The 'Quad' is on the rise in Asia-Pacific: Game theory has a prediction about its future
The 'Quad' is on the rise in Asia-Pacific:
Game theory has a prediction about its future
Published Wednesday, XX May 2019 12:00 AM ET
On Friday, U.S. President Joe Biden will host Prime Ministers Narendra Modi of India, Scott Morrison of Australia and Yoshihide Suga of Japan at the White House for the first in-person Quad Summit.
They'll focus on "deepening our ties and advancing practical cooperation" on Covid-19, the climate crisis, technology, cyberspace and "a free and open Indo-Pacific," according to a White House statement.
As with just about every statement from the Quad, it makes no mention of China. But worries about China are at the root of the Quad. Since Xi Jinping became China’s leader in 2012, each of the four democracies has had serious run-ins with China on trade or territorial claims or both.
The "quadrilateral security dialogue" among Australia, India, Japan and the United States was once an informal, ongoing discussion between senior officials about naval cooperation. It's morphing into top-level strategic cooperation on tech, the global economy, security and the pandemic.
China objects to the Quad as an attempt to derail its rise as a global power.
"Forming closed and exclusive 'cliques' targeting other countries runs counter to the trend of the times and deviates from the expectation of regional countries," the country's foreign ministry said last week in response to the White House meeting. "It thus wins no support and is doomed to fail."
But even as it expresses confidence that the Quad will fail, Beijing takes aggressive actions that push the Quad countries closer together, according to several policy experts who spoke to CNBC.
"China is increasingly hemming itself in. Whatever objectives it might harbor for the Indo-Pacific, it's getting in its own way," said Ali Wyne, senior analyst for Global Macro at Eurasia Group.
To get a sense of what's next, CNBC in February came up with a question — What is the future of the Quad? — and ran it through an advanced game theory model. The effort generated specific predictions about the four Quad nations, China and other countries and territories with a stake in the Indo-Pacific.
Game theory is an obscure concept to most people. In short, it tries to apply science to strategy. Game theorists construct models of situations involving competition between groups or individuals.
They then apply computing power to predict how individuals will interact in the model and what outcomes will be.
The use of game theory in CNBC's Quad project comes as policymakers, investors and the risk-management industry are trying to get more quantitative rigor into their forecasts — in line with the rise of quantitative analysis across other sectors including trading and investing. Globally, algorithms are being relied upon to do more and more.
But game theory is not magic. It has limitations, which you can read more about here. Significantly, at least two of the policy analysts who helped build the model used for this report do not agree with some of the predictions it made.
But in the world of game theory, at least, the model implemented for this report is a well-regarded one. The methods developed by Bruce Bueno de Mesquita, of New York University and the Hoover Institution at Stanford University, were used by the CIA on more than 1,200 projects in the 1980s.
According to a declassified CIA report published by Yale University Press in 1995, Bueno de Mesquita's former firm Policon had a 90% accuracy rate on predictions it made for the agency and generated greater detail than traditional analysis. Bueno de Mesquita claims a higher accuracy rate on projects undertaken for Fortune 500 clients since then.
Jonathan Grady, principal of start-up consulting firm The Canary Group and a protégé of Bueno de Mesquita, built the game theory model for this report. It was designed specifically to predict the Quad nations' future together in maritime security.
In consultation with Bueno de Mesquita, Grady gathered input from 37 policy experts and former government officials. You can see a list of them here.
The model built for this report included almost 300 individual "players" — senior government officials and national institutions — spread among the Quad nations, China and 10 other countries and territories. CNBC's Quad project is the largest computation ever run by the Bueno de Mesquita model in its history — more complex than any projects undertaken for the CIA or corporate clients.
What follow are the model's predictions, and what political analysts say about them.
The big Quad predictions
Three major forecasts covering roughly the next two years came out of the model, which was designed to focus on security and maritime issues:
- Leaders in Australia, India, Japan and the United States will become much more focused on Indo-Pacific security, and the countries will act in an increasingly coordinated way. However, they won't take any actions as a group that are more aggressive than they take already. For instance, they will not carry out naval exercises as a group within the South China Sea, which China claims as its own.
- Xi will pressure each of the Quad leaders separately in an effort to create a wedge between them, but none will respond to him. Some senior leaders in China, including within the military, will begin to favor a more conciliatory approach toward the Quad. But they'll run into hard nationalists at the top of the Chinese Communist Party. China will make no serious concessions to the Quad on its maritime claims.
- Other countries will align with the Quad or come close to its position on security, including the United Kingdom, Canada, Singapore, France and South Korea. That could come in the form of joining naval exercises with some or all of the Quad countries, or openly supporting the group's security-related positions. Other countries, such as Vietnam, will edge closer to the Quad than they are now.
Experts who spoke to CNBC about the results agreed across the board with the first conclusion, that the Quad will strengthen as a group.
"The baseline conclusion about the Quad becoming a permanent part of the architecture of Asia is right. I think it's baked into the politics of the four countries," said Michael Green, senior vice president for Asia and Japan chair at bipartisan research organization CSIS. "It makes good politics in all four countries."
Part of the reason it makes good politics domestically in the Quad countries is that China has become more assertive toward each of them since Xi took over as leader.
Territorial disputes between China and Japan have sharpened as China's military has become more active in the East China Sea. China slapped major trade restrictions on Australian goods after that country called for an inquiry into Covid. Troops from China and India clashed in the Himalayas, resulting in 20 dead Indian soldiers and a backlash against Chinese tech products. And of course, the U.S.-China trade war has shown no signs of abating.
The model's results "reinforce the extent to which China is its own principal challenger," said Wyne at Eurasia Group. "It is actively contributing to its own diplomatic and military encirclement."
Each of the Quad countries increasingly sees it as necessary to design everything from security agreements to supply chains that work around China.
Japan's central role
China often presents the Quad as a U.S.-dominated endeavor, and the Biden administration has certainly increased the United States' leadership role in the group. But the group is more complicated than that. Each Quad country has its own reasons to work with the others. Those reasons are increasing.
Take, for example, Japan.
China's rhetoric — as well as most U.S. media coverage on the Quad — overlooks the central role Japan and former Prime Minister Shinzo Abe have played in creating the group and keeping it alive.
For years, Japan has seen it as a good idea to build its circle of friends. India, in particular, makes sense from an economic perspective. Each country has something the other would like more of: Japan has capital and know-how, while India has booming growth and a growing population. And they're both democracies.
"From the economic point of view, Japan regards India as the most important future partner. Its population is growing, and it has a tremendous economic potential," said Narushige Michishita, professor at the National Graduate Institute for Policy Studies in Tokyo.
From a security perspective, the United States may be more cooperative with others under Biden than it was under former President Donald Trump, but its military is "globally deployed, while China's is regionally deployed," said Michishita. "So if two can't do the job, well, look at India. Add friends."
Disagreement on China predictions
The game theory forecasts about China's internal politics are the ones that generated the most interest among the experts who helped build the model — and the most disagreement.
"The China factor is the biggest bit of the story. It's the biggest uncertainty, it's the driving factor for everything," said Dhruva Jaishankar, executive director of Observer Research Foundation America. "If the takeaway is that this could lead to greater factionalism in the Chinese leadership, that for me is the headline."
The model did not predict that China would become friendly to the Quad concept — far from it. But it did indicate that different points of view will evolve within China's leadership.
The model predicted more conciliatory sentiment in parts of the foreign policy leadership and in parts of the Chinese military. However, officials on the Politburo Standing Committee of the Chinese Communist Party will maintain firm inflexibility toward the Quad. That committee comprises the top leadership of the party.
China has never signaled division within its government when it comes to the Quad or, for that matter, much of anything else. China's foreign ministry last week positioned the Quad as being opposed to its development — and made clear its belief that China's development is good for Asia and the world.
"I want to stress that China is not only a major engine of economic growth in the Asia-Pacific, but also a staunch defender of regional peace and stability," said ministry spokesperson Zhao Lijian. "China's development strengthens the force for world peace and is a boon for regional prosperity and development."
A lack of real visibility on Beijing's inner workings is what makes some policy experts dubious about the model's forecast.
"When I was in the White House, we could have told you who's who within China," said Michael Green, who worked for the U.S. National Security Council during the administration of George W. Bush. "It's much more opaque now."
Green suspects there's less debate within China now than there was before Xi came to power, and "people are afraid to give him bad news." Xi has a dominant position over the Standing Committee of the Politburo, Green pointed out, and he's the only civilian leader on the Central Military Commission. "It's very hard for the foreign minister to compete with him on grand strategy," he said.
Certainly Chinese intra-party politics include factions, and elements of the Chinese military may sometimes be at odds with the political leadership, according to Larry Diamond, a senior fellow at the Hoover Institution. But those things are typical of countries everywhere. None of it means China has "independent power players," he said.
"Xi is very dominant, and soft-liners are not going to be able to challenge him," he said.
Even if Xi were to be swayed by officials counseling conciliation toward the Quad, his personal political situation may not allow it.
"Xi has gone so far down the road of militarization of the South China Sea and the promise of China greatness, China's rise to hegemony in the Indo-Pacific, and essentially the recovery of Taiwan, that he can't seriously moderate … without falling from power or risking it," Diamond said.
But the resistance China has encountered on economic, trade and territorial issues — even from countries that rely on Chinese trade — appears to have genuinely surprised Beijing.
"Australia's pushback [after getting hit by trade sanctions] surprised China. So did India's assertiveness at the border," said Vietnam expert Duy Trinh at Princeton University's Niehaus Center for Globalization & Governance.
"I think it speaks to … some elements of the Chinese Communist Party that their hawkish stance in recent years has been challenged, and quite resolutely challenged, by other countries," he said. "It's not something they can just do for free."
Other countries, other predictions
Sympathizing with the Quad doesn't require being in it.
The game theory model built by Jonathan Grady scrutinized a total of 15 countries and territories, all of them seen as influencing the Quad's future to one extent or another. The computation predicted that some of them will align themselves with the Quad on security issues or come close to doing so.
The United Kingdom, Canada and Singapore, the model said, will align with the Quad on maritime security. France and South Korea will come close to the Quad's position, though with less uniform agreement among their chief policymakers. Vietnam will edge toward the Quad without adopting its stance completely, according to the model. The Philippines will signal an alignment with the Quad, the model said, but President Rodrigo Duterte looks likely to move back toward China after national elections next year.
To be sure, whatever enthusiasm France had for the Quad appears to have dropped since the game theory model was run in August. A decision by Australia to ax a $40 billion deal to buy submarines from a French manufacturer angered Paris and "completely changes French calculus in the region, in particular when it comes to any form of cooperation with the Quad," said Pierre Morcos, a visiting fellow at the Europe, Russia and Eurasia Program at CSIS. His comments came as France pulled its envoys from the U.S. and Australia.
"This does not mean that France will diminish its commitment to the region, but any cooperation with the U.S. and Australia will be difficult in the near future given the anger of the French authorities," said Morcos, who worked previously for the French foreign service.
Still, the analysts who spoke to CNBC uniformly agreed that the Quad would find friends in both Asia and Europe. That prediction "reflects what I'm hearing from Korea, the military of the Philippines — and the Dutch, by the way," said Green of CSIS.
Those experts talked to CNBC — and Grady ran the model — before news last week that the United Kingdom will join a new security partnership with the United States and Australia that will, among other things, equip Australia with nuclear-powered submarines.
As is typical, the three countries downplayed the notion that the partnership is aimed at China.
China was not convinced, calling the move "extremely irresponsible."
"Relevant countries should abandon the outdated Cold War zero-sum mentality and narrow-minded geopolitical perception, respect the will of the people of regional countries, and do more to contribute to regional peace, stability and development," said Zhao Lijian of China's Foreign Ministry. "Otherwise, they will only end up shooting themselves in the foot."
It gets harder for China to convincingly argue that the Quad is a front for U.S. efforts to obstruct its development when there's broadening support for the Quad on freedom of navigation, cybersecurity and other issues, Morcos said.
"For years it was able to describe such pushback as a U.S. reaction to China's rise and a form of concern in Washington that it's losing its hegemony in the region," said Morcos. "But the fact that more and more countries are joining these concerns is a demonstration to China that its behaviors are not acceptable to the international community at large."
Peter Jennings, the executive director of defense think tank the Australian Strategic Policy Institute, told CNBC's "Street Signs" that the deal wouldn't have happened if not for China's "aggressive and assertive policies."
The Quad is not an alliance
Two experts who helped populate the model and spoke to CNBC afterward said that a perhaps ironic strength of the Quad is that it is not, in fact, a military alliance.
Because they're usually ratified in a parliament or legislature, military alliances are heavily structured organizations. In important ways, that makes them more rigid than an informal grouping like the Quad.
Russia and Taiwan
That loose sort of non-alliance has a precursor: the one between China and Russia.
China and Russia do not have a formal alliance, but they frequently work in concert on international issues.
The game theory model indicated that elements in the Security Council of Russia will favor China softening its stance toward the Quad, but Russian President Vladimir Putin won't go that far. The Russian president, and Russia's leadership at large, were shown losing interest in the Quad as the game progressed.
Dhruva Jaishankar of Observer Research Foundation America doubts that Russia would deviate from China's position, noting that Russia is the weaker of the two countries and commercially dependent on China.
Then there's Taiwan. If there's one place in the Indo-Pacific that worries politicians, policy analysts and China-watchers generally, it's the self-governing island that China claims as its own. More than one expert who helped populate the Quad model, including Oriana Skylar Mastro, center fellow of the Freeman Spogli Institute for International Studies at Stanford University, has expressed deep concern that China could use armed force to take Taiwan.
Taiwan is a democracy, but Beijing claims it as a breakaway province and has repeatedly sent warplanes into Taiwan's air defense zone over the last year. The Quad game wasn't designed to examine that situation, but it did model Taiwan's government vis a vis the Quad.
Taiwan is seen staying close to the Quad in terms of its policy positions, but its stance changed over the course of the game and became more flexible.
The game predicted that Taiwan's ruling Democratic Progressive Party would begin with an assertive attitude toward China overall, but over time, some members would soften their position.
The model identified divergence among DPP leaders when it comes to how hawkish Taiwan should be toward China. Perhaps significantly, President Tsai Ing-wen adopts a more conciliatory tone toward China than does Vice President Lai Ching-te, according to the forecast.
In the White House, the model predicted that Vice President Kamala Harris' focus on the Quad issue will sharpen and become "highly resolute, especially compared to other stakeholders in the White House," according to Grady. That's in the context of a White House that becomes more focused on Indo-Pacific security overall.
Harris visited Singapore and Vietnam in late August, a week after the game theory model turned in its predictions.
Vietnam and China have conflicting claims in the South China Sea, and Harris told officials in Hanoi that the United States and Vietnam should find ways to "pressure … Beijing to abide by the United Nations Convention on the Law of the Sea, and to challenge its bullying and excessive maritime claims."
China Foreign Minister Wang Yi followed behind Harris with his own visits to Vietnam and Singapore, as well as Cambodia and South Korea, about two weeks later.
"In some ways, she represents a bridge between the progressive and establishment Democrats," said Jaishankar. "If she starts adopting a position closer to President Biden and his advisors, that would obviously have implications for the Democrats' foreign policy over the next decade or so."
Afghanistan and 'America First'
Most analysts who spoke to CNBC held the view that the disastrous American withdrawal from Afghanistan would not hurt U.S. political efforts in the Indo-Pacific. On the contrary, they said Biden is making good on the "pivot to Asia" that the Obama administration talked about at length but could never make happen.
If America's partners in Asia are worried about anything, according to Ali Wyne at Eurasia Group, it's whether the United States will commit to Asia fully enough. They'll want to see the United States help shore up economic resilience in the region outside China, for example.
And, Wyne said, they will worry about whether Biden's policies survive the 2024 election.
The "America First" administration of Donald Trump was uninterested in multilateral agreements in general, and was indifferent or openly belligerent toward allies like South Korea and Germany in particular.
Beijing will be watching. As Chinese state media argued of the United States and Trump in 2019, "no one wants a partner that is arrogant, domineering and capricious."
The Quad's flexibility makes it easier for outside countries to cooperate with the Quad on one specific issue while ignoring another. It even allows the Quad countries themselves to pick and choose what they'll work on together.
"It's like a dimmer, not an off-on switch," said CSIS's Green. "It's a flexible tool, including who joins. It's flexible for a Korea or a New Zealand or a UK. If they decide they're upset with China, they can send a frigate to the next exercise."
The Quad and the global economy
An irony of the Quad is that each of its members is a major trading partner with China, as are all the countries that the game theory model predicted will align with the Quad. China is the world's biggest exporter and biggest trading nation overall.
China's central place in the world’s economy puts limits on how far an informal security arrangement like the Quad can go. But recent statements from the Quad and the White House, made in March and last week respectively, make clear the group's intention to work together in the economic arena.
The Quad's commitment to a "free, open rules-based order, rooted in international law" refers to trade as much as security. Freedom of navigation, probably the Quad's longest-running issue, is about trade goods and fishing fleets moving without obstruction on the high seas.
Michishita of the National Graduate Institute for Policy Studies argued that the Quad has to develop a mechanism for helping countries that are hit by Chinese trade sanctions — arguably Beijing's most potent political weapon, and one it has used at one time or another against Australia, Japan, South Korea and others.
China has massive clout on trade around the planet, including with each member of the Quad individually.
But the Quad countries have unique economic strengths. The United States remains the world's largest and most dynamic economy. Japan is the third-biggest economy and a technology power. India has a burgeoning economy, and it has made itself an indispensable part of the vaccine-manufacturing business. Australia, with a population of only 25 million, enjoys a trade surplus with China thanks to its critical natural resources and agricultural exports.
Goodman speculated that the Quad is trying to figure out how to "operationalize" those economic strengths. That would mean pioneering the technologies of the future such as semiconductors, biotech and artificial intelligence. Just as importantly, he said, it would mean setting the "rules, standards and norms" around those technologies.
The Quad wants to establish rules around the economy. That's what big, multinational groups do — or at least the ones that really matter, like the G-7 group of leading industrial nations and the Asia-Pacific Economic Cooperation group, or APEC.
"Just in terms of analyzing the stuff going on here in Washington, there's no question the Biden administration has made a deliberate statement that the Quad and the G-7 are the two core organizing bodies that they're going to center their work on the global system around," said Matthew Goodman, who served in the Obama and Bush administrations and is now senior vice president for economics at CSIS.
How game theory works
Game theory uses computing and logic to predict what people will do when they're competing against each other. It creates a model that forecasts the decisions and counter-decisions within a scenario or "game" between those people, who are called "players."
Game theory can't do things like predict elections or forecast the stock market. It's designed to scrutinize discrete scenarios that involve defined groups — corporate merger talks between companies, for instance, or high-level diplomatic negotiations between countries.
How the model was built
The game theory model used to build the analysis for this report was designed by Bruce Bueno de Mesquita, a professor at New York University and senior fellow at Stanford University's Hoover Institution who began developing his model in the late 1970s.
The Quad project focuses specifically on the maritime security part of the relationship between the United States, Japan, India and Australia. It doesn't forecast other Quad initiatives.
Jonathan Grady of Canary Group, a former student of Bueno de Mesquita, carried out in-depth interviews with 37 recognized specialists on the internal politics of the four Quad nations, China, and 10 other countries and territories. Included in the group were former government officials, political scientists, think tank analysts and others. (See List of experts, below.)
The Quad project first identified an "issue scale" — a ranked list of about 20 hypothetical outcomes for the Quad. The scale ranged between extremes: all the way from the Quad shutting down at one end, to an aggressive Quad that creates security guarantees for Taiwan at the other end.
The political specialists identified about 300 key "players" across the 15 countries and territories modeled. Most players were individuals, but some were institutions such as industry sectors or parts of the news media. The model "scored" where each of the players stands on the issue scale. It also scored each player on other key questions:
- How much influence do they have over the Quad's future?
Joe Biden was ranked highest, and everyone else was scored off his baseline.
- How much do they care about the Quad issue in the first place?
For example, U.S. National Security Council Coordinator for the Indo-Pacific Kurt Campbell cares a lot, while U.S. Treasury Secretary Janet Yellen is focused on the Quad much less.
- How flexible are they in their stance toward the Quad?
For instance, Indian Prime Minister Narendra Modi is more flexible about the Quad than is Chinese President Xi Jinping.
The Quad model was completed in August. It ran tens of millions of individual calculations, predicting exchanges between players over seven "rounds" before coming to its conclusion. Grady of Canary Group ran the model several times to check for consistency.
Criticism of game theory
Game theory has its critics.
Game theorists assume that people in competitive situations will behave rationally, or at least behave in ways they believe are rational, in order to achieve their goals.
Critics point out, however, that people ultimately are voluntary actors. Threats or incentives that normally produce one response in people will sometimes produce something quite different in others. Predictions about the actions of individuals don't rest on the same safe ground as, say, predictions about physics. The movement of particles can be predicted because particles don't have free will.
Game theory models have to simplify away some details because they can't mathematically factor in everything that might come into play. "That's what a model does by definition," said Richard Langlois, an economist at the University of Connecticut.
When you're talking about the future, Langlois said via email, "there may be new factors we haven't (and couldn't have) anticipated."
Such "qualitative" factors can't be modeled in a mathematical way.
Asked about that criticism by CNBC, Bueno de Mesquita agreed that qualitative factors play a part in any outcome. But he sticks by his model and its 90% success rate: "The part they play, according to the model's history, is under 10%," he said.
Perhaps the strongest criticism of game theory generally involves the information that goes into models.
Computer scientists have an expression — "garbage in, garbage out" — to mean that a computation is only as good as the data being crunched. A model's output is only as valid as its inputs.
The Quad project gathered information from some of the most respected policy and security experts in the world, and it stress-tested their estimates against each other.
"The folks that we have are really strong. There's not much higher quality you can get than what we have," said Grady of Canary Group. "This is high-quality in, and high-quality out."
Still, more than one of those contributors questioned how much anyone who's outside China's ruling circle can really understand about the inside of China's ruling circle. (Read more under The big Quad predictions.)
Experience teaches investors that it's a good idea generally to be skeptical about predictions. Political scientists, economists and stock pickers all predict the future, but anyone who's followed them closely enough knows they're often wrong.
Predictions also can't account for unexpected events. For instance, the Quad model did not factor in the sharp outrage in Paris after Australia ditched a $40 billion deal to buy submarines from France. At least in the near term, that event appears to have made direct cooperation between France and the Quad unlikely.
But if nothing else, the use of game theory creates a starting point for people to begin to discuss the Quad and what it means.
"Nobody really knows what to talk about — key players, rigor in terms of who's involved," said Jonathan Berkshire Miller, a senior fellow with the Japan Institute of International Affairs and director of the Indo-Pacific program at the Ottawa-based Macdonald Laurier Institute.
"I think in a way, this is the discipline that this discussion needs."
Meet the experts
Thirty-seven individuals contributed information that went into the Quad game theory model. All are recognized experts on the politics of at least one of the 15 countries that were modeled. Several are former government officials, some from senior leadership positions.
Of the 37 experts, 12 asked that they not be named as part of this report.
Writer: Ted Kemp
Editors: Matt Clinch, Joanna Tan and Mike Calia
Design and code: Bryn Bache, Yen Nee Lee
Images: AP, Getty Images
—Correction: This report has been amended to correct Dimitar Gueorguiev's job title.