The US reversed its declining power in Asia in 2021, but a stronger China isn't its only problem

• The US reversed its decline in power in Asia this year, while China's rise appeared to falter.
• The US was an exception, as other countries struggled to respond to COVID-19, according to Australia's Lowy Institute.

The US reversed its decline in power in Asia this year, while China's rise appeared to falter, but neither course is assured, and both face domestic issues that may hinder their influence, according to the Lowy Institute's 2021 Asia Power Index.

The index, published annually by the Australian think tank since 2018, tracks the distribution of power in Asia by assessing countries on eight thematic measures that account for resources and influence. It shows the comprehensive power of almost all Asian countries shrinking in 2021.

The US defied that trend, registering an overall increase for the first time — though its 0.6-point gain comes after a three-point loss in 2020. In contrast, China's comprehensive power declined for the first time.

Those shifts show that China's primacy in the region isn't assured and that the US isn't locked into steady decline, according to Hervé Lemahieu, director of research at the Lowy Institute and the index's lead researcher.

The ongoing pandemic looms over the region, but it isn't the sole reason for those changes. "It's a combination of political and structural factors," Lemahieu told Insider after the index's release this month.

The US has had a stronger-than-expected economic recovery, resulting from its response to the pandemic's worst effects and its infrastructure spending. Its improved economic prospects through the end of the decade would be noteworthy "with or without the pandemic," Lemahieu said.

The US now tops six of the index's eight measures, an improvement attributed to President Joe Biden's pandemic response, economic initiatives, and regional engagement, especially through vaccine diplomacy. Earlier this year, experts judged Biden the region's most effective leader, and that standing was not significantly tarnished by the Afghanistan withdrawal or AUKUS backlash.

China and the US remain the only superpowers in the region, and the gap between them and the nearest middle powers widened this year, according to the index, even as China slipped in four of the index's measures of power.

China's economy rebounded this year but other issues will affect its trajectory, including a workforce set to contract by 20% over the next 30 years, a pivot to domestic consumption as the driver of growth, and a corporate crackdown.

A broader inward turn also undercut China's relative advantages. Strict border controls affected China's cultural influence, and leader Xi Jinping's failure to leave the country in the past two years eroded its diplomatic influence.

Those issues, as well as increasing authoritarianism, will affect China's future growth and influence abroad, Lemahieu said.

"All these things basically combined to slow China's economic growth rate," Lemahieu said, adding that China's 8% annual growth rates a decade ago will likely settle to 4% by the end of this decade.

"China still is likely to overtake the US by the end of this decade at market exchange rates. It's just that the speed at which it's growing is starting to level out a bit," Lemahieu said.

'What you can't predict'

The US and China are moving in opposite directions in terms of military power.

Beijing's growing military strength is driven by defense spending that is now 50% larger than that of India, Japan, Taiwan, and all 10 ASEAN countries combined. China's military is increasingly active on its periphery and has added advanced weaponry and expanded nuclear forces.

The US remains far ahead in terms of military capability, but its military primacy in the region is in steady relative decline. It has leveraged its regional networks to partially offset that decline, as shown by AUKUS and the security elements of the Quad partnership.

A similar approach to economic engagement could help arrest the US's decline in that field, Lemahieu said. China is roughly even with the US in terms of economic capability but far ahead in its regional economic relationships, whereas the index finds the US facing "growing irrelevance in the political economy of Asia."

"If America plays its cards right, it has the potential to remain the dominant superpower well into this century," Lemahieu told Insider. "The extent to which it remains influential in Asia will largely depend on whether it can arrest that decline in its economic influence."

The Biden administration has yet to lay out its economic approach to the region. Officials have promised "quick action" on that issue, but some in the region expect that effort to be hampered by anti-trade sentiment in the US.

A domestic issue of greater concern may be the health of US democracy.

"You ask most US allies and partners, and they will tell you that [they are] very reassured by the Biden administration but also very aware that none of these issues surrounding US domestic polarization has really been effectively quelled," Lemahieu said.

Former President Donald Trump's baseless claims about the 2020 election, attempts to disrupt the transfer of power, and Republicans' embrace of those falsehoods have prompted increasing concern about the integrity of future elections.

Trump's disregard for alliances and partnerships alienated many in Asia, and his possible return to power, or the victory of another candidate who shares his views, worries countries in the region.

"What you can't predict is the extent to which US democratic institutions become destabilized [or] the extent to which the US can no longer really be a reliable or constant foreign-policy actor," Lemahieu said. "Allies and partners will take what they can get, and they won't mention it out loud, but it's something they're thinking about."