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| Worthy Notions: From The Editor |
Trading Places, Revisited
Dwight Cass
09/01/2005
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Is China the new Japan? Recent Chinese bids for large U.S. companies, growing
frictions over the volume of its exports and its currency manipulation, and
worries that it may use its vast purchases of U.S. Treasury securities as
leverage in disputes all seem reminiscent of the concerns pundits and
policymakers had about Japan in the late 1980s.
 Of course, Japan was a
long-standing ally, while China has been our adversary, more or less, for more
than half a century. Japan was also a fully fledged member of the developed
world, while China today remains, in the eyes of many, an “emerging” market.
The Reagan and first Bush administrations adhered, for the most part, to
laissez-faire, free-trade diplomatic policies despite protectionist pressures in
Congress inflamed by ever-more-shrill tomes by codependent U.S. and Japanese
demagogues. (Remember Clyde Prestowitz, herald of hegemonic decline and author
of Trading Places, and his Japanese counterpart, the fist-shaking
ultranationalist Shintaro Ishihara, author of The Japan that Can Say No?) The
fact that Japan and the U.S. did not trade places and have generally maintained
a mutually beneficial economic relationship, indicates that the Reagan and Bush
I administrations pursued the right strategy. Some make the case that it is also
the right approach for dealing with China today.
Historical analogies like
this may be comforting, but our country’s economic policies toward China and
toward India—another target of heated antiglobalization and protectionist
rhetoric—are of a vastly different nature. Unlike Japan in the 1980s, these
countries really do have the world’s fastest-growing economies. And while we
hope for a productive relationship with China, it remains an often brutal
authoritarian state and a rival for influence in Asia and beyond.
The BRIC Block
Assume that our government restrains itself from blowing up
our relationships with China and India; it ignores domestic protectionist
interests, it tones down its rhetoric on exchange rates, it comes to grips with
our negative savings rate and trade deficit, and it works constructively with
each party to defuse regional crises (North Korea and Kashmir, for example). In
the absence of a diplomatic or economic catastrophe, how should we expect these
countries to develop
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