Two Asian Economic Bullies That America Refuses to Face Up To : Commerce: While Japan--and now China--run up huge surpluses, the U.S. frets over geopolitics and mouths free-trade principles.
With the North American Free Trade Agreement ratified, the country must refocus its attention on the increasingly critical eco nomic problems posed by Asia, especially China and Japan. Com pared with Mexico, U.S. trade relations with Beijing and Tokyo involve vastly higher industrial, security and political stakes, symbolized by America’s $70-billion merchandise-trade deficit with the two countries. Yet, while the opportunities and problems posed by trade with Mexico have been debated ad nauseam , a serious discussion, let alone resolution, of Asian economic challenges remains all but inconceivable.
Despite years of empty gestures, mind-numbing negotiations and the devaluation of the dollar to make U.S. products cheaper for Japanese consumers, America’s $50-billion trade deficit with Japan has hardly budged. Japan’s producers first displace entire U.S. industries and key components producers in such sectors as aircraft and computers. Then they form design, manufacturing and marketing alliances that effectively keep foreign companies out of their core technology and business transactions. Worse still, Japan’s propensity to reinvest its surplus U.S. trade earnings--more than $440 billion since 1985--back in the United States has been sharply curtailed as Japanese corporations buy U.S. technology and divert their resources to home and other Asian markets.
Meanwhile, America’s trade deficit with China has exploded, up from $3.5 billion in 1988 to an expected $23 billion this year, as Chinese companies ship ever more sophisticated textile, electronic and machinery products across the Pacific to pay for their capital imports from other Asian producers. Total U.S. exports to China’s much-ballyhooed “liberalized” market, however, rose from just $5 billion in 1988 to a paltry $7.4 billion in 1992--about one-sixth the value of U.S. exports to Mexico.
The real Sino-American trade imbalance is almost certainly greater in light of conservative U.S. Customs Service estimates that at least $2 billion of Chinese exports in 1992 were deliberately shipped through other countries to disguise their origins. Many experts also believe that at least $415 million of potential U.S. revenues are lost each year to Chinese software and other copyright infringements. Such huge economic inequities, however, hardly warrant more than passing notice, though even the most trivial details of U.S.-Mexican trade are magnified a hundredfold.
Several factors account for U.S. indifference to Asia’s industrial challenges. Most significant, both China and Japan encourage large, name-brand U.S. companies to hook up with their domestic enterprises, and to source from local suppliers, rather than directly export finished products from the United States. This strategy badly splits U.S. industrialists between the comparatively few, but politically powerful, multinational companies that are rewarded with market access--and thus avidly oppose tough trade measures--and the myriad suppliers and service providers that desperately need more reciprocal relations.
Organized labor, which fervently opposed NAFTA, is often mute on Asian trade because countries like Japan are willing to build the increasingly outmoded, lower-skill assembly plants in the United States that traditional unions can represent, even as opportunities for the fast-growing, but generally non-union component and service firms that actually create jobs in the U.S. economy are severely reduced.
China and Japan are also viewed by many in Washington as strategic “assets” that must be maintained at any cost. For years, America’s geopolitical tacticians urged toleration of virtually any economic inequity to preserve U.S. influence in Asia--a position that justified America’s now intractable trade and technology imbalances with Japan and, more recently, the granting of “most favored nation” trade status to China. Tougher Chinese trade policies present particular difficulties because a large portion of the country’s industries are being built by investors from Taiwan, Hong Kong and Singapore, which are often much more responsive to U.S. concerns than either China or Japan.
These strategic problems are complicated by the many unpalatable features of Sino-Japanese domestic politics. Japan resembles Mexico in the one-party hegemony of the Liberal Democratic Party, except that no Japanese leader even remotely offers the vision and uncompromisingly pro-U.S. stance of Mexican President Carlos Salinas de Gortari.
Prime Minister Morihiro Hosokawa, Japan’s first postwar non-LDP coalition leader, has been hailed as an idealistic reformer who will eventually bring needed change to his country--and fair trade to the United States. In fact, his government is run by many of the same individuals who comprised former Prime Minister Kakuei Tanaka’s LDP faction, arguably one of the most corrupt in Japanese history. Also, the former LDP powerbroker who put Hosokawa on top, Ichiro Ozawa, is being investigated for the precisely the kind of bribery scandal that swept Hosokawa’s “reform” party into power in the first place.
Matters are considerably worse in China, where many observers believe that as Deng Xiaoping fades from the scene, a hard-line government with closer ties to the People’s Liberation Army is gradually emerging. Burgeoning defense budgets, continued reports of labor, ethnic and dissident harassment, and the possible sale, despite global objections, of a sophisticated ballistic-missile system to Pakistan seem to confirm that Chinese economic liberalization may be coupled with increased domestic authoritarianism and international irresponsibility.
Given the contradictions in its economic and political thinking, it is little wonder that America’s Asian economic policy seems hopelessly ineffectual. Despite taking former President George Bush to task for not getting tough with Japan, Administration negotiators are bogged down in the same fruitless discussions--agreeing on a framework to discuss a future trade agreement, or spending months to hammer out procedures that may, or may not, liberalize Japan’s public-contract bids--that Japanese bureaucrats employed for years to deflect U.S. concerns. These same tactics were recently applied in China, to similar effect. U.S. trade negotiators made vapid demands for Chinese economic “transparency,” as if clarifying the extent of Sino-U.S. economic imbalances would somehow solve them.
Despite China’s explosive trade surplus in the midst of America’s still-sluggish economy, Washington’s primary concern has been to moderate America’s brief flirtation with its naive human-rights agenda and “re-engage” Chinese leaders. To appease increasingly anti-American Chinese army officers, a high-level U.S. Defense Department official is slated to meet with a Chinese military representative for the first time since the 1989 Tian An Men massacre. And just two days after Congress decided Mexico was moral enough to trade with the United States, President Bill Clinton visited his Chinese counterpart, Jiang Zemin, during the APEC conference in Seattle, to thaw “chilly” Sino-U.S. relations.
These geopolitical considerations have crowded out any serious effort to redress the economic damage caused by trade with China and Japan. But armed with the largest integrated market in the world, Clinton can reaffirm the value of free trade--and insist that no nation can expect to profit from the new North American economy without maintaining reciprocal market-access, technology, investment and procurement opportunities.
Rather than simply celebrate the principle of open markets, the United States must take pains to show countries like China and Japan that maintaining open relationships requires practical readjustments of major inequities whenever necessary, issues neither Asian nation has yet to honestly face. The President must consolidate his hard-earned NAFTA victory by bringing the same passion and commitment to bear on the entrenched special interests and outmoded thinking that so profoundly thwart the possibility of progress in the Asian arena.
