy to over 20 times the size of North Korea’s. By sticking to a caricature of a traditional military-dominant strategy, North Korea doomed itself to a likely strategic dead-end, notwithstanding its recent nuclear explosions. No comparable success would have occurred if South Korea had continued, in the manner of Syngman Rhee, to follow the traditional pre-World War II German or Japanese strategies.

In Southeast Asia, Indonesia seemed headed for civil war and likely breakup under Sukarno, who disdained sound economic management and claimed much of Southeast Asia as Indonesian territory. It then had the world’s worst ethnic divisions, the world’s third largest communist party, and more Muslim fundamentalists than the rest of the world combined. As did General Park Chung-hee, General Suharto refocused on the economy; to that end, he abandoned territorial claims to much of Southeast Asia. Very quickly Indonesia became the informal, but undisputed, leader of ASEAN.

Most other ASEAN members (among the original six) also quietly abandoned most claims on their neighbors and focused on economic development. Their economic success stabilized the polities of hitherto divided and violent countries and simultaneously made them more capable of defending themselves. Mutual economic success provided the foundation for a grouping that was able to resist subordination to any big power or ideology. (The Philippines, an exception that neither emphasized economic reform nor abandoned territorial claims on Malaysia, has experienced steady strategic decline.)

The resultant pattern of “peaceful rises” enabled the United States and its allies and associates to defeat the communists in Asia’s Cold War. They were peaceful rises in multiple senses. Unlike the rise of Sparta, their rises did not create risks of war by challenging the vital interests of other powers. They succeeded, in part, by constraining their military and geopolitical ambitions, in order to focus energy on economic growth, and this priority stabilized domestic politics by providing benefits to everyone, entrenching the positions of growth-focused leaders. The United States aided these peaceful rises, protected them, and achieved victory through them. US Cold War policy was heavily economic, from the Marshall Plan in Europe to fostering the Japanese miracle to nurturing what became known as the Berkeley Mafia (the key technocrats who guided development) in Indonesia. AID mission heads were nearly as important as US ambassadors.

Highlighting the importance of economic development and “peaceful rises” does not denigrate the role of the military. The military’s role was vital, but supportive. If Park or Suharto had chosen to rely overwhelmingly on the military to suppress domestic disorder and prevent international subordination, and if the United States had supported them almost exclusively with the military as it did decades later in Iraq and Afghanistan, then both would eventually have collapsed and become pawns of other powers. If Eisenhower, like Park, Chiang Kaishek, and Suharto a former general, had not capped the US military budget, the US position would have been much weaker. The indispensable role of the military in America’s Cold War victory is best conceptualized as having protected the successful core strategy of fostering allies’ economic rebirth. Conversely, Mao and Stalin and Stalin’s successors lost the Cold War because Stalin prioritized the military to an extent that eventually collapsed the economy and because Mao’s belief in “politics in command” and “political power grows out of the barrel of a gun” weakened China’s economy.

Deng Xiaoping’s genius and political courage led him to reverse China’s priorities, just as Park had reversed Syngman Rhee’s and Chang Myon’s priorities, to emulate the peaceful rise of China’s neighbors. Deng slashed China’s military budget from a peak of 16 percent of GDP to 3 percent, accelerated peaceful compromise on 12 of China’s 14 border disputes, and initiated what became a strategy of friendship diplomacy. Briefly this had some US strategic thinkers wondering whether China had adopted a strategy so sophisticated that the United States might be outmaneuvered.³

Hence for half a century Asian countries, led by Japan and supported by the United States, focused primarily on peaceful economic development. This new form of geopolitical competition led to the greatest improvement in livelihoods and human dignity in the history of the human race. Notwithstanding local conflicts, it created, fundamentally, an era of regional peace.

Challenges to the Era of Peaceful Rises

Recently we have experienced challenges in each great power to the priority on economic improvement. Japan, which taught the world the benefits of an overwhelming priority for economics, was the first major power to abandon it. Like the other Asian “miracles” it achieved its successes through a combination of globalization and marketization. However, after 1975 it became complacent, turning inward rather than continuing rapid globalization, and it allowed a handful of powerful interest groups (agriculture, construction, property, banking, and retail) to dominate politics. Economic growth decelerated with amazing rapidity and has been nearly stagnant since 1990. For a generation no national political leader offered the Japanese people a positive vision for their economic future, as the previously mentioned interest groups blocked any leader who might proffer such a vision. With forward-looking leadership blocked, Japan had only muddlers and backward-looking leaders. . Muddlers fiddled with fiscal and monetary stimuli that just led Japan further into debt without addressing its structural problems. Popular opinion ejected them at the rate of one per year.

The most prominent backward-looking leaders, Abe, Aso, Ishihara, and Hashimoto Toru, seek to restore Japanese dignity by re-writing history and legitimizing a stronger role for the Japanese military. The Yasukuni Shrine and museum, their central symbol, tells us that the United States deliberately caused World War II, that the Japanese colonization of Korea was at the request of the Korean people, that the invasion of China was necessary to save the world from Chinese terrorism, and that Gandhi succeeded in India only because of the virtuous Japanese army. These leaders deny that there were impressed comfort women in Asia, only entrepreneurial prostitutes. They have deliberately awakened sleeping territorial controversies with Korea and China and so far prevented compromise with Russia. The other backward-looking group, represented by the first DPJ prime minister, Hatoyama Yukio, conjured images of an idyllic village past to be restored through vast subsidies, aversion to globalization, and reversal of the Koizumi reforms that had saved Japan from financial catastrophe. In Abe’s first term, 2006-2007, he ignored economic issues and quickly lost popularity. In his second term, he learned that lesson and led with stimulative fiscal and monetary policies while promising structural reforms later. In the long run, only the structural reforms matter and they could be blocked by the LDP’s powerful interest groups or entangled in Abe’s determination to amend Japan’s constitution and rewrite history.

South Korea has confronted the same problems as Japan but remained on the path of reform and development. Around 2015 South Korea’s per capita income, adjusted for purchasing power, will surpass Japan’s, an astounding reversal. As a result of its priority for economics, its international stature continues to rise rapidly even as it provides an example of largely peaceful relations with China and Japan and of refusal to allow North Korean provocations to undermine its strategy.

Since 2001, US policies have shifted decisively toward primary reliance on the military. In the George W. Bush administration all key foreign policy positions were held by people with a defense background—Secretary of State Colin Powell, Deputy Secretary of State Richard Armitage, National Security Advisor Condoleezza Rice, Secretary of Defense Donald Rumsfeld, Vice President Dick Cheney, and many others.⁴ The role of diplomats drastically shrank. AID became an ineffectual appendage. In Iraq and Afghanistan, economic development programs were tiny and administered by the military.

The effects of military predominance are subtle but important, because the policy of welcoming China into the international community while hedging the risks is a policy of subtle balances. When the right wing nationalists appeared ascendant in Japan, that presented a military opportunity and the Bush administration embraced it while ignoring the abhorrent views of key Japanese counterparts and their effects on neighboring countries. The United States in February 2005 joined Japan in bringing Taiwan explicitly under the purview of the US-Japan alliance, a potentially system-changing decision clothed in soft words, and in the middle of that same decade publicly promised for the first time to defend Japanese control of the Diaoyu/Senkaku islands. The United States participated in four-power naval exercises and similar initiatives, denying that they were directed at China, while Japan trumpeted how they showed the formation of a coalition of countries with common values, i.e., excluding China and to some deliberately ambiguous extent directed at China. The LDP security establishment is determined to prevent the emergence of any broad US-China military understanding, or any regional security framework that includes China, and the United States has not objected to that stance. Those decisions strengthened the military alliance, but more balanced consideration might have judged that the risks of polarizing the relationship with China were unduly high.

In the effort to shore up the alliance with Japan and to enhance its military position, assurances to Japan have enabled behavior that repeatedly triggers gratuitous conflicts with all of its neighbors. Postwar Japan has never compromised on a territorial dispute, whereas China has compromised on twelve, and it has often taken positions that are less reasonable than its neighbors’, because the US interpretation of the alliance ensures that there will be little cost. In the case of the Senkakus, right-wing Tokyo Governor Ishihara set out deliberately to provoke a crisis with China, and to test the US alliance, by buying the islands from a private owner for his government. When Prime Minister Noda considered preempting that by buying them for the national government, both the United States and China warned him that the Chinese reaction would be fierce, but he went ahead, knowing the United States would defend him against the consequences, and feigned surprise at the Chinese reaction.

Nowhere has the priority for military considerations been more striking than in the conduct of US surveillance along the China coast, regularly provoking Chinese defenses in order to read them electronically, for advance knowledge of how the PLA responds to a crisis. Although Admiral Locklear has accepted a Chinese naval presence in US territorial waters, if the Chinese conducted our kind of provocative surveillance off Washington DC, it would trigger a war mentality. A marginal military gain seemingly trumps the risk of provoking enmity.

Given its ostensibly different values, the Obama administration might have been different, but it has not. The first National Security Advisor, James Jones, was a general. The second did not question the continuing dominance of military considerations. No strategic vision integrates military, economic, and diplomatic perspectives. The predominant voice behind America’s Asian diplomacy in the first Obama administration was Kurt Campbell, an able assistant secretary with a primarily defense background. Even he was astonished by the predominance of the military:

“[I]n our government, we have one part of government which is essentially on steroids, which is our military and intelligence. And then the rest of our government is on life support.”⁵ He went on to say that media correspondents whose primary experience is the Iraq and Afghan wars now dominate US news coverage and, therefore, see everything from a primarily military perspective.

The Obama administration’s rebalancing to Asia could have been a predominantly diplomatic and economic refocusing, portrayed as such, but it was not. The United States shifted its naval balance toward Asia, sent troops to Australia, reversed the Bush administration’s lightening of the military presence and exercises in South Korea, strengthened military ties with Vietnam, encouraged Indian ambitions in the South China Sea, and fostered a grand maritime collaboration along the entire Chinese littoral.⁶ Tensions within the region were rising, and there was inevitably a military component to the US response. Perhaps it was inevitable that Secretary Clinton would reverse half a century of refusing to engage in these conflicts, but it was at best questionable that the response was so overwhelmingly military and that China, which certainly deserved criticism, was so one-sidedly the focus of opprobrium. Where in the speeches was there acknowledgment that the territorial claims of Vietnam, Taiwan, the Philippines, and Malaysia were proportionately stretched, that China had for years honored the draft Code of Conduct principles of joint development in the South China Sea while ASEAN countries infringed on them, and that Japanese leaders were breaking understandings and provoking China?

Because of its strong union base and understandable preoccupation with the financial crisis, the Obama administration started slowly in promoting trade and investment liberalization. Admirably, it prevented descent into protectionism during the crisis, but it delayed in moving forward. Real interest in TPP and TTIP began late. China was conspicuously excluded, while more protectionist Japan was invited in (after indications of willingness to consider liberalization that were sometimes contradicted by assurances to domestic interest groups). Economics and diplomacy have remained firmly subordinate to military considerations, not, so far as this outsider can tell, through any strategic logic but because the Congress is willing to fund defense generously while continuously degrading the budgets of economic and diplomatic institutions.

The United States has also strengthened its ideological proselytization. While it has always had strong democratic values, during the Cold War ideology was tempered by pragmatism and ideological perspectives on foreign policy were moderated by a dominant center in Congress. Now Congress is polarized and the left and right poles share strong antagonism toward China. That severely constrains pragmatic policies toward China; ratifying a TPP that includes China is virtually unimaginable, even though China’s more open economy is a more logical PTT partner than Japan’s more closed economy. Trade liberalization proposals that exclude China on discriminatory grounds could gratuitously polarize the strategic relationship with China. A trade system based on prolonged exclusion of China will collapse.

In the executive branch, ideological policies have also strengthened. George W. Bush’s team came to office believing that we could impose democracies, and ideological perceptions and policies persist, particularly toward China. For example, the early Obama administration and US media bitterly denounced China as hostile to peace and human rights because of its policies toward Sudan, but praised the US relationship with India. The oil company in Sudan is a Sino-Indian joint venture, and the only difference in policies is that China provides substantial humanitarian aid (and, later, military engineering support to peacekeepers) that India does not. Often the anti-China proselytization, which goes far beyond promoting democratic ideals, is counter-productive, as when Secretary Clinton gave anti-China speeches in Mongolia and then in Africa before going to Beijing where she offered to no avail to serve as an honest broker in the South China Sea disputes.

I come to China last, quite deliberately. In the West, it has become common to ascribe all Asian geopolitical problems to China’s rise. On the contrary, the problems caused by Japan—trying to rewrite history, making unreasonable claims, breaking old understandings with China, reviving the territorial dispute with Korea, and refusing to compromise with Russia–are at least as significant. But this effort at balance emphatically does not intend to minimize the China issues. China’s reform era was led in 1979-2002 by cosmopolitan reformers who were determined to save their country by emulating the lessons of their more successful neighbors. Deng Xiaoping, as Park and Suharto, was a former general, and, like them, he gave first priority to economic development and last priority to military assertiveness.

Under Hu Jintao and Wen Jiabao the situation became very different. They were not experts on foreign economic development strategies. They promised the Chinese people a “harmonious society” without the reformist stresses of Zhu Rongji. Economic and political reforms largely ceased. From their inaugurations, they were under attack from domestic opponents for being weak on national security. They allowed interest groups to acquire the kinds of influence over policies that Deng and Zhu had curtailed. At the beginning of their term they seemed to be elaborating the legacy of friendship diplomacy and peaceful rise, but from 2010 they sacrificed many of the gains from two decades of friendship diplomacy, alienated most of their maritime neighbors, and left the world, rightly or wrongly, with the image of an expansionist China.

We need to be careful in drawing a balanced assessment of developments. China’s military budget has risen more rapidly than GDP, but its share of the government budget (which has been rising double the rate of GDP) has declined. China’s claims in the South China Sea are identical to Taiwan’s; proportionately no more unreasonable than those of Vietnam, Malaysia, and the Philippines; and based on real national interests, in contrast with the Indian navy’s ambitions there. Chinese officials have plausibly asserted that China previously honored the 2002 Code of Conduct understanding that any development in disputed areas must be joint development while, according to them, China drilled no wells but ASEAN countries drilled more than 1,000, so China had to assert its rights or lose them In this interpretation, China was just trying to restore the old equilibrium. When I asked a senior retired officer why China was so flexible in compromising on land, but so inflexible at sea, he said that when they were giving away 1.5 million square kilometers to Russia “nobody knew.” In that view, Chinese leaders are still willing to compromise, but netizens and interest groups will not allow it. Above all, in recent conflicts with Japan, the Chinese have made more reasonable offers regarding drilling, while Japan sought to stop Chinese drilling even in an area of undisputed Chinese waters.

Allowing for these qualifications, much recent Chinese behavior no longer seems consistent with the policies of peaceful rise and friendship diplomacy. Chinese claims to much of the South China Sea rest on their claim to Scarborough Shoal, near the Philippines, and that claim is very weak given Philippine claims going back to the mid-1930s and exclusive Filipino servicing of the area, for instance rescuing troubled ships.⁷ Effectively walling off the shoal with Chinese boats is assertion use of force even if the ships are civilian. Sending its coast guard to patrol Ieodo Island very near the coast of South Korea, and the alacrity with which Chinese militia-trained fishermen have killed South Korean coast guardsmen, appear gratuitously assertive. And the extraordinary efforts to publicize, popularize, and institutionalize China’s claims belie any interpretation that the government is just soothing nationalist public opinion; as it puts controversial maps on its passports, fills airline magazines with articles about the beauty of China’s South China Sea Islands and the conservation it is enforcing there, creates a local government and military unit with jurisdiction over the area, and blockades Scarborough Shoal, the government is clearly fomenting popular nationalism, not just accommodating it. Resort to economic warfare, through such measures as cutting off rare earth exports to Japan and Chinese tourists to the Philippines, and blocking imports of Philippine bananas, is dangerous escalation.

Above all, Chinese rhetoric and actions have consistently escalated disputes rather than calming them. What distinguishes China from its neighbors is not that it is more unreasonable, but that it is now a great power. It should not behave like a small power; it must take special responsibility for deescalating and resolving problems. Instead, it has shrilly done the opposite.

Thus, the era of peaceful, geo-economic strategies has faded and, if this continues, could end abruptly in traditional territorial conflicts. Japan led the region down from the successful postwar economic-focused strategies. China now has conflicts with more of its neighbors than any other country. The United States never articulated its successful Cold War economic strategy clearly and abandoned it absent–mindedly.

Partial Revival of Economic Priorities

Recently all three big powers have experienced a partial revival of economic priorities. Abe learned the lesson of a failed first term as prime minister, when he ignored economics. His fiscal and monetary stimulus, with promised but largely deferred reforms, is the greatest gamble in modern economic history. Instead of sublimating, and substituting for, traditional assertiveness, it is accompanied by nationalistic assertions, a strong, temporarily suppressed, desire to revise history, and expansion of Japan’s (still quite limited) military. US economic revitalization is inhibited by a slow recovery from the financial crisis and by political polarization. Civilian diplomatic and aid capabilities, already weak, will be weakened further, while the military is suffering disproportionately less. But, more hopefully, the Obama administration has given high priority to ambitious negotiations for trans-Atlantic and trans-Pacific FTAs. Whether these will become a triumph, or fail to overcome international disagreements, domestic polarization, and whittling away by special interests, remains to be seen.

China is making the biggest efforts, both in domestic reform and in the revival of economic diplomacy. The new Chinese administration faces years of difficult economic transition and is initiating a major economic reform program, which, however, faces formidable domestic opposition. Internationally, China’s reformers plan a broad financial opening and investment liberalization, liberalized trade with ASEAN, a large free trade zone with Vietnam, and a new economic zone with Central Asia. In effect, the new thrust is a magnification of China’s policy toward Taiwan—hard on sovereignty, generous on economics.

Vision and Priorities

The greatest hope for a peaceful region is the reality that the world did change in the past century and continues to change in a way that enhances the successes of those countries that focus on economic improvement and punishes those that rely on traditional military aggrandizement. The greatest threat to Asia is the trans-Pacific loss of reformist economic vision. If leaders of the United States, China, and Japan focus increasingly on zero-sum military issues, a gradual spiral toward confrontation becomes inexorable, but that does not need to happen. The realization by the Pacific powers of the scale of their opportunity, and of the gradual decay of their previously successful policies, is prerequisite to revitalization of the Asian miracle and continuing US benefits from that miracle. The steady rise of South Korea’s living standards and international stature as, unlike Japan, it continuously reforms both its economy and its politics, shows that the miracle continues for those who have the will.

Leaders could easily revive the focus on economic growth. Japan, the United States and China all face very difficult economic transitions that could be alleviated by a cooperative focus on economic reform. TPP negotiations could be the excuse Japan needs to reform and revive; then Japanese politics could shift toward positive visions of the future. Sino-American relations create the greatest opportunities.⁸ Both countries have severe economic problems that could be ameliorated by a shift of priorities and by cooperation. The United States is the world’s biggest farm exporter and China the world’s biggest farm importer. Joint projects on the environment and clean energy by the world’s two biggest greenhouse gas emitters could ameliorate both climate change and China’s terrible environmental problems. Joint shale fracking could strengthen both economies and shift power from the dangerous Middle East (and Russia). China needs to shift rapidly toward a more service-intensive economy and the United States is the world capital of services. While the United States is short of capital for vital infrastructure modernization, infrastructure is a perfect outlet for Chinese investment needs. China is rapidly opening to US portfolio investments and rapidly increasing its investments in the United States. Both can experience highly profitable inflows of income from tourists by relaxing restrictions. The increase in Sino-American cooperation in science and technology has already been extraordinary, but it has probably just begun. A focus on such opportunities could begin the rebalancing that is really needed to prolong the extraordinary era of prosperity and peace created by the postwar emphasis on economic development. This auspicious shift requires no diplomatic agreement. The lesson of modern history is that the country that shifts most decisively back to economic priorities will gain a decisive geopolitical advantage. The others must follow or lose.