TIME: Almanac 1995

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<text id=89TT0635> <title> Mar. 06, 1989: America Abroad </title> <history> TIME--The Weekly Newsmagazine--1989 Mar. 06, 1989 The Tower Fiasco </history> <article> <source>Time Magazine</source> <hdr> NATION, Page 26 America Abroad Of Deficits and Diplomacy </hdr><body> 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. </body></article> </text>