Home > Articles > 2015 > The White House’s AIIB Fiasco

The article can be found under the following Topics : Washington Update

The White House’s AIIB Fiasco

Tags: China , Obama , Finance , Asia , Investment

Saunders, Paul J.

March 23, 2015

ShareThis

Print ThisPrint This

Related ArticlesRelated Articles

The Obama administration’s poor handling of the China-led investment bank has produced a needless public defeat for the United States. Paul Saunders faults the White House for failing to pursue a strategy more thoughtfully calibrated to US interests.

*     *     *

While all eyes in Washington were focused on Israel’s post-election political jockeying and international negotiations on Iran’s nuclear program, the Obama administration’s poor handling of the emerging Asian Infrastructure Investment Bank (AIIB) has produced a needless public defeat for the United States. Despite not-so-discreet pressure from US officials, the United Kingdom, Germany, France and Italy have all announced predictable decisions to join the bank, founded and likely led by China, which appears willing to provide much if not most of its initial capital. The White House has made a foolish and potentially costly mistake in haughtily dismissing the AIIB.

In fairness to the administration, leading Congressional Republicans would probably take an even harder line toward the bank—if they were paying attention—and would almost surely have attacked the president if the US government had not refused to participate in the AIIB and quietly encouraged America’s allies to do the same. Nevertheless, avoiding political criticism is hardly adequate justification for a consequential strategic error.

Fight It, Ignore It, or Engage It

China’s growing economic and military power—and its parallel expanding political influence—poses significant challenges to the United States. These challenges take a variety of forms, from increasingly assertive pursuit of China’s territorial claims in the East China Sea and South China Sea and an impressive military buildup to rising investment in Africa, Latin America, and Central Asia. Each requires a thoughtful response calibrated to US interests and capabilities, China’s possible reactions, and the wider regional and international environment. Unfortunately, the Obama administration’s policy toward the AIIB appears to have been almost entirely reflexive rather than thoughtful.

When a rising power like China launches a new initiative, a dominant power like the United States has three choices: fight it, ignore it, or engage it. Broadly speaking, the dominant power should fight when the stakes are high or when the probability of success at an acceptable cost is high. A dominant power can afford to ignore a rising power’s initiative when the stakes are low, whether because the initiative is unimportant or because it is unlikely to succeed. Finally, a dominant power should consider engaging a rising power’s initiative when neither fighting it nor ignoring it seem likely to work.

The administration chose to fight the AIIB but without any clear logic. US officials limply complained that the world has enough international lending institutions, something that might be true but is utterly irrelevant at a time of massive and virtually insatiable demand for infrastructure investment in Asia (and elsewhere). The fact that well over 20 countries (including probable lenders and borrowers) expressed interest in joining the bank in 2014 should have demonstrated quite convincingly that many governments saw a real, unmet need.

In this situation, the administration’s second argument—that the AIIB would not have sufficiently high standards—became a liability rather than a strength. Once it was clear that the AIIB project was getting off the ground regardless of US preferences, and that ignoring it was not a viable policy, the bank’s apparent success created strong pressure on those concerned about the its standards to join the effort and work to improve its approach. America’s socially progressive European allies were almost certain to feel this pressure more intensely than others did in view of the European Union’s status as a global leader in environmental and labor standards. The March 31 deadline for “founding members” has steadily increased the pressure in recent weeks.

A Self-Inflicted Loss

Unfortunately, the United States looks much worse after fighting and losing a battle to prevent US allies from joining the AIIB than it would have after either ignoring it—and allowing it to succeed or fail on its own—or trying to engage with China to address specific concerns. In the latter case, Washington could have rallied its European and Asian allies to press the same issues, increasing the chances for success. If the US and its allies also contributed significantly to the effort, they could have heavily diluted China’s control over the bank too.

Indeed, China’s relative inexperience in establishing major international institutions could have provided a major opportunity for the United States and its allies to employ some of their own considerable strengths in an area of Chinese weakness—to some extent reversing the “asymmetric” strategy that Beijing often attempts to employ.

Rather than taking this approach, the administration appears to have fought the bank largely because it was a Chinese idea—something that makes its failure to prevail especially damaging, in that leaders in Beijing could now think not only that Washington is reflexively hostile but also that it is too weak to win. Creating this situation and simultaneously facilitating China’s dominance in the AIIB is a self-inflicted loss.

Perhaps worst of all, the AIIB fiasco demonstrates the extent to which the administration’s rebalancing policy has eroded in the years since its launch, not to mention the weakness of its assertion that the policy is not strictly a military one. If the United States were truly rebalancing toward Asia, US officials should have had a much more effective policy response to the AIIB.

 

top of page