Interesting article by Clyde Prestowitz over at Foreign Policy continuing with the "economics of defence" and the rise of China theme by drawing attention to a little-noticed strategy that came out at about the same time as the defence guidance.

The commerce department's report on US competiveness, says Prestowitz, misses significant hindarances to US trade with emerging countries:

"At the moment, four great incentives are continuing to pull the production and provision of tradable goods and services out of the United States. These are foreign currency manipulation that overvalues the dollar, subsidization by many foreign governments of the offshoring of U.S. production capacity, the "buy national" policies and attitudes of many governments that force U.S. companies (and the corporations of other countries) to produce in a particular country if they want to sell there, and the subsidization of and risk reduction for capital investment by state-owned or indigenous private companies in designated "strategic" or "pillar" industries by a number of foreign governments. As long as the report doesn't even mention these elements, let alone address them, there is no hope for a shift in the downward arching American economic, industrial, and technological trajectory."

For the UK, trading with the rest of the world is even more important to the country's well being (the UK doesn't have the US's huge internal market). MP Kwasi Kwarteng, who has a Cambridge doctorate in economic history, offered this take a while ago on government's role in promoting manufacturing and trade. Acknowledging that it's a little surprising to hear a Conservative MP take positively about government support for the private sector, Kwarteng ends with this.

"Of course, we can’t mention the P-word, Protection, in polite company, but everyone is doing it. They always have. Once we recognise this, we realise that it makes sense to harness our excellent universities and scientists and our manufacturing traditions to preserve and grow our industrial base. Nothing could be more conservative than that." - Flashman would be proud!

As ever, Londonstani finds it difficult to resist a little econ geekery

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There are many, many people more qualified to talk about last week's US defense strategic guidance than Londonstani (particularly a certain East Tennessean). From a UK perspective, what struck Londonstani was the similarities, and differences, to the UK defence strategic review last year.

(Well, that and the fact that the US is talking about "savings" that would swallow the total UK annual defence budget several times over)

Differences:

1 - The US's review was actually strategic, in that it addressed a changing environment (Chinese power and Arab Spring) and how to re-position itself in order to address it.

2 - Related to the first point, the US is talking about alliances with new powers (ie India) to help it achieve its aims.

Similarities included:

1 - The fact it's supposed to save money

2 - The rebalancing away from the infrastructure of large-scale deployments to more special operations type stuff.

There was also a third - slightly more stretched - similarity. Both US and UK approaches to defence in the future include significant elements that you wouldn't - strictly speaking - consider to be in the "defence" sphere of government. The US talks quite specifically about India serving its economic (and therefore security) aims in the region. While the UK version spoke of a £3.8 billion increase in aid from the development budget.

There is actually no sensible way to discuss where you stand in the world today (and tomorrow) without discussing China and the global economy. (Simon Tisdall at the Guardian thinks its all about China)

So it that sense, Londonstani feels, its definitely a good thing that foreign/defence matters are taken out of their boxes and looked at in their wider context - in terms of causes, effects and potential solutions.

Actually, China itself provides a useful example.

Londonstani has spent the last 2-1/2 years being based out of Pakistan, which - in case anyone missed it - is a key Chinese ally on the quiet. Sometime before that, Londonstani spent a fair amount of time living and reporting from Sudan - another Chinese ally. (In fact, one project involved looking exclusively at China's role in fueling the Darfur conflict)

In both cases, China's influence is due to its economic clout rather than its military strength. In both cases, wealthy decision makers in the host country do personally well out of the alliance. (Londonstani once met with an ex-Pakistani official who used to work at a regulatory body who was aghast at how a recent trade pact with China was potentially ruinous for the country but was passed because of the pockets it would line in Pakistan.)

The point here is that Chinese influence will not go away, in fact it will probably grow, but that in itself will probably cause challenges for China itself. In Pakistan for example, a market increasingly tied up by China, consumers murmur about the inflated prices and low quality of the goods they get.

For the US, and even more so for the UK, meeting the challenge will involve doing business in places like Pakistan, engaging publics and projecting soft power (particularly relevant to the guidance's point on the Arab Spring). This will involve more than than one department of government, and a number of non-government actors.

As a little aside, Londonstani can't resist mentioning Paul M. Kennedy's comment in his The Rise and Fall of British Naval Mastery*:

"For maritime strength depends, as it always did, upon commercial and industrial strength: if the latter is declining relatively, the former is bound to follow. As Britain's naval rise was rooted in its economic advancement, so too its naval collapse is rooted in its steady loss of economic primacy. We have come full circle."

To see what people much more clued up on this sort of thing have to say read Adam Elkus here, David Barno here, and a whole bunch of clever people.

*Taken from J.E. Peterson's Defending Arabia, 1986 (Chapter 3; Postwar Policy: British Retreat and Imperial Vestiges)

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