Weak Dollars Alone Won’t Buy U.S. a Future in Asia

Get real, America. The dollar’s current decline is not merely Japan’s problem or the work of fevered speculators, as many U.S. government officials and financial experts have said.

Rather it represents a historic shift in the world economy, with Asian countries moving away from U.S. influence to do more business among themselves and with Japan.

And that could prove a blessing or a curse for U.S. business and the economy into the next century, depending on how U.S. companies and government handle the transition.

For certain, Japan’s influence in Asia is rising. U.S. influence, as a diplomatic force and an example of governmental and economic policies, is not rising--but it could revive long term. Yet what is going on could solve the problem of U.S. trade deficits.

We need understanding of those contradictions to make wise business decisions--and to avoid unproductive fears.

The real cause of the sharp rise in the yen and swoon of the dollar in 1995 is that the emerging economies of Asia, from Thailand to Indonesia, have changed the make-up of the reserves that back their currencies to include more yen, fewer dollars.

Multinational companies that do business in Asia also have shifted to holding more yen.

Governments and companies were driven to do that because they were getting squeezed. Asia’s developing countries have some $70 billion in loans from the Japanese government, on which they must make payments in yen.

In addition all those economies have technology licensing agreements from Japan--for industrial processes and patents--on which they must pay fees in yen. Making such yen payments became onerous in recent months, as the dollar fell 20%, because the Asian countries make their living largely in dollars by exporting to the United States and to each other.

That’s why the rulers of Malaysia, Indonesia and other countries are beseeching Japan to renegotiate their loans.

And it’s why they also are demanding that Japan buy more of their products and give them a chance to earn yen.

The rising yen actually has revealed a problem at the heart of Asia’s economy. Though they have loans and investment from Japan, Asia’s emerging nations send their exports to the United States, the universal buyer. To be sure, that has been changing--the U. S. economy now buys 24% of East Asia’s exports where a decade ago it took 34%.

But basically Taiwan, Malaysia, Thailand, Indonesia, South Korea and now China itself have grown on the U.S. market--just as Japan did after World War II.

Malaysia last year sent $14 billion worth of goods to the United States compared with $8 billion to Japan; South Korea exported 50% more to the United States than to neighboring Japan.

But the time has come to change that pattern. The United States, with a huge current account deficit, can’t be the only big buyer any more. Japan, with a $4-trillion economy--two-thirds of the U.S. economy--must take more of Asia’s imports.

If it does, its yen will decline somewhat and cease to be a burden to its home industry.

But we should realize that if it does not, the yen will remain super strong and Japan will use it to invest in the Asian economies, building industrial plants and markets among them.

Either way, Japan will become even more the conductor of the Asian economic orchestra.

That’s the emerging reality in Asia where economies are growing very rapidly to considerable size. Indonesia and Thailand have gross domestic products approaching $150 billion, South Korea’s is $360 billion. China’s is over $400 billion, India’s is $340 billion--and Vietnam is just coming on stage.

We should be cheering, because the United States created growing Asia by protecting countries from communism and encouraging economic development.

Now, however, like adolescents everywhere, Asia’s economies do not follow U.S. parental advice. Rather, they follow Japan’s model of export-driven restricted markets. They are not model democracies--human rights abuse and open drug trafficking defy U.S. policies. But U.S. admonitions are neither welcomed nor heeded.

“Bad handling of relations between the United States and Japan and China is likely to cause Asian nations to rethink their policies,” said Sukhumbhand Paribatra, a political science professor at Thailand’s Chulangkorn University.

Asian nations fear and admire the economic power of Japan and the growing political and military power of China. They want U.S. industry in their countries and U.S. military power in their region, but in any public dispute they will side with those neighbors.

What is the United States to do? Work patiently at governmental level for democratic principles while privately pursuing the opportunities of Asia’s markets. For our prosperity--especially here in Southern California--U.S. industry has no choice but to be in Asia.

Such markets won’t be won by weak dollars alone. Asian countries want industrial investment for the technology and know-how it brings. “They need electricity if they are to continue to grow,” says S. Linn Williams, general counsel of Irvine-based Mission Energy, which is building a power plant in Indonesia and bidding on projects in China.

Some major companies are doing well. Motorola has electronics and telecommunications operations in several countries; Hughes Electronics is setting up satellite networks. General Motors plans to assemble automobiles in Indonesia.

Still, smaller firms could have problems if they have to invest for years without a payback, notes Paula Stern, who chaired the Reagan Administration’s International Trade Commission. They need help setting up in Asia, she says.

But help may be close at hand. There are 260,000 exchange students from Asia now at U.S. universities. “These students are from leading business families in their home countries,” observes Richard Drobnick, head of an international business program at USC.

U.S. companies could hire such students as summer interns to do market research back home, suggests Drobnick. “College deans will be happy to put you in touch and who knows what connections might develop?”

In other words, Yankee ingenuity will do more than weak dollars in a profoundly changing world.