TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/030689/03068900.035

Text File | 1990-09-17 | 6KB | 102 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.