TIME: Almanac 1993/TIME Almanac 1993.iso/time/030689/03068900.035

Text File | 1992-09-23 | 5.5 KB | 113 lines

                                                                                NATION, Page 26

America Abroad

Of Deficits and Diplomacy


By Strobe Talbott


    George Bush had little time to ruminate about the forces of
history and the balance of power in Asia during his journey last
week. The pace was too fast, the ratio of ceremony to substance
too high, and there was too much fretting over the Tower debacle
back home.

    Too bad, because there was much to ponder, and much of it
good. America's friends, allies, trading partners and imitators
in the region are thriving. Capitalism has boomed, and
democracy has made tenuous but still significant progress.
Meanwhile, America's onetime enemies are either realigning or
undergoing a potentially millennial transformation, or both. In
China "modernization" is a euphemism for de-communization. Viet
Nam is pulling its troops out of Kampuchea and liberalizing its
joint-venture laws to permit greater ownership by foreign
investors. Even the hermit tyranny of North Korea has agreed to
cooperate with a Seoul businessman in the development of a
mountain resort just north of the Demilitarized Zone -- a
breakthrough that will probably mean more for geopolitics than
for international tourism.

    For more than 40 years, the U.S. has held sway in Asia by a
combination of Pax Americana and the almighty dollar. Uncle Sam
has defended his friends against Communist expansionism while
providing aid and guaranteeing markets. Now Mikhail Gorbachev's
Soviet Union is behaving less like the Big Bad Bear. The Soviets
may well close their naval and air facilities in Viet Nam and
continue to foster peace on the Korean peninsula. Many in the
area believe it is only a matter of time before the U.S.
withdraws from its own bases in the Philippines and removes its
ground troops from South Korea.

    That would be fine if it meant that everyone could worry
less about military security and concentrate instead on the
business of the region, which is business. Unfortunately,
however, Yankee traders are doing more buying than selling, and
that complicates the task of U.S. policymakers and diplomats.

    U.S. aid to East Asia has dropped to one-third of what it
was in 1975, when George Bush left his post as head of the U.S.
liaison office in Beijing. Japan, meanwhile, has increased its
overall foreign-aid program tenfold, and is now the No. 1 net
donor. One-third of the U.S.'s total foreign trade is with East
Asia, yet nearly two-thirds of its staggering $137.3 billion
trade deficit originates there. That imbalance is nearly 20
times as severe today as it was in 1975.

    Congress loves to get tough with foreigners when it writes
trade bills, but it hates to get tough with itself when it sets
tax rates and funds expensive programs. For his part, the
President continues to bank on the wishful thinking that the
economy can grow its way out of the red; he refuses to face up
to the reality that spending cuts and higher taxes are needed to
make real progress toward reducing the $155.1 billion budget
deficit.

    Japan's looming economic supremacy cannot be explained
merely with complaints about unfair practices like dumping and
import barriers. Its key advantages are national
self-discipline, including a capacity for self-sacrifice.
Economists have long noted that the Japanese people save at
triple the rate that Americans do. They produce more than they
consume, while Americans do the opposite. The effective
corporate tax rate has been 50% higher in Japan than in the
U.S., and in the upper brackets, personal income tax rates are
also significantly higher.

    As long as Americans refuse to limit their spending and
borrowing in both the private and public sectors, they will
weaken the economic underpinnings -- and sour the psychological
atmosphere -- of the U.S. position worldwide, especially in
Asia. America's indebtedness, to itself and to the rest of the
world, soaks up resources that might otherwise be invested to
boost productivity and exports. Thus the budget deficit
exacerbates the trade deficit, which in turn hurts the dollar
and provokes protectionism.

    No wonder the Asians are seeking additional markets besides
the U.S. for their products, and currencies other than the
dollar for their reserves. The political side effects are
subtle but troublesome. The U.S. is caught in what former
Secretary of Commerce Peter Peterson has called "the awkward
attempt to stand tall while on bended knee."

    Bush may still get a front-row seat at Hirohito's funeral in
Tokyo, but an American Ambassador in Bangkok is more likely
these days than in the past to be kept cooling his heels in the
anteroom of a Prime Minister's office -- and less likely to get
the U.S. Government's way once he is admitted. In short,
American economic problems have become a national security and
foreign policy issue.

    If the President wanted to use his visit to Asia to do more
than show the flag (figuratively at half-staff, in the case of
Japan), he would assure the Asians that the U.S. is prepared,
belatedly but resolutely, to manage its finances -- that is,
raise taxes, encourage savings, and reduce the deficit -- in a
manner comparable to that of many other industrialized
democracies and in a manner befitting a superpower with global
aspirations and responsibilities.

    But such assurances will have to wait. First Bush must
convince himself of the need for strong medicine and then
convince his countrymen that they need to swallow it.