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Thursday, Dec. 4, 2008
Expect new U.S. trade policy
By KAZUO OGOURA
Over the past few months, concerns have been expressed in Japan over the possible "protectionist" tendencies of the Obama administration. It appears that these concerns have two roots: One is related to the values of the Japan-U.S. military strategic alliance, and the other to the economic ideology of the Democrats in the United States.
The first concern is based on the assumption that the importance attached by the Bush administration to its strategic alliance with Japan has somewhat mitigated U.S. demands on some economic or trade issues involving Japan. This argument is not plausible, as one might argue that the strong strategic alliance has simply made it easier for the two countries to resolve trade issues.
The more important problem is related to Obama's economic philosophy. Unlike the Bush administration, Obama has been emphasizing workers' rights, adjustment of income disparity, creation of employment and stronger financial regulations rather than market principles, free trade and deregulation in the capital market.
Such a shift of emphasis in economic philosophy is likely to result in shifting responsibilities of adjustment from the American workforce to foreign competitors, particularly China and other large emerging economies.
One might recall that in the 1990s, the Clinton administration introduced the idea of "managed trade" and "structural" dialogue with Japan under the wave of the "revisionist" theory on Japan, emphasizing the "different mentality" and traditions of Japan. It is very unlikely that Japan this time will become a target of aggressive U.S. trade policy, but China most likely will.
At least in theory, and based upon the history of Japan-U.S. trade and economic conflict, there are four means of resolving trade conflicts between the U.S. and China, barring an imposition of outright import restrictions on the part of the U.S.
The first is export restraint by China. The second is massive Chinese investment in U.S. industries. The third is currency realignment such as appreciation of the yuan. The fourth is macro-economic and structural consultation with China.
These four ways, however, have some difficulties in practical application. The first type of solution is now contrary to the rules of the World Trade Organization, and even if China were to discreetly practice voluntary restraint, there is no guarantee that some other emerging economies would try to take advantage of such Chinese restraint.
The second, massive investment from China — unlike Japanese investment in U.S. auto industries — is neither probable nor welcome in the U.S., at least in the near future, due to the state-controlled elements of Chinese investment and the lack of complete liberalization of foreign currency trade in China.
The last type of solution, that is to say, macro-economic and structural dialogue with China, could and should be encouraged, but again due to the different politico-economic ideology and the complicated economic decision- making process in China, it is doubtful that these consultations could have effective or practical results in the short run.
This means that the new administration is likely to press China for currency appreciation. The U.S. administration has already cried for it. The impact of such a policy, however, given the current financial situation around the world, is neither clearly predictable nor necessarily desirable.
All these arguments imply that the trade and economic friction between China and the U.S. are likely to persist, if not openly but latently, in the coming months and years and that other Asian nations, including Japan, may have to watch carefully the aftermath or indirect impacts of Sino-U.S. economic frictions.
If we try to prevent such political frictions from coming to surface, the U.S., Europe and Japan should intensify their efforts to induce or encourage China and other emerging economies to share international responsibilities more positively under the present trade and financial system. The Group of 20 meeting in Washington, or the international initiative for China and India to commit themselves to the reduction of carbon dioxide emissions, point indeed in the right direction.
To make this process advance further, the developed countries, including Japan, may have to redefine the concept of "developing countries" and, simultaneously, the basic principles that have been applied to Official Development Assistance, which have been based on the dichotomy of the rich and the poor in the international community measured by per capita national income.
In this sense, Obama's Asian trade and economic policy may require a fundamental conversion of the strategies vis-a-vis the so-called developing countries.
Kazuo Ogoura, a political science professor at Aoyama Gakuin University, is president of the Japan Foundation.