Monday, March 4, 2002
Bush suffers economic jet lag

Special to The Japan Times

What is it about a trip to East Asia that turns the minds of shrewd politicians like President George W. Bush and his national security advisers into mush? Once again, an American president and his entourage have traveled to Asia. And once again, jet lag, inadequate oxygen in Air Force One or something in the local air has led them to mistake promises for accomplishments, atmospherics for substance, boilerplate for communication and excuses for genuine constraints.

Even worse, once away from their homeland, these leaders even lose sight of what normally drives U.S.-Japan relations: exports and trade. During last week's trip to Japan, China and South Korea, all of Bush's public words and deeds completely ignored the long-standing and worsening problems that Asian countries of all political stripes are causing the U.S. economy -- and by extension, the world economy.

Like his father, Bush apparently has forgotten that during an American election year, absent an immediate military crisis, voters are most concerned about jobs and wages. Bush's major concern for the remainder of 2002 is that the Democratic Party plans to take over Congress in November by attacking the president's economic policies. Given this domestic focus as well as East Asia's marginality in the war on terrorism, the president would have been smart to emphasize how major changes in Asian trade and other economic policies could benefit a still sluggish U.S. economy.

The war on terrorism is rightly the president's top priority, but in Asia, the U.S. focus on security concerns is largely misplaced. All three of the countries Bush visited will remain minor players at best in the war on terrorism wherever it leads.

Even Japan, our presumed frontline ally, will remain as militarily weak and self-absorbed as it was during the Cold War. And in fact, Tokyo has contributed far less economically to the antiterror campaign than it did to the Persian Gulf War. Even in the security area, nothing much has changed. What did change was Tokyo's ability to get credit for doing so little. It even got Bush to help with that.

Indeed, the greatest military threat to the United States in northeast Asia might be Washington's incomprehensible resolve, 10 years after the Cold War's end, to keep some 37,000 American troops right on the border of a possibly nuclear-armed and highly unstable North Korea.

Nor has Seoul been any help on this front. If it had its way, Washington would continue its recent policy of subsidizing the still dangerous and unpredictable North -- despite getting little in return.

And to make matters worse, economic deterioration during the 1990s makes both Japan and South Korea even more inclined to continue free-riding on American security guarantees.

China presents a different set of problems to the U.S. Bordering Afghanistan and the rest of Central Asia, China perceives much greater stakes in the antiterror campaign's success -- at least in Central Asia. But because of its own restive Muslim minorities, Beijing needs no special inducements from Washington to cooperate, and certainly deserves no rewards. Moreover, the further from Afghanistan antiterrorism operations are conducted, the likelier they are to run into rogue and near-rogue states whose militaries China has been strengthening.

Everyone except Bush seems to be aware that economics is the issue where Japan, China and South Korea could really help the U.S. Of course, the current U.S. recession will end at some point, but even the New Economy enthusiasts now expect a feeble and possibly fleeting recovery. One critical reason for this is America's mounting dependence on imports from Asia and elsewhere, and its mounting trade deficits, especially in its beleaguered manufacturing sector.

Lower interest rates, greater government spending, higher federal deficits, and the rebuilding of business inventories will unquestionably increase levels of demand in America. But for growth to take off strongly and sustainably, domestic businesses must receive new orders from home and abroad. This enables companies to hire new American workers, raise these workers' pay and enable them to finance more consumption in a responsible way -- not by plunging ever deeper into debt.

Imports do benefit the U.S. economy in many ways, but when too much demand is satisfied by foreign products, these benefits can be swamped by lost business opportunities for domestic companies and workers alike.

East Asian countries remain among America's least cooperative trading partners when it comes to market access. On the one hand, contrary to endless predictions about the dawn of an Asian century economically, the region has been losing importance as a market for U.S.-made products -- which only intensifies questions about why America still incurs so much cost and risk for the region's defense.

In particular, U.S. goods exports to East Asia have been growing more slowly since 1989 (by 71.5 percent) than have U.S. exports to the world at large (90.6 percent). Moreover, the problem isn't simply slower rates of Asian growth. In countries like China and Japan, U.S. products actually have been losing market share in recent years. And as with many U.S. exports to developing countries, many U.S. exports to East Asia are producer goods exports that ultimately get shipped back to the U.S. as finished products -- and do more to displace than to create American jobs.

On the other hand, U.S.-East Asia trade has remained remarkably lopsided. Largely because of the North American Free Trade Agreement, or NAFTA, whose supporters spoke of enhancing U.S. global competitiveness by diverting much U.S.-East Asian trade to less-protectionist Mexico, the region's share of the U.S.-goods trade deficit stands at a 10-year low -- 47.5 percent. But since 1989, the East Asia trade deficit has still increased by more than 150 percent in absolute terms, and the manufacturing deficit has soared by nearly 165 percent. Thus, NAFTA has done little more than add to America's deficits.

Knocking down still-formidable Asian trade barriers to U.S. exports would add another source of stimulus to the U.S. economy by raising demand for American-made manufactured goods and the high-wage jobs they create. Combating Asian mercantilism more effectively would certainly help domestic U.S. producers recapture market share at home and strengthen the vital multiplier effect needed for sustainable growth.

Bush, moreover, should have sent a much stronger message to Prime Minister Junichiro Koizumi that Washington will not let the Japanese export their way out of their financial woes and will instead insist on real liberalizing reforms. Ironically, many Japanese were disappointed that Bush did not push that theme harder, since Koizumi seems to be abandoning the reform package he promised almost a year ago.

Yet not only did Bush fail to bring up economic issues in his meetings with Japanese, Chinese and Korean leaders, he left all of his White House economic staff back home. Such neglect inevitably tells Asian governments that only security matters and one-way trade ultimately is acceptable to America -- even when the U.S. economy remains fragile.

Jet-lagged or not, Bush very soon will wake up to the reality that in the end, even to sustain effective security policies, it is the economy that really matters. Once the U.S. midterm congressional elections begin to heat up, Tokyo will be getting that message as well.

Ronald A. Morse is the Terasaki professor of Japan Studies at UCLA. Alan Tonelson is a research fellow at the U.S. Business and Industry Council Educational Foundation. Together, they recently produced a book in Japanese for the Tokyo Foundation on U.S.-Japan security ties.

The Japan Times: March 4, 2002
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