“Hegemonic empires,” observed Henry Kissinger, “almost automatically elicit universal resistance, which is why all such claimants sooner or later exhausted themselves.”

As the US is currently the world’s sole superpower, its reaction to new cooperation between and among old enemies (for example, China and India) in the quest for economic growth will shape the geopolitical and investment climate for the 21st century. The US must accept new relationships it might have previously frowned upon given its deep dependence on foreign capital to finance its needs. The current global instability brought about by this realignment of relationships is augmented by a new arms race.

Global and regional geostrategic developments are of immense importance when making long-term investment decisions. Investors and policy makers are similarly situated: Those who understand the purely economic reasons for the new relationships will prosper, serving their portfolios and their countries well.

Regarding Asia, the resolution or clarification of the following issues will have global consequences:

• China’s political ambitions and military capabilities

• India’s desire for first-world power status

• The outcome of the U.S.-Russia-China race for influence in central Asia

• Russia’s role as a vital source of energy

• The potential Korean unification

• Iran’s importance to Asia

• Japan’s future security needs

• US involvement in Asia and how it affects the changing geopolitical landscape in the region

This process will take time and won’t dramatically affect our economic and investment projections for the next 10 years. During the next decade, the US must gradually disengage itself from certain security obligations (for example, Korea, Japan and Taiwan) in a smooth manner. But there’s no guarantee that a mindless move by any of the major players won’t derail a peaceful transition. This is a variable that could threaten stability in Asia and the world.

The Russia-Iran-India-China axis is a potential force with which the US will either compete or cooperate. A competition would involve a division of economic spheres along multipolar lines as opposed to the current unipolar arrangement. Japan’s response to the rise of such an axis is also critical; it could be economically beneficial but strategically unacceptable. Based on its history, Japan will most likely develop strong ties with the axis, given the profound economic impact such cooperation will have in Asia.

The West will soon have to alter its foreign policy model to produce results that bring about further stability. The current approach seems to emphasize the adoption by the emerging world of particularly Western ideological values. “It is sheer hubris,” Samuel Huntington has written, “to think that because Soviet Communism has collapsed, the West has won the World for all time and that Muslims, Chinese, Indians, and others are going to rush to embrace Western liberalism as the only alternative.”

Mark Mazower, writing in the Financial Times, expressed similar concerns. “States that believe promotion of their interests depends on export of their culture and values are doomed to fail...of course China’s rise does not portend the downfall of the US or Europe but it does challenge the West’s self-perception as the civilizational hegemon in global affairs...[T]he world before 1800 was one of multiple power-centers and value systems: Let us adjust to the fact that it is starting to look like that again.”

It may be difficult for many to accept Mazower’s conclusion, let alone imagine a situation where the US is confronted directly. A rising state must first catch up with and then challenge the world’s sole superpower. Rather than resting on the ambitions of a single country, the threat to US hegemony lies in the possibility that it exercises its power-projection capability through military action in a number of asymmetric conflicts.
This could push the US into selecting the parts of the world where it concentrates its influence and power.

The question is this: How far can the US stretch itself militarily, diplomatically and economically? The prolonged occupation of Iraq demonstrates that once a large-scale conflict arises, the majority of resources and intellectual capacity are concentrated on that particular conflict. Other issues in different regions are ignored. East Asia is a clear example of this dynamic, and exposes the previously unthinkable possibility that the U.S. may still dominate the balance of power, but not the balance of influence.

Investors who fail to consider or, worse, treat lightly the geopolitical changes taking place substantially increase the risk to their domestic and international investments.

The preceding is excerpted from The Silk Road to Riches: How You Can Profit By Investing In Asia’s Newfound Prosperity, published by Financial Times/ Prentice Hall. The Silk Road to Riches is available at Amazon.com and is in a bookstore near you.

© 2006 Yiannis G. Mostrous
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