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FEER: Attack On America - Terror's Aftermath [WTC]
By Bruce Gilley
14/9/2001 7:53 pm Fri
The Far Eastern Economic Review
ATTACK ON AMERICA
Beyond the staggering human toll of this week's attacks on the United
States, the events will have a lasting impact on Asia's economies and
on security in the region
By Bruce Gilley and REVIEW correspondents
IT WAS A SHOT HEARD--and felt--around the world. For Asia, which has
pinned its future on a strong and confident United States, the
September 11 terrorist attacks on the World Trade Centre and the
Pentagon threaten not only U.S. economic leadership in Asia but also
its willingness to undergird the region's often shaky security. The
U.S. was the main victim of the outrage. But unless the governments
and people of Asia respond quickly, they too will fall victim to the
The immediate toll in lives lost was not known as the REVIEW went to
press. The numbers will be staggering, a bewildering testament to the
horror of this day. Through television, our global village witnessed
the world's worst act of terrorism.
"It was such a gorgeous day too. A perfect autumn morning. It was
disbelief after disbelief," recalls Matt Pottinger, a Hong Kong-based
reporter with The Asian Wall Street Journal who was heading into New
York for a meeting at The Wall Street Journal offices as the first
airliner slammed into the World Trade Centre next door. "After the
report of the second plane, we turned for home. My heart just sank."
The U.S. nightmare spread quickly around the world, especially to Asia
where stockmarkets tumbled, airports were thrown into chaos and
financial sectors braced for crisis. Malaysia's twin Petronas
Towers--Asia's answer to the World Trade Centre--were evacuated on
September 12 after a terrorist threat.
Immediate security threats loom in Asia. China, despite words of
condolence, has been a vocal critic of the U.S. military and political
presence in the region. North Korea was the slowest Asian nation to
respond. As the U.S. Seventh Fleet in Japan went into self-defence
mode, the security of shipping through the Malacca Strait, Japan's key
source of imported energy and the conduit for Asia's exports to
Europe, was thrown into question. The Spratly Islands suddenly seemed
more vulnerable to regional conflicts.
Critical to the impact on Asia is how the attacks affect U.S. foreign
policy. Washington had taken a hawkish turn under President George W.
Bush even before the attacks, forthrightly supporting Taiwan and
acting tougher with North Korea. After September 11, that stance could
The question is whether the tragedy bolsters unilateralists who are
already having their way in the Bush administration. Many voices will
argue for an end to U.S. unilateralism in order to effectively
cooperate with other nations against terrorism. But Washington will be
under pressure at home to protect itself with or without regional
help. That could mean sudden attacks on countries that harbour or
support terrorists--possibly North Korea and Afghanistan (see story on
page 22)--and immediate acceleration of plans to build a national
missile-defence system that would render obsolete nuclear arsenals in
China and Pakistan. A host of issues in which Asia needs U.S.
cooperation--from the environment to global trade--could be affected.
More broadly, a renewed U.S. focus on fighting terrorism could halt
the much-vaunted reorientation of U.S. foreign policy towards Asia.
Unable to tackle security threats in both East and West, the U.S.
could recommit to threats in the Middle East, opening up a power
vacuum in Asia. China is the most obvious candidate to fill the void.
Its China Times newspaper crowed the day after the attacks that the
destruction would help bring an end to U.S. "power politics" and its
"sense of God-given historic mission."
China, however, will be chagrined that the events in the U.S. stand to
diminish one of the multilateral groupings to which it has warmed: the
Asia-Pacific Economic Cooperation forum, or Apec. China is due to host
Apec leaders in Shanghai in October, but if U.S. President George W.
Bush is forced to cancel his attendance in order to deal with
rebuilding confidence back home, this year's meeting will lose much of
U.S. allies like Australia, South Korea and Japan might have to step
in to take up the slack. India, which has been working closely with
the U.S. to fight terrorism, could see its relationship with the U.S.
grow stronger. Indeed, the U.S. might make it clear it expects as
much. Southeast Asian nations might also be under pressure to end
their long-standing ambivalence towards the U.S. role in Asian
security (see story on page 19).
It is too early to tell who was behind the attacks. If, as suspected,
Muslim extremists were at work, it could provoke U.S. attacks on
Muslim targets that would bring a backlash from Muslim groups around
Asia. Not just Indonesia and Malaysia, but the Philippines, Thailand
and Singapore could be pulled into the fight. That would take the
region closer to the nightmare scenario sketched out by Harvard
University political scientist Samuel Huntington, who argues in his
1998 book, The Clash of Civilizations and the Remaking of World Order,
that conflicts between religious groups would be impossible to manage
because they were based on faith and dogma.
"If it's not [just one] big shock and we have another shock coming, if
there's some retaliation from the U.S., or some other things, it will
be very bad for the world," says Thai Commerce Minister Adisai
The economic impact could well overwhelm the security threat. The
World Trade Centre included a Who's Who of Asian business, including
43 Japanese companies. Writ large, the building symbolized Asia's
economic dependence on a strong U.S. Thailand's Charoen Pokphand,
Japan's Fuji Bank, Taiwan's Chung Hwa Commercial Bank, Sinopec of
China, Overseas Union Bank of Singapore, South Korea's LG Group--all
were there. The attacks closed stockmarkets in Thailand, Taiwan and
Until last Tuesday there was still hope, albeit slim, that the U.S.
economy could achieve a soft landing and that the world could avoid
recession. By Wednesday, following the horrific assaults, that hope
had all but vanished. Now there is a real danger that the attacks
could precipitate a full-blown global recession.
One lost business day in U.S. and the ensuing disruption could easily
knock 0.5% from the country's GDP. With 2001 growth currently forecast
at 1.5% or lower, and the economy widely expected to stagnate in the
third quarter, a recession appears inevitable.
The real impact could be on confidence. Taken by itself, the direct
economic impact of the attacks could be seen as just a severe storm on
the U.S. East Coast. But sentiment could worsen rapidly, causing a
The real impact could be on confidence. Taken by itself, the direct economic impact of the attacks could be seen as just a severe storm on the U.S. East Coast. But sentiment could worsen rapidly, causing a chain reaction.
The world economy was already vulnerable. Taken together, initial
vulnerability and heightened perceptions of global risk add up to a
potentially crushing combination.
"There is a risk, probably high, that this crisis, as it unfolds,
could come to precipitate the capitulation of the U.S. consumer and
mark a new inflection point in the U.S. recession," said John Woods,
Hong Kong-based head of credit research at HSBC.
Deflating U.S. consumer demand will further hammer Asia's exporters,
particularly in the electronics sector. Further layoffs are likely to
follow in Malaysia, Taiwan and Singapore. Falling stock prices and
wider corporate bond-yield spreads as investors flee to quality mean
higher capital costs for U.S. corporations. That means lower
investment both at home and abroad. Expect foreign and portfolio
investment into Asia to fall as a result.
Brent crude spiked following the attack. U.S. retaliation against
Islamic targets could easily push the price up further. That would
severely hurt Asia's oil importers, especially Korea, where oil makes
up around a quarter of all imports. Japan, Taiwan, Singapore, Thailand
and the Philippines are also vulnerable, though a weaker dollar may
alleviate some of the pain.
Stockmarkets around Asia will mirror declines in U.S. markets, further
damaging corporate investment plans. Asian central banks have plenty
of leeway to keep interest rates low, especially given the probability
of lower U.S. rates and a moderately weaker dollar. However, in an
environment of heightened global risk and weaker regional economies,
Asian companies cannot expect easier credit. Unemployment will reach
record levels and policy responses will have little impact.
In Japan, a further stockmarket decline would devastate the financial
system. Japanese banks, already saddled with nonperforming loans and
slimmer profits, would see the value of their large equity portfolios
drop. Consumers concerned about the stability of financial
institutions may begin to consider withdrawing their deposits, while
it will become harder for the country to expect an economic recovery
led by external demand.
"At the moment, people in Japan don't know how to interpret or digest
the impact of what is happening in the U.S," says Masaaki Kanno, chief
economist at JP Morgan.
The Asian century was nurtured by an American pre-eminence in Asia.
Now it is up to Asia to show that it can respond to a vicious attack
on the U.S. in a responsible and forthright manner.