The political economy of the Asia-Pacific region has been transformed over the past decade. Three important developments are (1) the demise of the US–Japan economic rivalry and the associated competition over the most appropriate model of capitalism; (2) challenges to the ‘Washington Consensus’ on the optimal foreign economic strategy for emerging economies; and (3) the renewal of US hegemony in the context of a unipolar international structure. An understanding of these developments requires attention to the interaction of international and domestic forces. These developments suggest that a major challenge facing governments in the region will be to manage the tension between the state and the market. They also suggest that the United States is well positioned to play the role of regional stabilizer in the Asia-Pacific. Whether it does so effectively will depend on its domestic politics and the quality of its statecraft.