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U.S. Influence Takes A Hit

Written By Brian Hicks

Posted March 18, 2015

Soft Power

France, Germany, and Italy announced on Tuesday that they would commit to the China-founded $50 Asian Infrastructure Investment Bank (AIIB), against American urgings.

This is the second financial institution recently formed by China capable of undermining U.S. power within the international financial structure, the first being BRICS, the $200 billion union between developing economies Brazil, Russia, India, China, and South Africa.

Before Tuesday’s decision, the UK contributed its support of AIIB, presenting their support of it as a small-scale supplement to the Western-dominated World Bank.

Despite their reasons, Euro zone nations joining the Asian bank erodes America’s leverage to bargain for greater influence and higher lending standards.

While the AIIB wasn’t meant to operate on the same scale as the Western-led World Bank and is actually more similar to the Japanese-led Asian Development Bank, which was created with infrastructure in mind as well, both banks will create competition for the World Bank.

Asia will require $700 billion every year to build roads, expand water supplies, and. construct Internet networks. Billions more are needed to stem poverty and reduce carbon emissions.

When viewed by itself, the AIIB does not present much of a threat and actually seems to be addressing a vital need in emerging Asian nations.

But if considered along with the other institutions that China has either founded or taken a large role in developing, the big picture appears to be a thinly veiled campaign by China to expand its soft power not only in its own region but in the regions of its partners as well.

A Changing Of The Guard?

Members of BRICS have criticized Western banks, the underpinning being that the United States and Europe lost a lot of credibility since the financial crisis of 2008, when greed and piss-poor planning set fire to everyone’s portfolio.

The Obama administration has attempted to pass legislation that would grant the world’s second-largest economy, China, proportionate power on the international financial scene in 2010 but American lawmakers have refused to ratify it.

Forward-thinking action such as this could have prevented challenges from new players from occurring as they are now but any progress on the matter now would be too little, too late. In order for the United States to maintain its influence, it must yield and adapt.

With China managing to sign on plenty of Asian countries, the U.S. has been counting on strong allies in the region like Japan, South Korea, and Australia to not participate so it would retain a portion of its influence in the region. However, the latter two are expected to reconsider and follow the European powers’ example.

Japan can be counted on, as it is known as China’s hard-line cross-region rival in many more sectors than just finance, but South Korea and Australia’s principal trading partner is China and their acquiescence was seen as inevitable.

Despite their contributions, the UK, France, Germany, and Italy view their commitments as unprecedented economic opportunities in the region rather than declarations of their geopolitical alignments.

Minor Threat

So how much of a threat to the U.S. economy are these Chinese-led banks along with the commitments of European and Asian regional powers?

Since the strength of our economy correlates with the strength of the dollar and these banks are built on other currencies, they will affect the dollar’s power abroad.

Strong international demand for the dollar allows us to borrow and spend significantly more than we would be able to do otherwise. As demand diminishes, so will the amount of borrowing and spending.

While the current global economic state is certainly a troubling straw, it’s far from being the straw that breaks the camel’s back. The new banks are more of a threat to the United States’ foreign interests than the U.S. itself.