ASEAN+3 remains a relatively underdeveloped organization, but it has already helped to shift each member's perception of its national interests and sparked increased subregional cooperation as a consequence. In November 2001, China, Japan and Korea agreed to annual trilateral meetings between their economic ministers, in addition to their meetings within the larger ASEAN+3 framework. China recently announced a ten-year plan with ASEAN to create the world's largest free trade bloc; Japan countered with a ten-year plan to create an even larger free trade bloc that would include ASEAN+3, Australia and New Zealand.

The economic and political promise of cooperation between East Asian states has already helped to relax the regional security environment. Sino-Japanese relations are a case in point. In 1998, the two countries conducted a path-breaking exchange of defense minister visits and agreed to maintain annual visits by their heads of state. Those visits, and the diplomatic activity that precedes them, have allowed China and Japan to address issues of concern to each, helping to prevent relatively minor problems from spiraling into larger ones. One example concerns the Spratly Islands and the South China Sea. In 2000, as economic relations between China and the ASEAN states were being strengthened, China agreed for the first time to multilateral negotiations over a South China Sea maritime code of conduct. Both Chinese and ASEAN participants have already agreed to exercise restraint in the area until a formal code of conduct is approved.

Strategic Engagement and American Interests

The Asian realities described above have had a profound impact on American interests. U.S. trade with Asia more than doubled during the 1990s, from about $400 billion in 1993 to just over $800 billion in 2000. In the mid-1990s the Asian region passed Europe as America's largest regional trading partner. U.S. businesses have flocked to Asia as well. Total accumulated stocks of U.S. foreign direct investment in Asia rose from $78 billion in 1993 to $186 billion in 1999. But American interests are not limited to the economic sphere. The spread of democracy to some states--and the continued liberalization of state-society relations in others--is a victory for core American principles. To the extent that they have been consolidated, political reforms in South Korea, Thailand and Taiwan have strengthened America's relationships in the region, even as they have stabilized those societies and made them more capable partners and allies. And since liberalization tends to dampen regional security competition, it reduces the prospects for threats to American security emerging from Asia.

However, the United States is now increasingly distant from important new Asian security and economic developments. Washington has yet to respond to the rise of ASEAN+3, let alone the dramatic proposals for regional free trade agreements that have emanated from it. Overall, the construction of liberal Asian institutions is a net gain for the United States, but today these institutions are emerging without any significant U.S. participation and wholly outside of U.S. influence. Yet there are some who would advise the current administration to continue down the path of a narrow track strategy focused on identifying and isolating one military threat. The neo-Bismarckian ideology reaches an extreme in a proposal by John Mearsheimer that the United States should not only encircle China with adversarial political-military alliances, but also attempt to reverse the process of liberalization and global integration with China because that liberalization is supporting rapid Chinese economic growth.

A neo-Bismarckian U.S. strategy cannot succeed. Such a policy could not guarantee that China's economy would not grow, but it would guarantee China's enmity. It would at the same time jeopardize America's standing as the leader of political and economic liberalism in the world, even to the point of unraveling America's existing Asian coalitions by removing the underlying basis for extended political, economic and security cooperation. America has built strong alliances and great victories through benign leadership based on liberal principles that promote peace and prosperity for all. The commitment to these principles has also guaranteed bipartisan domestic support for U.S. foreign policy, allowing the United States to concentrate its enormous power and wide-ranging capabilities. Pursuing a narrow, military-dominated, one-threat-at-a-time strategy will leave America isolated abroad and divided at home.

America's Asia policy should be based instead on a more subtle political realism, one that recognizes that economic, political and moral power is not only the basis for military strength, but can frequently be employed independently of, and with greater effect than, military power. This is well within the realist tradition. E.H. Carr's well-known critique of political idealism was matched by an equally trenchant critique of an impoverished realism, a realism without sustainable political and moral foundations. A more nuanced realism that can accommodate a comprehensive understanding of American power and interests should be our guide.

Such a nuanced realism would recognize that political-economic engagement is one of the most effective weapons the United States can deploy in the struggle for prosperity and security. The advance of market economics sweeps anciens régimes before it. Economic integration will not guarantee political convergence, but it makes it much more difficult for authoritarian regimes to survive.

Yet although unleashing the gales of creative destruction through global economic integration can destroy America's enemies, it can also disrupt our friends as easily as strengthen them. American policy can mitigate that disruption by strengthening liberal political and social institutions through structured, focused cooperation between American law enforcement, intelligence, military, regulatory, financial, industrial, labor, and civil organizations and their local and regional Asian counterparts.

To succeed, a policy of strategic engagement must be comprehensive in means, focused in ends, and pragmatic in application. Strategic engagement will employ comprehensive American capabilities across a range of issues, not just political-military coalition building. It would positively influence and engage transition states, not isolate them, even as it hedges against potential threats that may emanate from them. In contrast to the "engagement policy" of the Clinton Administration, it would recognize the limits and the destabilizing effects of global economic integration, and be explicitly tied to American political and security interests.

Strategic engagement should focus on states according to their potential to threaten American interests. Threats to American security are diverse and do not emanate only from a potential "peer competitor." This was true before September 11, 2001; it has been starkly obvious since. But since American resources are finite, policymakers must establish criteria for deciding where those resources should be committed. We suggest a focus on those states that, first, because of their size and power, will have a particularly large impact on surrounding states; second, will be likely to fragment in the event of failure; and third, are likely--because of geography or the possession of weapons of mass destruction--to pose a serious threat to U.S. security interests. States such as China and Indonesia hold the potential to generate much greater threats to American security than Thailand or Vietnam.

Finally, strategic engagement must be pragmatic in implementation, squarely founded upon political realism. This, too, contrasts with recent American foreign policy. Liberal idealists have been unable to accept that the process of transformation in key transition states will be long, tumultuous and subject to reversal. Dealing effectively with states undergoing these transformations requires the United States to engage closely with regimes that still display authoritarian characteristics. On the other hand, many self-described realists cannot seem to accept that some states are neither allies nor enemies, and that several important Asian states, not least Indonesia and China, are "works in progress." A truly realistic policy must deal with all actors, must expect detours and breakdowns along the path to Third Wave status, and must plan for such contingencies.

We suggest five operating guidelines for a U.S. strategic engagement policy in Asia. First, America should restore the role of the State Department in U.S. foreign policy. In recent years, State has lost influence over foreign policy to the Defense Department and the National Security Council, which are--and should be, each in their own way--focused on political-military issues. The foreign policy budget administered by State has gone from 4 percent of the Federal budget in the 1960s to 1 percent today. In an age of economic globalization and complex, non-traditional political and economic threats, the United States needs a superior and well-funded diplomatic corps, with the authority to coordinate the full range of American capabilities and apply them across a wide range of international issues. This requires a sizable and sustained increase in American overseas development assistance, to be administered by the political, economic and area experts trained for this job. American commitments to multilateral regional institutions in Asia, such as the Asian Development Bank, should be increased, as well.

Second, the United States can help Asian states strengthen the institutions that support liberalizing markets and politics. The Federal Reserve Bank and the Securities and Exchange Commission, for example, have worked with Chinese officials to develop central banking and financial regulation institutions. Americans have also helped set up the local asset management companies that will take over China's non-performing loans. Pragmatic Asian engagements such as these can be strengthened to include developing legal institutions, industrial organization and small business support groups, consumer and industrial credit institutions, and even support for officials and institutions currently looking for ways to develop parliamentary reform. The U.S. government need not undertake all of these activities directly--indeed, in some cases programs will be more effective if it does not. But the United States can make money available to private sector and academic institutions on both sides of the Pacific that wish to engage in institution building. There is no reason that re-inforcing liberal institutions should not enjoy bipartisan political support. Although it was the Clinton Administration that attempted to use American non-governmental organizations to build liberal institutions in Asia (only to run afoul of opposition in Congress), the original campaign to build "the infrastructure of democracy" began in the Reagan Administration in 1982.