My Assessment of Risks and Opportunities Facing the Indo-Pacific Region in 2023 After Watching Oppenheimer
posted by Eleanor Shiori Hughes on July 28, 2023 - 12:35pm
Hi everyone - it’s been a quite a while since I last penned my thoughts into a piece for EconVue. Last weekend, I went to see Oppenheimer directed by Christopher Nolan in Chicago (for those who have yet to see it, I would highly recommend seeing the IMAX version). Christopher Nolan’s tour de force about the pioneering father of the Atomic Bomb is illuminating beyond words. At the moment, I’m still trying to internalize the astonishing complexities of J. Robert Oppenheimer’s life; the ineffable visual and auditory features of the film that caught me off guard; and the grave human consequences of Oppenheimer’s own invention.
The next morning while I was sipping my morning coffee, I stumbled upon an interview that Financial Times (FT) reporter Christopher Grimes had with the acclaimed director just a few weeks before Oppenheimer was released in theaters. Before I found this article, I couldn't help but think about how the movie subtly conjures a correlation between the advent of the nuclear weapons era and the ongoing artificial intelligence (AI) frenzy. Coincidentally enough, in the printed version of the FT sitting right in front of me, I noticed that Nolan labeled his latest cinematic creation as a “cautionary tale” because of AI - and rightfully so. AI is a technological and economic engine that’s unlocking its transformative effects on modern society at lightning speed, but technologists and other experts are also raising the alarm about how it's also a peculiar domain where challenges await. Nolan briefly touched on AI during his interview with the FT, and he made it clear that he’s a proponent of implementing a risk management framework via regulations in order to mitigate privacy loss and disinformation campaigns.
After I finished reading the interview, I realized that Nolan's comments about AI track with how many industries are employing risk management in order to manage vulnerabilities and anticipate future disruptions. Given the evolving geopolitical environment, especially in the Indo-Pacific theater, it can be a herculean task to identify areas of risk and opportunity for governance, commerce, technological advances, etc. Thanks to watching Oppenheimer, I was inspired to write up a report that identifies a few challenges and opportunities relating to the Indo-Pacific that has captured my attention so far in 2023.
Anxieties about the U.S. - China tensions and a dearth of senior-level communications aroused goosebumps. Rest assured, they aren’t non-existent.
The Biden administration continues to encounter difficulties to diplomatically engage with their Chinese counterparts, particularly on mil-to-mil issues. While Defense Secretary Lloyd Austin briefly exchanged niceties and a handshake with Chinese defense Minister Li Shangfu during the annual Shangri-la Dialogue last month, the Pentagon confirmed that Beijing repeatedly dismissed requests to conduct high-stake defense talks - one of which included after President Biden ordered a balloon that traversed across the U.S. to be shot down in February. Secretary Austin expressed his concerns about the PRC expanding its military footprint throughout the Indo-Pacific and reinforced the necessity for the two capitals to resume high-level dialogues on matters of mutual concern. A few weeks ago, Dr. Ely Ratner, the Assistant Secretary of Defense for Indo-Pacific Affairs, met the new Chinese Ambassador to the U.S. Xie Feng at the Pentagon. For Washington, the point of this dialogue was not to immediately generate deliverables but rather ensure that mil-to-mil dialogues with China do not hit another standstill.
Meanwhile, Beijing and Washington appear to be more open to discussing the economic dimensions of their relationship. While mistrust is undergirding the current state of U.S.-China relations, according to the U.S. Department of Commerce, trade between the two countries increased for the third consecutive year. With that in mind, a few cabinet members from the Biden administration including Commerce Secretary Gina Raimondo, U.S. Trade Representative Katherine Tai, Secretary of State Antony Blinken, Treasury Secretary Yellen, and Special Envoy for Climate Change John Kerry managed to secure high-level meetings with Chinese leaders over the past six months. The purpose of these engagements were two-fold. First, this gave the opportunity for U.S. officials to air grievances with the PRC about the murky waters of China’s regulatory landscape, Americans detained in the mainland, and Beijing widening the scope of its anti-espionage law. Second, the Biden administration also wanted to lay down guardrails to convey to Beijing that the priority is to make earnest efforts towards fostering a “healthy economic relationship” with the hopes that this can generate substantive progress.
But at the end of the day, actions speak louder than words. In theory, dialogues create important venues by which the U.S. and Chinese leadership can lay out concerns and pave a pathway towards reconciling challenges, but they should hardly be the only metric to use to calculate the trajectory of the bilateral relationship.
But at the end of the day, actions speak louder than words. In theory, dialogues create important venues by which the U.S. and Chinese leadership can lay out concerns and pave a pathway towards reconciling challenges, but they should hardly be the only metric to use to calculate the trajectory of the bilateral relationship. After all, even with these senior-level meetings, these strategic pressure points will not evaporate any time soon. And with rising concerns about potential supply chain ruptures and dangerous flash points in the East and South China Seas, both capitals will continue to be oriented towards hardening their competitive posture in every realm.
For many corporate executives, China is too big of a market to undergo a full-throated decoupling. Enter de-risking - a buzzword that’s slowly manifesting itself into the beating heart of multilateral and whole-of-government strategies.
Given the rising concerns about PRC’s flexing of its muscles and its refusal to rule out a military assault on Taiwan, many industry executives are hastily embracing a more nuanced view about what it means to have commercial operations in China. Companies and investors are hedging their bets by adopting strategies to ensure that their equities are not at risk should an unforeseen disruption (manmade or otherwise) catalyze economic volatility. But for many firms, despite the storm clouds brewing from strategic competition, having a business presence in China continues to yield dividends.
With China’s zero-COVID policy out of the picture, Chinese officials have been rolling out the red carpet for a myriad of c-suite executives this year - many of whom traveled to the mainland for the first time since COVID. Below is a list of some high-profile corporate executives who embarked to China over the past few months:
- David Solomon, CEO of Goldman Sachs (March 2023)
- Stephen Schwarzman, CEO of Blackstone (March 2023)
- Tim Cook, CEO of Apple Inc. (March 2023)
- Patrick Gelsinger, CEO of Intel (April and July 2023)
- Mary Barra, CEO of General Motors Co. (May 2023)
- Laxman Narasimhan, CEO of Starbucks (May 2023)
- Jamie Dimon, CEO of JPMorgan Chase & Co. (May 2023)
- Elon Musk, Founder of Tesla, SpaceX and xAI (May 2023)
- Bill Gates, Founder of Microsoft (June 2023)
- Bernard Arnault, CEO of LVMH (June 2023)
Now it’s time for me to flesh out de-risking – a word that’s making media headwinds and appearing in multilateral and government-level strategies. As opposed to decoupling, de-risking rests on the idea that the U.S. and like-minded countries do not hold fundamental ambitions to completely sever its economic dependence on China but prefer to limit their exposure to the Chinese market. The word first garnered public attention when Ursula von der Leyen, President of the European Commission, spoke at the Mercator Institute for China Studies in March. She stressed that diplomacy with China still has its merits, and the Europe needs to “leave space for a discussion on a more ambitious partnership and on how [Europe and China] can make competition fairer and more disciplined.” Since then, de-risking morphed into a buzzword in the foreign policy lexicon. As highlighted earlier, with many corporate executives making it clear that China remains too indispensable of a market, political elites have embraced de-risking to accommodate this reality. Perhaps this is unsurprising to some of you, but if you ask Chinese officials, this change in tone is not reassuring by any means, because to them, decoupling and de-risking are cut from the same cloth.
In recent weeks, de-risking has been featured in the G7 Hiroshima Leaders’ Communique and Germany’s inaugural China strategy. With some countries’ apprehension about potentially falling victim to Beijing’s coercive economic and diplomatic tactics, clarity is still needed on how the West plans to collectively employ de-risking in practical terms. Furthermore, the extent to which industry will be receptive to a cacophony of policy leaders pressing for more government oversight versus having to shoulder the responsibility to de-risk on their own is another gray area worth monitoring.
With some countries’ apprehension about potentially falling victim to Beijing’s coercive economic and diplomatic tactics, clarity is still needed on how the West plans to collectively employ de-risking in practical terms. Furthermore, the extent to which industry will be receptive to a cacophony of policy leaders pressing for more government oversight versus having to shoulder the responsibility to de-risk on their own is another gray area worth monitoring.
In any case, many businesses and governments are on the move to take preemptive action against unanticipated risks by creating blueprints on how to gradually diversify investments, safeguard their technological crown jewels, and other assets that are matters of national security away from China.
The Atlantic and Indo-Pacific arena’s strategic well-being are increasingly tethered to each other, but fissures can limit cooperation.
The inception of the Ukraine war was a watershed moment for the Transatlantic and the Indo-Pacific regions. It provided a sobering lesson that the ramifications of Russia’s unjust invasion can be acutely felt well beyond the European periphery. With mounting concerns over closer ties between Russia and China and the possibility that the status quo might be altered through use of force in the East or South China Seas, many countries in the Indo-Pacific are taking purposeful action to sharpen their defense capabilities and elevate cooperation with regional neighbors. Against this backdrop, many European powers recognize that should a war materialize in Asia, it will have cataclysmic spillover effects in Europe. This is why the minilateral infrastructure in the Indo-Pacific is also cementing European presence in Asia as evidenced by the AUKUS defense partnership and the U.K’s accession into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), among others.
It’s also important to note that some Indo-Pacific countries have also been upping their outreach to Europe, as the cause to preserve a rules-based liberal international order transcends geographical boundaries. Japan has been simultaneously forging stronger security and economic ties with like-minded European and Indo-Pacific partners, including the U.S. While this trend is not new, Russia invading Ukraine compelled Tokyo to quickly reevaluate its calculus on how to coordinate more closely with Europe to address the deteriorating global security environment. As such, Prime Minister Kishida embraced a new mantra: what’s transpiring in Ukraine today could manifest itself in East Asia tomorrow. The Japanese Diet also recently passed the two Reciprocal Access Agreements signed with the U.K. and Australia, reinforcing Tokyo’s desire to accelerate closer security ties.
Australia and South Korea have also boosted their activism with Europe. For Australia, one of the more obvious achievements is the announcement of the optimal plan by which Australia will acquire submarines via AUKUS. Canberra also just finalized a historical defense agreement with Germany to export over 100 Boxers vehicles that will be produced in Brisbane, Australia. Meanwhile, South Korea under the leadership of President Yoon Suk Yeol is playing a major role to plug the gaps in the global arms exports industry by becoming a major provider of defense ammunitions to democracies who support Ukraine’s war efforts, namely Poland. South Korea is also making strides to bolster ties with the European Union by pledging to create a new strategic dialogue and working more closely on climate change and public health.
Perhaps what is most noteworthy are the increased strategic linkages between NATO and its Indo-Pacific partners. The leaders from Australia, Japan, New Zealand, and South Korea participated in the annual NATO summit for a second year in a row and each country is creating an Individually Tailored Partnership Program (ITPP) with NATO.
Many are rightfully sanguine about the growing strategic linkages between the Transatlantic and the Indo-Pacific, but not everyone is in sync with each other about the extent to which Europe should deploy a forward diplomatic and military presence in Asia.
Many are rightfully sanguine about the growing strategic linkages between the Transatlantic and the Indo-Pacific, but not everyone is in sync with each other about the extent to which Europe should deploy a forward diplomatic and military presence in Asia. This was especially made evident through French President Emmanuel Macron’s comments about Taiwan and resisting the idea that Europe should entangle itself into another geopolitical conflict should a military contingency take place in the Taiwan Strait. In May, news broke that NATO plans to open a liaison office in Tokyo sometime next year, but it became a political hot potato because Macron objected to the proposition, as the Indo-Pacific is not a part of NATO’s jurisdiction. In order to mollify these divergences, this liaison office was not mentioned in the joint statement from this year’s NATO summit. That said, the creation of a liaison office in Japan has allegedly not been ruled out. Nevertheless, the alignment between the Transatlantic and the Indo-Pacific is becoming more sophisticated, and it will play a bigger role in shaping the global geopolitical dynamics going forward.
The Next Five Months: How to Look Ahead With Known Unknowns
The world is ripe with many known unknowns, but there are indications that other geopolitical trend lines will prove themselves to be prevalent for the rest of 2023 and beyond - at least here in the U.S. While these are just best guesses, I’ve flagged two trends that are worth keeping tabs on. First, election season is officially underway, and my sense is that the de-risking debate will confront a major stress test on the campaign trail (if it hasn’t started already). President Biden, his opponents and other candidates running for public office will welcome opportunities to share their thoughts on the virtues or the pitfalls of adopting a de-risking strategy towards China. Second, since I am writing this report from the Midwest, I wonder to what extent the resurrection of an industrial policy will win the hearts and minds of Americans who live in or around fertile manufacturing grounds. Just a few weeks ago, Indiana Governor Eric Holcomb announced that General Motors will construct an EV battery plant in partnership with Samsung just a few miles away from my hometown of South Bend, IN. There are more questions than answers for this ambitious endeavor including workforce capacity, which is another hot topic these days.
To bring things back to my experience watching Oppenheimer, I wonder to what extent the thematic elements of Christopher Nolan’s latest movie and Oppenheimer’s legacy will continue to offer lessons regarding the risks and opportunities that we’re facing today in the Indo-Pacific and the digital revolution more broadly. I won't share any spoliers for those who haven’t seen the movie yet, but my hope is that Nolan continues to participate in the social discourse surrounding AI and the potential unintended consequences that it and other frontier technologies may have that we can’t collectively conceive at this moment in time.
Eleanor Shiori Hughes is a Non-Resident Fellow at EconVue, a think tank based in Chicago.