Later this year, we will celebrate the 20th anniversary of the fall of the Berlin Wall – an event that changed not just Europe but the entire world. In a matter of months, millions of people in formerly captive nations were freed to pursue their individual and national ambitions.

The competition that defined the post World War II era was suddenly over. What was once called “the free world” had so much to celebrate – the peaceful end to a great power rivalry and the liberation of so many from tyranny’s grip.

Some, you could say, took the celebration too far. Many spoke of a “peace dividend,” of the need to focus on domestic issues and spend less time, attention and money on endeavors overseas. Many saw a peaceful future, where globalization would break down borders and lead to greater global prosperity. Some argued that state sovereignty would fade – like that was a good thing? – that new non-governmental actors and old international institutions would become dominant in the new world order.

As we all know, that did not happen. Unfortunately, there was no shortage of warning signs that the end of the Cold War did not mean the end of history or the end of conflict. In Europe, the breakup of Yugoslavia resulted in brutal wars in the Balkans. In the Middle East, a war was waged to reverse Saddam Hussein’s invasion of Kuwait. North Korea’s nuclear program nearly led to military conflict. In Africa, U.S. embassies were bombed by a group called al Qaeda.

Two weeks ago, America commemorated the 8th anniversary of the savagery of September 11, 2001. The vicious terrorist attacks of that day made clear that what happened in lands far distant from American shores directly affect our security. We came to learn, if we did not know before, that there were violent fanatics who sought not just to kill innocents, but to end our way of life. Their attacks have not been limited to the United States.

They attacked targets in Europe, North Africa and throughout the Middle East. Here in Asia, they killed more than 200 in a single attack in Bali. They bombed the Marriott Hotel and the Australian Embassy in Jakarta. Last year in Mumbai, more than 170 were killed in coordinated attacks in the heart of India’s financial capital. In this struggle with radical Islamic extremists, no part of the world is safe from those who bomb, maim and kill in the service of their twisted vision.

This war – and that is what it is, a war – is not, as some have said, a clash of civilizations. We are not at war with Islam. This is a war within Islam, where a small minority of violent killers seeks to impose their view on the vast majority of Muslims who want the same things all of us want: economic opportunity, education, and the chance to build a better life for themselves and their families. The reality is that al Qaeda and its affiliates have killed scores of innocent Muslim men, women and children.

The reality is that Muslims from Algeria, Indonesia, Iraq, Afghanistan and many other countries are fighting al Qaeda and their allies today. But this will be a long war, and it will require far more than just military power to prevail. Just as we did in the Cold War, we will need to use all the tools at our disposal – hard and soft power. Economic development, public diplomacy, educational exchanges, and foreign assistance will be just as important as the instruments of military power.

During the election campaign in the U.S. last year, you might have noticed we had some differences over Iraq. John McCain and I believed in the strength of the surge strategy – because of its success, Iraq is no longer the central front in the war on terrorism. Afghanistan is. Afghanistan is where the 9/11 attacks were planned and if we are not successful in Afghanistan, al Qaeda will once again find safe haven there. As a candidate and in office, President Obama called Afghanistan the “necessary war” and pledged to provide the resources needed to prevail. However, prominent voices in the Democratic Party are opposing the additional U.S. ground forces that are clearly needed.

Speaker of the House Pelosi, Defense Subcommittee Chairman Murtha, the Senate Armed Services Committee Chair, and many others, recently expressed doubts about sending additional forces! President Obama will face a decision soon when the U.S. Commander in Afghanistan requests additional forces to implement his new counterinsurgency strategy.

We can win in Afghanistan by helping the Afghans build a stable representative state able to defend itself. And we must do what it takes to prevail. The stakes are very high. Last year, in the midst of the U.S. debate over what do to in Iraq, an important voice was heard – from Asia’s Wise Man, former Singaporean Prime Minister, Lee Kuan Yew, who wrote in the Washington Post about the cost of retreat in Iraq. In that article, he prophetically addressed the stakes in Afghanistan. He wrote:

“The Taliban is again gathering strength, and a Taliban victory in Afghanistan or Pakistan would reverberate throughout the Muslim world. It would influence the grand debate among Muslims on the future of Islam. A severely retrograde form of Islam would be seen to have defeated modernity twice: first the Soviet Union, then the United States. There would be profound consequences, especially in the campaign against terrorism.”

That statesman’s words remain every bit as true today. And Minister Lee knows, and I agree, that our success in Afghanistan will have consequences all over the world, including Asia. Our allies and our adversaries are watching to see if we have the staying power to protect our interests in Afghanistan. That is why I recently joined a group of Americans in urging President Obama to devote the resources necessary in Afghanistan and pledged to support him if he made the right decision.

That is why, even during this time of financial distress we need to maintain a strong defense. All government spending should undergo serious scrutiny. No programs or agencies should be automatically immune from cuts.

We need to go back to fiscal discipline and unfortunately that has not been the view of the current Administration. They’re spending everywhere and with disregard for deficits and debts and our future economic competitiveness. Though we are engaged in two wars and face a diverse array of threats, it is the defense budget that has seen significant program cuts and has actually been reduced from current levels!

First, the Defense Department received only ½ of 1 % of the nearly trillion dollar Stimulus Package funding – even though many military projects fit the definition of “shovel-ready.” In this Administration’s first defense budget request for 2010, important programs were reduced or cancelled. As the threat of ballistic missiles from countries like North Korea and Iran grow, missile defense was slashed.

Despite the need to move men and material by air into theaters like Afghanistan, the Obama Administration sought to end production of our C-17s, the work horse of our ability to project long range power. Despite the Air Force saying it would increase future risk, the Obama Administration successfully sought to end F-22 production – at a time when both Russia and China are acquiring large numbers of next generation fighter aircraft. It strikes me as odd that Defense Secretary Gates is the only member of the Cabinet to be tasked with tightening his belt.

Now in the region I want to emphasize today: The reason I speak about defense is because our strong defense posture in Asia has helped keep the region safe and allowed it to prosper. Our Asian allies get nervous if they think we are weakening our security commitments. I worry about defense cuts not because I expect war but because I so badly want peace. And the region has enjoyed peace for so long because of our security commitment to our longstanding allies and partners.

Asia has been one of the world’s great success stories. It is a region where America needs to assist with right mix of hard and soft power. While I have so much hope for a bright future in Asia, in a region this dynamic, we must always be prepared for other contingencies. We must work at this – work with our allies to ensure the region’s continued peace and prosperity.

I know that you all — like all of Asia and indeed the whole world – has a keen interest in the emergence of “China as a great power.” Over the past few decades China’s economic growth has been remarkable. So has the economic growth and political liberalization of all of our key allies in Asia, Japan, South Korea, and Taiwan. Asia’s economic growth and political development, together with our forward military presence in the region and strong alliances, have allowed the region to prosper in peace for a long time. We hope that Asia will continue to be an engine of world economic growth, will continue to democratize and will remain at peace.

Our future is now deeply linked to Asia’s success. Our children’s future. We must continue to strengthen our key alliance with Japan, a country going through its own democratic change. Together the U.S. and Japan built the security umbrella under which so many Asians prospered. While there is so much attention to China these days, we cannot forget the importance of Japan in helping to make this the “Pacific Century.”

The recent elections in Japan demonstrated that voters wanted reform and an end to debt and stagnation. We have a substantial stake in Japan’s success — our alliance with must continue to be the linchpin of regional security.

With its open political system and vibrant democracy, South Korea wants to play a larger role on the international stage as well. Of course it wants us to work together toward a future where the peninsula is irreversibly denuclearized, and unified. But it also wants to play a global role. We need to work together with Japan, South Korea and our steadfast ally to the south, Australia, to make sure Asia remains peaceful and prosperous.

Australia rightly reminds us to keep our eye on Southeast Asia, where Indonesia has proved that Islam and democracy can co-exist. Indonesia has fought extremism inside its own border and is consolidating a multi-ethnic democracy that is home to hundreds of millions of Muslims. Those who say Islam and democracy are incompatible insult our friends in Indonesia.

Our great democratic friend India is also “looking East”, seeking a greater role in East Asia as well. Together with our allies we must help integrate India into Asia. If we do so we will have yet another strong democracy driving Asia’s economy and working on shared problems such as proliferation and extremism. And we must continue working with the region’s most dynamic economy, China. We all hope that China’s stated policy of a “Peaceful Rise” will be its future course.

You know better than most the enormous change that has taken place in China over the last thirty years. Hundreds of millions of Chinese have been pulled out of poverty as China has undertaken economic reforms that have resulted in unprecedented growth. Even today, China’s economy is projected to grow by some 8%. It is helping to edge the world out of recession.

China has amassed huge financial reserves. Chinese diplomats are engaged on every continent and, through its vote on the United Nations Security Council, China has become critical in gaining UN support on multilateral issues from Darfur to Iran to North Korea.

Just four years ago, then-Deputy Secretary of State Bob Zoellick urged China to become a “responsible stakeholder” in the international system. He observed the many benefits to China of a “benign international environment.”

The peaceful regional environment that China has enjoyed was created through the hard work of Americans, Japanese, South Koreans and Australians. Secretary Zoellick urged China to step up and play its role too. We are working with China to de-nuclearize North Korea. But to be a responsible member of the international community China should exert greater pressure on North Korea to denuclearize and undergo the fundamental reforms it needs. Zoellick urged China to play a greater role in stabilizing the international energy market by ceasing its support of dangerous regimes.

China could play a role in stabilizing its ally Pakistan, and working for peace in Afghanistan. There are many areas where the U.S. and China can work together. And, we would welcome a China that wanted to assume a more responsible and active role in international politics.

But Secretary Zoellick also noted that many of China’s actions create risk and uncertainty. These uncertainties led nations to “hedge” their relations with China because, in Zoellick’s words: “Many countries HOPE China will pursue a ‘Peaceful Rise’ but NONE will bet their future on it.”

See: this is the heart of the issue with China: we engage with the hope Beijing becomes a responsible stakeholder, but we must takes steps in the event it does not. See? We all hope to see a China that is stable, peaceful, prosperous and free. But we must also work with our allies in the region and the world in the event China goes in a direction that causes regional instability.

Asia is at its best when it is not dominated by a single power. In seeking Asia’s continued peace and prosperity, we should seek, as we did in Europe, an Asia “whole and free” – free from domination by any one power, prospering in open and free markets, and settling political differences at ballot boxes and negotiating tables.

We can, must and should work with a “rising China” to address issues of mutual concern. But we also need to work with our allies in addressing the uncertainties created by China’s rise. We simply CANNOT turn a blind eye to Chinese policies and actions that can undermine international peace and security.

China has some 1000 missiles aimed at Taiwan and no serious observer believes Taiwan poses a military threat to Beijing. Those same Chinese forces make our friends in Japan and Australia nervous. China provides support for some of the world’s most questionable regimes from Sudan to Burma to Zimbabwe. China’s military buildup raises concerns from Delhi to Tokyo because it has taken place in the absence of any discernable external threat.

China, along with Russia, has repeatedly undermined efforts to impose tougher sanctions on Iran for its defiance of the international community in pursuing its nuclear program. The Chinese food and product safety record has raised alarms from East Asia and Europe to the United States. And, domestic incidents of unrest — from the protests of Uighurs and Tibetans, to Chinese workers throughout the country rightfully make us nervous.

It is very much in our interest and the interest of regional stability that China work out its own contradictions – between a dynamic and entrepreneurial private sector on the one hand and a one party state unwilling or unable to adjust to its own society’s growing needs and desires and demands, including a human being’s innate desire for freedom.

I do not cite these issues out of any hostility toward China. Quite the contrary, I and all Americans of good faith hope for the Chinese people’s success. We welcome the rise that can be so good for all mankind. We simply urge China to rise responsibly. I simply believe we cannot ignore areas of disagreement as we seek to move forward on areas of agreement. Believe me, China does not hesitate to tell us when it thinks we are in the wrong.

I mentioned China’s internal contradictions. They should concern us all. We hear many Chinese voices throughout that great country calling out for more freedom, and for greater justice. Twenty years ago, many believed that as China liberalized its economy, greater political freedom would naturally follow. Unfortunately that has not come to pass.

Ummm, in fact, it seems China has taken great pains to learn what it sees as “the lesson” of the fall on the Berlin Wall and the demise of the Soviet Union: any easing of political constraints can inevitably spin out of control. But, in many ways, it is the essence of China’s political system that leads to concerns about its rise.

Think about it. How many books and articles have been written about the dangers of India’s rise? Almost as large as China – and soon to be more populous – virtually no one worries about the security implications of India becoming a great power – just as a century ago the then-preeminent power, Great Britain, worried little about the rise of America to great power status. My point is that the more politically open and just China is, the more Chinese citizens of every ethnicity will settle disputes in courts rather than on the streets. The more open it is, the less we will be concerned about its military build-up and intentions. The more transparent China is, the more likely it is they we will find a true and lasting friendship based on shared values as well as interests.

I am not talking about some U.S.-led “democracy crusade.” We cannot impose our values on other counties. Nor should we seek to. But the ideas of freedom, liberty and respect for human rights are not U.S. ideas, they are much more than that. They are enshrined in the Universal Declaration of Human Rights and many other international covenants and treaties. They apply to citizens in Shanghai as much as they do to citizens in Johannesburg or Jakarta. And demands for liberty in China are Chinese, not American, demands. Just last year, many brave Chinese signed Charter 08, a Chinese document modeled on the great Czech statesman Vlacav Havel’s Charter 77. Charter 08 would not be unfamiliar to our Founding Fathers and was endorsed by Havel himself. No, we need not convince the Chinese people that they have inalienable rights. They are calling for those rights themselves. But we do have to worry about a China where the government suppresses the liberties its people hold dear.

Nothing of what I am saying should be seen as meaning conflict with China is inevitable. Quite the contrary. As I said, we welcome China’s responsible rise. America and China stood together against fascism during World War II, before ravages took over in China – we were ready to stand together with China to shape international politics after World War II. Much has been accomplished since President Nixon’s fateful visit. And again, we stand ready to work with what we hope will be a more open and responsible China on the challenges facing the 21st century.

All of you here know how deeply integrated the economies of the United States’ and China’s are. We rely on each other, sometimes unfortunately in unhealthy ways. America spends too much that we don’t have, and then we go to China as a lender of first resort. Our fiscal policy, lately, seems to be “tax, spend, borrow, tax some more, repeat” and then complain about how much debt China holds. America needs to gets its own fiscal house in order. That’s a Common Sense Conservative perspective. We can hardly complain that China holds so much of our debt when it’s over spending that created the debt.

But here’s the reality. If in fact the United States does the “right” thing – if we spend less and save more – then China will also have to rebalance its economy. We need to export more to China – and we’d like China to consume more of our goods – just as we need to save and invest more. This vital process – so crucial to both countries – is impeded by problems of market access.

We must talk about these issues with more candor. If China adopts policies that keep our highest value products out of their markets, by manipulating technical standards or licensing requirements, our economic relationship suffers.

Our economic interdependence drives our relationship with China. I see a future of more trade with China and more American high-tech goods in China. But in order for that to happen, we need China to improve its rule of law and protect our intellectual property. We need to avoid protectionism and China’s flirtation with state-assisted “national champions.” On our part, we should be more open to Chinese investment where our national security interests are not threatened. In the end, though, our economic relationship will truly thrive when Chinese citizens and foreign corporations can hold the Chinese government accountable when their actions are unjust.

I see a bright future for America in Asia. One based on the alliances that have gotten us this far, one based on free and open markets, one that integrates democratic India into East Asia’s political life and one in which China decides to be a responsible member of the international community and gives its people the liberty – the freedom – they so desperately want.

Sadly, however, our largest free trade agreement ever in Asia, with South Korea, sits frozen in the Congress. In contrast, China is behaving wisely in negotiating free trade agreements throughout Asia. We want an Asia open to our goods and services. But if we do not get our free trade act together, we will be shut out by agreements Asians our making among themselves.

All of you here follow global financial markets and economic policy closely, I know that it will come as no surprise to you that United States leadership on global trade and investment is being sorely tested at this moment.

We are struggling with a monumental debate on whether fiscal discipline, or massive government spending, will drive a sustained recovery. We are struggling to repair the excesses that grew in our own economy and served as a trigger to a catastrophic collapse in the global financial system. And we are attempting to do so under the weight of a global imbalance of debt and trade deficits that are not only unbearable for the world’s mightiest economy, but also unacceptable in that they foster tensions between global economic partners like the United States and China.

I am proud to be an American. As someone who has had the tremendous opportunity to travel throughout the United States and listen to the concerns of Americans in towns and cities across the country, I can tell you that there is a sense of despair and even crisis afoot in America that has the potential to shape our global investment and trade policies for years, and even decades to come. Never has the leadership of our government ever been more critical to keeping my country, and the world, on a path to openness, growth and opportunity in global trade and investment.

It would of course be a mistake to put the entire burden of restoring the global economy on the backs of America’s leaders. There is plenty of work for all of us to do in this matter. Governments around the world must resist the siren call of trade protection to bring short term relief during a time of crisis.

Those who use currency policy or subsidies to promote their nation’s exports should remain acutely aware that if there ever were a time in which such policies could be viewed as “tolerable,” that time has now passed. All participants who seek to find benefit in the global trading system must also take the responsibility of playing by the rules.

The private sector has responsibilities as well. For instance, it should not be the responsibility of government to dictate the salaries of bankers or the ownership of companies. And yet, due of the excesses committed by some, this is exactly where we find ourselves now because government now owns substantial portions of the private economy – even, unbelievably, in the United States.

These are challenging times for everyone, but we in the United States must humbly recognize that if we are to lead and to set the direction for the rest of the world, it must be by our example and not merely our words. And we must tread lightly when imposing new burdens on the imports of other countries.

Well, CLSA: My country is definitely at a crossroad. Polling in the U.S. shows a majority of Americans no longer believe that their children will have a better future than they have had…that is a 1st.

When members of America’s greatest generation – the World War II generation – lose their homes and their life savings because their retirement funds were wiped after the financial collapse, people feel a great anger. There is suddenly a growing sentiment to just “throw the bums out” of Washington, D.C. – and by bums they mean the Republicans and the Democrats. Americans are suffering from pay cuts and job losses, and they want to know why their elected leaders are not tightening their belts. It’s not lost on people that Congress voted to exempt themselves from the health care plan they are thrusting on the rest of the nation. There is a growing sense of frustration on Main Street. But even in the midst of crisis and despair, we see signs of hope.

In fact, it’s a sea change in America, I believe. Recently, there have been protests by ordinary Americans who marched on Washington to demand their government stop spending away their future. Large numbers of ordinary, middle-class Democrats, Republicans, and Independents from all over the country marching on Washington?! You know something’s up!

These are the same people who flocked to the town halls this summer to face their elected officials who were home on hiatus from that distant capital and were now confronted with the people they represent. Big town hall meetings – video clips circulating coverage – people watching, feeling not so alone anymore.

The town halls and the Tea Party movement are both part of a growing grassroots consciousness among ordinary Americans who’ve decided that if they want real change, they must take the lead and not wait to be led. Real change – and, you know, you don’t need a title to do it.

The “Tea Party Movement” is aptly named to remind people of the American Revolution – of colonial patriots who shook off the yoke of a distant government and declared their freedom from indifferent – elitist – rulers who limited their progress and showed them no respect. Today, Main Street Americans see Washington in similar terms.

When my country again achieves financial stability and economic growth – when we roar back to life as we shall do – it will be thanks in large part to the hard work and common sense of these ordinary Americans who are demanding that government spend less and tax less and allow the private sector to grow and prosper.

We’re not interested in government fixes; we’re interested in freedom! Freedom! Our vision is forward looking. People may be frustrated now, but we’re very hopeful too.

And, after all, why shouldn’t we be? We’re Americans. We’re always hopeful.