A Two-Shock Model for Indo-Pacific Geopolitical Order
by
Danny Quah
Dec 2024
A "China-Shock" model has been, not inappropriately, a dominant framework that many observers use to understand recent geopolitical developments in Southeast Asia and the Indo-Pacific region. The rise of China is profound and real. The China Shock on economic performance throughout the world is genuine, and has both positive and negative effects. The rise of China has unsettled many views of the international order, not least in Southeast Asia over which America has long practiced benevolent but incomplete Great Power hegemony.
But what if there is another shock, equally profound, to the international order? This is the US Shock, not observable from within the US, but felt everywhere else in the world.
The standard model has an ASEAN imagined to practice a version of region-centered, rules-based multilateralism. This delivered security, peace and stability, and economic prosperity, with the entire structure undergirded by a form of benevolent but incomplete Great Power hegemony. The one shock is that a rising, revisionist, other Great Power has disrupted the equilibrium. The policy questions that emerge include: How do we find our way back? Do we work to restrict the agency and influence of the revisionist disruptor? Do we support and seek to strengthen the incumbent benevolent hegemon?
This shock - China's rise - has a dynamic effect whose range includes different possibilities:
- either extreme competition or over-dependence, given China's export prowess;
- economic coercion by China for its own strategic or political goals;
- the US fear that this is a rise of a hostile hegemonic power with conflicting political values, and that the end result will be a China with sufficient ascendancy in the Indo-Pacific, that it will restrict America's freedom of actions and future prospects in the region.
Many observers have, thus, conjectured possibilities for how world order might adapt to this disruption.
However, as taught us by econometric studies of business cycles, the policy response is almost always inappropriate and ineffective if the wrong assumptions are made about the number and source of shocks to the system. What if geopolitical developments are driven not by just a single large shock but instead two?
The second shock is the US's renegotiation of the traditional understanding of world order, one that had been open, rules-based, and multilateral. This is the US Shock. Once, America's leadership worked according to a liberal theory of history based on three grand hypotheses: democracy engenders peace (democratic peace theory); economic development spurs democracy (modernization theory; economic efficiency and political convergence); economic enlargement drives economic development (globalization, comparative advantage). Clinton bet his presidency on globalization. So too, even as Obama's Presidency pivoted towards Asia to better deal with China, the Obama administration continued to emphasise America's multilateral leadership, emphasising non-military vectors of power. As long ago as the 1980s, Reagan's foreign policy held nations to responsibly bear the brunt of their economic shortcomings: in the Cold War, America beat out the Soviet Union on a level playing field of economic competition enforced by multilateral rules.
No longer. Most recently, whether under Trump or Biden, America's preferred tools of engagement now include unilateral actions, economic statecraft driven by national security considerations, and constant complaint about others taking advantage of America.
This is not about any possible diminution of US power, however measured. It is about how America chooses to use that power.
I am not suggesting any equivalence between the China Shock and the US Shock. But from the perspective of Third Nations, whether in the Indo-Pacific or elsewhere, both these disturbances disrupt, and no amount of wishful thinking will make either go away.
The point is not to approve or disapprove of either or both of these shocks. The point instead is to ask, In a 2-shock Indo-Pacific order, what is the smartest thing for the rest of us to do?
Instances of 1-shock thinking and other references:
Autor, David, Dorn, David, and Hanson, Gordon. 2016. "The China Shock: Learning from Labour-Market Adjustment to Large Changes in Trade", Annual Reviews in Economics (Oct), vol. 8, pp. 205-40 https://doi.org//10.1146/annurev-economics-080315-015041
Chinn, John J., Skinner, Kiron, and Yoo, Clay. 2023. "Understanding National Security Strategies Through Time", Texas National Security Review (Fall), vol. 6 iss. 4, pp. 103-124 https://tnsr.org/2023/09/understanding-national-security-strategies-through-time/
Quah, Danny. 2024. "Correlated Trade and Geopolitics Driving a Fractured World Order" LKYSPP Working Paper (Aug) https://dannyquah.github.io/In-progress.html#correlated-trade-geopolitics
Quah, Danny. 2024. "China's Rise and the International Economic Order: The China Shock at the End of History", LKYSPP Working Paper (Oct) https://dannyquah.github.io/In-progress.html#China-rise-international-order