Health insurance: Japan and Korea
In the top left quadrant are Japan and South Korea, countries that are engaged in high-stakes conflicts of interest with China (and with each other). Geographical proximity, historical memory, and the role of North Korea ensure that decision-makers in Beijing place great value in their conflicts of interest with these two countries and would be willing to use coercive tactics to secure their interests.
Japan and Korea also have a great deal to lose in a conflict with China. At stake are fundamental issues of sovereignty, national identity, and the security of their people. Thus, Japan and Korea expect their relations with China to involve both a high probability of harm and a high magnitude of harm. Their level of risk in the Indo-Pacific is the highest and, in insurance terms, is akin to having a chronic health problem (perhaps with a pre-existing condition).
Accident insurance: South China Sea claimants
In the bottom left quadrant are the Philippines, Vietnam, Indonesia, and Malaysia, countries that are engaged in high-stakes conflicts of interest with Beijing in the South China Sea (SCS). Since 2009, China has claimed its “nine-dash line” as a core issue of sovereignty, and Beijing’s “gray zone” tactics in the region suggest that it would be willing to use coercion to maintain its territorial claims. The probability of harm to the claimant states is high.
The magnitude of harm, however, is not as high relative to Japan and Korea. At issue for the claimants are islands that are not part of their core territory. Losing these islands would certainly hurt economically and wound national pride, but it would not fundamentally jeopardize the sovereignty or security of these countries. The level of risk these countries face is lower than Japan and Korea and akin to needing road accident insurance. Even if these countries are “careful drivers” in the SCS, which they are often not, the risk often originates in the reckless actions of other drivers.
Disaster insurance: Australia and India
In the top right quadrant are Australia and India, countries that are engaged in relatively low-stakes conflicts of interest with Beijing. China seeks to expand its economic footprint in Australia and is leery of Australia’s closeness to the US. China’s long-running border dispute with India is a potential flashpoint, but has been in a stalemate since at least the late 1980s. The likelihood of Chinese attempts at coercion over any of these issues with either country is low.
The magnitude of harm in the event of a conflict remains high for both countries. At issue for Australia is its independence and its relationship with the US, which, if tested and found wanting, would leave Australia geopolitically isolated. Were China to weaponize its economic relationship with Australia, the damage would be considerable. India too faces the prospect of significant (territorial and other) losses in a contest with China, particularly given Pakistan’s role in the Indian subcontinent as China’s all-weather friend. Australia and India’s need is akin to natural disaster insurance. China is an unpredictable antagonist that can do significant damage but is unlikely to do so in the near future.
Travel insurance: Thailand and Singapore
In the bottom right quadrant are Thailand and Singapore. Neither country is involved in a high-stakes conflict of interest with China. Beijing is, at best, concerned with the role of both countries as influential ASEAN members that occasionally cause diplomatic embarrassment. Neither country is a claimant in the SCS. Although Bangkok is Washington’s ally, it has increased military exchanges with Beijing following Thailand’s 2014 coup. The probability of harm to either Thailand or Singapore from China remains low.
The magnitude of harm each country can expect from Chinese coercion is also relatively low. Compared to Australia, their trade is less vulnerable to disruption, being diversified across a number of Indo-Pacific countries. Beijing’s growing influence among ethnic Chinese in Singapore and Thailand concerns their respective governments, but does not fundamentally threaten state security. Singapore and Thailand face the lowest level of risk among US partners and allies. Their need is akin to travel insurance, a contract that ensures against general unexpected adversity and that is customizable in terms of components and duration of coverage.
Becoming a better insurer
Reimagining alliances and partnerships as insurance contracts highlights the errors of Washington’s ways in the Indo-Pacific. The assumption that states feel threatened by China is mistaken. States see China as a risk to be managed using relationships with Washington. This means that unlike the Cold War, allies are less willing to bind themselves to American geopolitical projects. The likelihood of inviting Chinese retaliation, as South Korea experienced over the deployment of Terminal High Altitude Area Defense (THAAD) missiles in 2017, is high. At the same time, states seek US diplomatic and military cover in the event that relations with China turn sour. Manila announced a review of its defense treaty with the US in December 2019, specifically to probe if it would cover Philippine interests in the SCS.
States vary in terms of the level of risk they face, and are therefore in need of different types of insurance contracts. The type of insurance also affects the size of the premium a country can be asked to pay and the extent of coverage the US must offer. Demanding that Japan and Korea pay higher premiums for what is essentially an existential risk, without a commensurate increase in security coverage, betrays weak business acumen and counter-productive alliance politics.
Differentiating states by risk profile can also help the US rationalize its commitments. Washington can focus on helping those in need of health insurance (Japan and Korea) avoid crises, while encouraging those in need of travel insurance or even disaster insurance to manage more of their own risk. Those lower down the risk ladder can afford to do more because the risk they face is either relatively low or manageable. For SCS claimants in need of accident insurance, the US can focus on helping craft better rules of the road to minimize the risks of inadvertent escalation in the South China Sea.
Finally, the Trump administration in particular should remember that the US is not the only insurer in the market. Some countries such as Cambodia have already switched providers. Pushing allies at high risk too hard makes the US itself a source of risk, and can cause allies to gradually diversify their insurance portfolios as well.