By contemporary standards, 1982 was another year of economic and political success for most East Asian nations, although a distinctly modest one when compared to achievements of recent times. Their diverse economies continued to grow, in contrast to those of most developing and industrialized nations in other areas. No governments were toppled or seriously endangered by civil strife. No new external security threats appeared, nor did any East Asian country end the year with a significantly increased sense of national jeopardy.

Both internally and externally, the nations of East Asia thus avoided crisis and confrontation, and preserved the region's current reputation as one of relative calm in a world all too often wrestling with small wars, insurrections and the specter of economic failure.

Yet the successes were indeed modest by recent standards. After hovering in the distance, the worldwide recession finally hit the region with force, bringing sharp declines in growth rates from South Korea to Indonesia. Exports suffered as the main markets of North America and Western Europe declined, or at least failed to expand much. Those nations which rely most heavily on commodity shipments for national revenue were hardest hit; declining prices for such items as petroleum, tin, palm oil and coconuts damaged the expectations of several national treasuries. Some countries have, therefore, cut back development spending, revised growth projections downward, and in general prepared for leaner days just ahead. Uncertainty is replacing the confidence of recent years.

Moreover, Asians have turned more heavily to the international capital market for funds as trade and payments deficits loom. An ingenious collection of financing methods, including syndicated loans, bond issues, special financing facilities and assorted floating-rate instruments, are being devised to attract bank funds in the billions. This is pushing long-term debt in several countries higher than seems comfortable to their generally conservative financial officials-especially in South Korea and the Philippines-though not high enough yet to threaten any Asian governments with the burdens of a Mexico or Argentina.

For most of East Asia, security problems were secondary to economic issues during 1982. The Korean peninsula remained essentially unchanged, with no threat of renewed conflict but also no sign of progress toward accommodation. While the defense relationship between the United States and Japan stayed outwardly firm, Japan increased its military budget only marginally despite strong U.S. pressure. And Vietnam continued to occupy Kampuchea, giving no indication of being prepared to withdraw on any terms acceptable to the five members of the Association of Southeast Asian Nations (ASEAN). This may be partly because the shaky coalition of Kampuchea's three opposition elements formed during the year under the nominal leadership of Prince Norodom Sihanouk continued to lack military or political credibility.

From the standpoint of U.S. policy, the most difficult and time-consuming diplomatic problem concerned relations with China. After a long period of tension, a compromise of sorts was reached in August on the issue of U.S. arms sales to Taiwan, but the temperature of overall relations remained at most lukewarm, at what appeared to be China's wish. Then, late in the year, the succession of Yuri Andropov to power in the Soviet Union seemed to give an impetus to existing Sino-Soviet normalization talks, and there were hints of Soviet efforts to improve frayed relations with Japan; according to some specialists, a Moscow "peace offensive" toward Tokyo can be expected, perhaps including an offer to return at least two disputed Kurile Islands to Japanese sovereignty.

Significant change in Soviet relations with China or Japan would pose new policy problems for the United States-making it necessary to redefine Asian strategies and goals more clearly. This would require more careful attention to the region than has been allotted during the early Reagan years, when foreign concerns understandably were focused on the superpower relationship with the Soviet Union, plus crises in such areas as the Mideast, the Falkland Islands, Central America and Poland.

But the most immediate problems are economic. Above all, 1982 was a year of worldwide economic difficulties, which ended with wrangling industrial nations unable to agree among themselves about how, or even whether, to promote freer trade and stave off protectionism. As has happened so often before, beleaguered governments have turned inward and defensive as economic woes increase, seeking short-term national solutions-job protection, trade barriers, import quotas, business subsidies-for what experts consider international problems. Endless counsel from worried economists and government leaders that such moves will, in the long term, aggravate rather than alleviate their problems have been largely ignored.

And if any single issue symbolizes this complex mix of troubles, it is probably that of economic relations with Japan. For while the Japanese concede the world has a major trade problem which needs calm study and careful solution, much of that world argues it has basically a Japan problem. Although emotions originally were most intense inside the European Common Market, it is the United States which has applied the most sustained and effective pressure on Tokyo to open its economy faster and deeper to foreign participation. And it is in an increasingly frustrated United States that anti-Japanese sentiment is rapidly becoming an important political fact. Among the experts there is growing concern that unless Japan does more, and soon, to liberalize its economy, retaliation will occur. And if that happens, the broad U.S.-Japanese political and security, as well as economic, relationship could be damaged.

More than Japan would be affected. Many economists fear U.S.-Japanese moves and countermoves could touch off a global protectionist spiral. In particular, this would hurt the newly industrializing and commodity-exporting nations of East Asia, which increasingly rely on foreign markets for their own well-being. Many see no way out of their economic difficulties other than through a worldwide economic recovery; anything which delays that recovery is seen by them as prolonging or even deepening their domestic economic troubles, and eventually threatening their political stability.

II

Despite the dominance of economics, both diplomacy and security affairs remained of great concern during the year.

On the face of things, there was little change in defense relations between the United States and Japan-"our most important ally in Asia," as American officials state repeatedly (although the word "alliance" remains controversial in Japan). While there was some muted talk in Japan about the need to revise the 1960 security treaty-essentially, of course, a one-way American commitment-support for the treaty may be broader than is widely appreciated. Rather, the problem in U.S. eyes is the level of Japanese defense spending.

Serious pressure on Japan to expand its military forces began during the Carter Administration, and was picked up and accentuated during 1981 by the Reagan team. The result was a modest increase of more than six percent annually in defense spending for three consecutive fiscal years (ending March 31, 1984), which exceeds overall budget growth. Yet this precludes significant expansion, particularly of essential training and supplies; the average air force fighter pilot is allowed only one missile test-firing every two years, for example. Despite his sometimes hawkish defense pronouncements, new Prime Minister Yasuhiro Nakasone has said his military budget won't exceed the traditional one percent of gross national product for some time.

Precisely what the United States wants, and how fast it seeks it, has shifted over the years as assorted Washington officials have offered quite different advice to Japanese governments. But the basic thrust is to have Japan arm itself sufficiently to patrol sea lanes and air space within 1,000 nautical miles of Tokyo with reasonable efficiency, to supplement American naval and air forces in Northeast Asia. One hope in Washington is that such an expanded Japanese effort would free some U.S. Seventh Fleet forces for duty in the Indian Ocean and Gulf regions.

This effort is quite reasonable for an American Administration focused on the growth of Soviet power. Inside Japan, however, it generally attracts reluctant support at best, plus some resentment, from a populace wary of costly foreign obligations-particularly military ones. There are lingering fears that increasing the Self-Defense Forces could revive militarism at home, something few Japanese favor. There are also fears that an enhanced defense role will arouse antagonism elsewhere in Asia, reviving memories of the rather barbarous ways of imperial Japan during the 1930s and 1940s, and proving-if nothing else-bad for business. What Japanese politicians consider a severe fiscal crisis at home (a budget deficit of some $52 billion) adds to this widespread reluctance to heed American advice and increase surveillance forces more quickly. And while official and informed Japanese recognize the fact of increased Soviet military deployments in recent years, they have simply not been sold on the Reagan Administration's picture of a drastic and imminent Soviet military threat.1

If the Japanese recall the distress of World War II, so do many other Asians. American pressure on Japan to acquire more weapons has caused distrust and suspicion around the region. Like the Japanese themselves, many Asians also worry that this could revive old-style Japanese militarism, and someday create security threats for them. They also fear the effort means the United States wants to reduce its own commitments in the area, handing them over to Japan instead. And they suspect a better-armed Japan might reduce its economic assistance programs in Asia, adding to existing financial problems. Thus the feeling grows in much of Asia, especially in the ASEAN states, that the Reagan Administration neither understands nor much cares about their problems, and in fact adds to them by its singleminded concern with a Russian threat.

Meanwhile, the Sino-American relationship survived early-year strains over the Taiwan question, but hasn't prospered. Tension diminished after a communiqué was released in August following months of negotiations. In it, the United States seemed to pledge that it would limit and eventually end its arms sales to Taiwan, while China vowed it would pursue reunification by peaceful means. This permitted both sides to defer a final settlement, and allowed official relations to improve somewhat. However, the communiqué contained about as many loopholes as commitments, and in the long run solved nothing; the Taiwan issue thus retains its potential for once again dividing China and America if either side chooses to let relations deteriorate.

Conspicuously, neither during the visible tension over Taiwan nor later did the Chinese move to accept the offer to discuss arms sales that had lain on the table since Secretary of State Alexander Haig's visit to Beijing in June 1981. There was friction in the cultural area, with a few American academics asked to leave after conducting research into social conditions. And on the economic front-although trade expanded during the year-the failure to reach agreement on restraints on Chinese textile exports to the United States produced, in early 1983, a significant strain. In response to unilateral American limits on these exports, China embargoed its own purchases of several American products, and the situation seemed to threaten American exports in other categories. All in all, the atmosphere remained a bit testy, and the choice appeared to be primarily that of the Chinese leaders.

Part of their reasons may have been internal politics, always a factor on both sides of the relationship, and another part may be that China clearly seeks closer identification with the developing world, and rejects the notion of being a "card" in the American effort to constrain the Soviets. In the judgment of many who had contact with Chinese officials, Beijing no longer felt the sense of acute threat from the Soviet Union that had contributed to each surge toward closer U.S. ties over the past decade.2

So it was not wholly surprising that what had appeared earlier in the year to be more or less a routine minuet toward renewed negotiations with the Soviet Union, of the sort that had often foundered before, turned suddenly into something potentially more substantial in November. Not only did the Chinese send their Foreign Minister, Huang Hua, to the funeral of Leonid Brezhnev, but Andropov went to some lengths to hold a long and apparently businesslike talk with him, in the first high-level discussions since 1969.

Few observers predicted that the two communist giants would suddenly, or even gradually, return to their close relationship of the early and mid-1950s, or that they would resolve the border issues that have been the principal subject of fruitless negotiations since the Ussuri incident of 1969. The three issues on which speculation centered were a mutual withdrawal or thinning of military forces along the long Sino-Soviet border, some Soviet concession concerning Afghanistan, or some Soviet-influenced Vietnamese move on Kampuchea. If, as some rumors had it, the Chinese were asking for Soviet "give" on at least two of these issues, the odds seemed against it-but the first alone might be well within Soviet capabilities, appearing to involve little military risk and capable of being undone if tensions should be renewed later. And even such a limited gesture would ease relations substantially, mark a significant change from Soviet policy of the Brezhnev period, and from the Chinese standpoint tend to put China, rather than the United States, in the "swing" position of the three-power triangle, the one that both the others were courting in light of their own frigid relations.

All this was speculation as of the beginning of 1983. But if Andropov were indeed in a mood to change some of the more sterile policies of his predecessor, it was easy for East Asians to fasten also on the possibilities in Soviet-Japanese relations. Some specialists saw the possibility of an end to the drift and neglect of recent years, and of gestures from Moscow toward Tokyo, designed among other things to persuade the Japanese to go ahead with joint resource development in Eastern Siberia even without U.S. participation or blessing. But it did not appear likely that top-level relations would move very far unless Moscow made important concessions on the northern islands, starting perhaps with a pullback of the forces deployed there in 1978-80 in what seemed at the time almost a deliberately provocative manner.

A less hostile Sino-Soviet relationship might have implications for Korea, specifically in decreasing North Korea's ability to play its two main benefactors off against each other. If so, a modest reconciliation could be a force for stability on the peninsula, even though it would be somewhat frustrating for North Korea's "Great Leader," President Kim II Sung. In any case, secret visits by Chinese leaders to Pyongyang early in the year and a later state visit to China by President Kim led to guarantees of continued Chinese support for North Korea's political claims, while presumably continuing Chinese counsel of military restraint.

In Indochina, Moscow and Beijing are, of course, on opposite sides. The Soviets enjoy substantial benefits from their close relationship with Vietnam, to offset the burdens of economic and military aid and support; the Chinese are not only strongly hostile to Vietnam but the principal outside supporters of the only marginally effective military forces resisting the Vietnamese takeover of Kampuchea, those of the Khmer Rouge, which became the notorious Pol Pot regime and has been reconstituted under the leadership of Khieu Samphan (with Pol Pot unseen by foreigners but still officially in charge of the army).

In June of 1982, largely through the efforts of key ASEAN countries, notably Singapore, there was finally put together a coalition of opposition groups, with Prince Sihanouk balancing between the mutually hostile Khmer Rouge and the group headed by former Foreign Minister Son Sann. China has joined with the ASEAN countries in supporting this coalition in principle, but there remains a significant difference between Chinese resolve to continue fighting ("to the last Kampuchean," some would say) and the latent willingness of most of the ASEAN group to consider a compromise that would get most of the Vietnamese out of Kampuchea but quite possibly leave Vietnam in ultimate control.

The Vietnamese-Russian relationship, according to many accounts, is already slightly strained, and any Moscow reconciliation with Beijing-despite its distinct limits-would almost certainly increase Hanoi's suspicions about the reliability of any foreigners as allies. This could prompt Hanoi to serious negotiations with the ASEAN nations about Kampuchea, something that would reduce economic drains for China, the U.S.S.R. and Vietnam simultaneously, while giving all three the possibility of improving ties with ASEAN. Given the apparent dead-end prospects for ASEAN's present Indochinese policies, an agreement could probably be reached which would not effectively weaken Vietnam's influence in Kampuchea (or Laos) but would include enough symbolic changes to be acceptable to Hanoi's chief critics.

Throughout the year, however, there was no hint that Vietnam would go for any compromise remotely acceptable to the ASEAN countries, let alone the opposition coalition. Hanoi hasn't indicated any interest in changing even the manner-military occupation-by which it asserts control in Kampuchea, presumably on the grounds that change would be risky. Amending the status quo might, for example, permit what was the murderous Pol Pot regime (still the only serious internal opposition) to reassert itself, and give China added influence on yet another Vietnamese border. The new coalition itself, predictably, is wracked with internal disputes and shows little sign of the cohesion needed to displace or seriously disrupt the Vietnamese. Some even think the troubled Vietnamese economy has passed its worst days, and that Hanoi's troops-thanks to Russian aid-can remain indefinitely, if Vietnam chooses.

In this situation it seems unlikely that even a Soviet government less anti-Chinese than before would, or perhaps could, act to break the impasse. Hanoi is, as often before, in the driver's seat. A compromise with face-saving elements for ASEAN could bring it additional foreign trade and aid, plus the possibility of a decreased Chinese threat balanced by more normal relations with its ASEAN neighbors and the United States. On the other hand, as its repeated official visits around the ASEAN capitals suggest, Hanoi may well calculate that in due course it can have all this for free, without any agreement or any external factors to affect its handling of Kampuchea.

Thus, the prospect remains one of continued limited war, but not one large enough to either significantly change the situation inside Kampuchea or seriously endanger the security of those outside, such as the Thais. For the United States (and its ASEAN partners) there are no evident reasons for changing a confrontational approach to Vietnam. But some day Washington must face the question of whether to continue present policy, or to attract Vietnam into a package deal on Indochina which could give Kampucheans more domestic freedom, reassure ASEAN about Vietnam's regional aspirations and above all restrict the Soviet military presence there.

All in all, from the strategic perspective of Washington, and especially of the Reagan Administration, it was not a good year. The United States remains the only great power with ties to all the key nations (save only Vietnam); its East Asian security presence remains significant, but its key relationships-with Japan, with China, with ASEAN-are each in some difficulty. Was the cooling on the Chinese side in part the result of the pro-Taiwan rhetoric of the Reagan Administration in its initial phase? It is hard to say-perhaps the tide was ebbing in any event from the high point of 1979-80.3 What is much clearer is that the U.S.-Japan relationship is in serious trouble on the economic side, and this in turn could all too readily affect Japan's behavior in the security sphere, or even ultimately its close security tie to the United States.

III

The postwar rise of Japan to economic superpower status has been chronicled often. Spurred by the communist takeover of China and the Korean War, the United States early on encouraged Japan's emergence as an industrial nation in hopes it would become a force for stability in East Asia. Aided by an undervalued yen, complex protectionist measures and above all enormous ingenuity and hard work, Japan joined the top ranks of industrial states during the past two decades. By some measures it has surpassed the Soviet Union to become the world's second largest economy, a status which has caused Moscow to delete Japanese statistics from some reference books: the comparison is too embarrassing. More important, Japan has become a worldwide rival-in domestic markets as well as in third countries-of Western states long used to considering themselves the dominant factors in the international economy.

Today Japan has a trillion-dollar economy which in 1982 thrust about $141 billion of goods into world markets. Motor vehicles, television sets, computers, ships, clothing, steel, toys-the list seems endless. Around the world, Japanese goods often set quality standards, and are consciously preferred by customers. Even in the military field, the Japanese often excel. Weapons they make under license from American companies again and again surpass their models in quality; for example, a Japanese-made radar for Phantom jets, built under license from Westinghouse, averages 35 hours of use between maintenance stops. The same radar built for and operated by the U.S. Air Force averages ten hours.

But if Japan has proved excellent at giving its goods to the world, it is much less adept at receiving from the outside, and that is where the trouble lies.

In 1982 Japan imported about $21 billion less than it exported. Given the scale of Japan's external trade, that alone might not be cause of great difficulty. But the country's trade surpluses with other industrial nations remain persistent and sizable, despite various acts by Tokyo to reduce tariff and non-tariff trade barriers. With the United States, the current deficit is nearly $20 billion annually; with the European Common Market it is nearly $12 billion. Moreover, Tokyo's efforts to decrease those figures by opening the Japanese market are seen in the West as half-hearted at best, deliberately misleading at worst.

This has prompted increasingly blunt and heated complaints from Western governments, especially in the United States where patience seems to be wearing thin. For example, Secretary of Commerce Malcolm Baldrige, a key figure in trade negotiations, recently said that Japan-despite its claims to the contrary-hasn't taken meaningful steps to liberalize trade. "If they had the will, they could work this out," he asserted. "But the will on the Japanese side, we think, just hasn't been there." Therefore, he continued, "an impetus is building inside the Administration to either take some action or not resist protectionist action by Congress." Such talk may be, in fact, part of the unofficial negotiating process with Tokyo, but there's no doubt that American tolerance is waning, and the possibility of punitive economic moves is increasingly real. Leading presidential candidates, for example, are supporting so-called "domestic content" laws, which require that a fixed percentage of any product's components be manufactured domestically. In December, the lame duck session of Congress failed to act on the most conspicuous of these, which would have applied an 80 percent figure to automobiles, but this and similar measures are sure to be revived in 1983.

In good times, this was less of a problem. But reeling industries and jobless workers alike seek scapegoats, and Japan seems the likeliest candidate as, for example, Hondas proliferate even in Detroit, while auto workers see unemployment benefits expire. A few recent statistics tell the story: in 1982 the Japanese gross national product grew by 2.4 percent while the U.S. GNP dropped by 1.8 percent; U.S. industrial production was down approximately 9.5 percent whereas Japan's was up by 0.5 percent; the U.S. inflation rate was five percent, and the Japanese three percent; and unemployment in the United States at the end of the year stood at 10.8 percent whereas Japan's was 2.5 percent. Moreover, Japan had its large trade surplus, whereas the U.S. trade deficit surpassed the previous record of $42 billion, and threatens to be even larger in 1983.4

American frustrations were stated not long ago by Theodore White, a respected commentator on the American condition who himself has much experience in Asia.

. . . [T]he most precise and coordinated trade war of all time is being waged against American industry under the direction of the government of Japan . . . . Over the past ten years, the Japanese have targeted one American industry after another to undermine and wipe out. In the spring of 1981, the last American manufacturer of black and white television sets (General Electric) gave up . . . . Only two American companies make color television sets. The Japanese have pushed our steel mills to the wall; the automobile industry staggers; the microprocessing industry is being punished. This onslaught involves American jobs and livelihoods. Against such an onslaught directed by a foreign power, no single American corporation, no matter how large, neither General Motors nor United States Steel, can stand. The Japanese Ministry of International Trade and Industry (MITI) confronts them with a devastating adversary-a foreign government-industry partnership.5

No matter that many assumptions underlying that hyperbolic passage are at least debatable. Such beliefs are widely held in the United States, and have become political facts which Japanese governments fail to recognize. Moreover, similar beliefs hold in Common Market countries and Canada, all of which have taken or are considering trade retaliation. During 1981, for example, Japan's exports to Canada rose 44 percent, prompting Ottawa to seek what a Canadian official calls "a degree of control" over such growth.

For the West, the Japanese response has been disappointing. Westerners find no general inclination within the Japanese government to open markets, and negotiators must spend long hours establishing that serious restrictions exist in the first place. Increasingly, they consider Tokyo's officials misleading and even unreliable; some 65 trade liberalization measures were promised last May, for example, but many are yet to be implemented. The causes are many and complex. But they include weak political leadership from the top, where factions of the ruling Liberal Democratic Party spend much energy dividing the spoils of high office and less on national policy. Added to that is a somewhat autonomous bureaucracy which seems determined to protect from foreign competition those it is supposed to regulate-be they bankers, tobacco farmers or pharmaceutical makers. Compounding the problem is an intensely nationalistic press which describes foreign pressures as anti-Japanese moves, but seldom explains what the negotiations are about. Few Japanese therefore have reliable information about the rules and practices which prompt so many outside complaints, and thus don't take them seriously.

Coupled with such ignorance is a growing resentment by Japanese who contend they're being criticized unfairly. They stress, quite rightly, that Japan is one of the world's largest importers of goods and services, and minimize Western complaints that only 24 percent of imports consists of manufactured goods-an extremely small proportion by international standards. They point out that most Japanese tariffs are low, and that few items are subject to quantitative restrictions. They say, again correctly, that the Japanese market has opened markedly during the past 10 to 20 years. If Westerners would produce better goods at lower prices, and work harder to sell them, they contend, Americans and others would find receptive and profitable markets for their products. These Japanese contend they are being blamed for other nations' sloth and inefficiency, and they don't like it.

This resentment has some quite diverse origins. A rather traditional one stems from popular belief that Japan remains, despite its remarkable economic history, a weak and vulnerable nation which might suffer if its markets were opened wide to a flood of foreign goods. Devoid of natural resources, dependent upon long supply lines, lacking military power to assert itself, many Japanese contend their nation is being pushed into agreements which counter its own interests, and thus reflect that weakness.

Another thread is quite the opposite-a growing arrogance (as Westerners see it) which contends that Japan is being punished for its technological superiority and therefore must resist. They claim Westerners "have lost the habit of work," and are therefore trying to pull Japan down to their own declining standards. It's only a slight exaggeration to say that some of these Japanese see Europe as a boutique, America as a farm and Australia as a quarry-all serving Japan, which has the world's only thriving technological society. The rest of the world remains a nice place to visit-Europe, for example, offers "cultural monuments, good shopping and exotic sex-all at reasonable prices and all set in elegant stagnation," as one author puts it-but not for Japan to emulate, and not for Japan to rescue by eroding its own industrial and labor practices.

Given this setting, it is not surprising that a year of detailed negotiations at or near ministerial level seemed to bring little progress. Even such internationalists as former Foreign Minister Saburo Okita and former Minister for External Economic Affairs Nobuhiko Ushiba (leading representatives of those outward-looking Japanese who carry some influence but have little political authority) have expressed great exasperation about what they consider excessive demands by outsiders upon the Japanese system. Thus talks on a variety of trade liberalization measures dragged on throughout 1982, with few agreements reached and only limited changes put into practice, some at the end of the year.

Yet foreign businessmen and academics agree that Japan does in fact practice trade discrimination. American baseball bats, to cite one case which has become symbolic of a greater problem, have difficulty meeting Japanese "safety" standards. American testing of pharmaceuticals, arguably the most rigid in the world, isn't accepted by Japanese bureaucrats. Though most tariffs are low, special high ones apply in areas where competition would hurt domestic producers; duties on European confectionaries and American tobacco are leading examples. A small but influential farm lobby keeps tight restrictions on beef and citrus imports.

The problems go deep into the society where marketing practices and bureaucratic rules hinder foreign sales efforts. The tobacco example, though presumably extreme, illustrates the difficulties outsiders can face when they try to sell products which consumers clearly want if they can get them at reasonable prices.6 Such experiences help explain why a Mitsubishi Corp. survey of 474 American business executives found that 73 percent agreed with the premise that "Japanese bureaucrats try to maintain various non-tariff barriers." It also found this belief was strongest among those who had personal experience with Japan.

The issue involves much more than cigarettes or oranges. At stake, worried analysts believe, is an important part of world trading arrangements. Many U.S. officials fear, as a leading American academic put it, that these talks are "a last desperate effort to preserve the free trade system," and they aren't optimistic about the outcome. They worry that a frustrated U.S. Congress may pass retaliatory legislation which could set off a cycle of restrictive actions and reactions, gravely damaging the world's economic recovery prospects. (They assume any American moves would be echoed by Europe and Canada.) Tokyo's selection of a new prime minister in December 1982 brings into office a moderately more forceful leader, but Yasuhiro Nakasone, like his predecessors, cannot take his ruling party in directions it doesn't want to go. The consensus is that he will give only as necessary on trade matters, hoping limited concessions will postpone drastic American action.

But at heart the issue also involves the fundamental American-Japanese relationship. There is a widespread feeling in the United States that Japan doesn't pay its way in the world politically, militarily and above all economically-that it exploits Western security and trading arrangements without paying its dues. If economic talks fail, with all the emotional issues of jobs and livelihoods attached, the basic linkage between Washington and Tokyo (hence other Western nations) will be at risk. This might well feed a Japanese nationalism already unhappy about Western pressures, and cause at least a limited turn toward Moscow and Beijing in trade and diplomacy, if only to assert independence. It would certainly make the Japanese more interested in a Soviet "peace offensive" if the Kremlin's new leaders make the attempt.

Perhaps an American retaliatory move out of character with past U.S. practice-a trade "shokku"-is needed to force Japan's leaders to treat these issues as fundamental political matters, and not as niggling trade negotiations. That might add the political will which Americans now find lacking. The problem is that it also risks exactly that spiral of restrictive economic practices which could deal a heavy blow to Western economies struggling, with limited success, to rise above the stagnation of recent years.

IV

Though Japanese-American trade disputes may seem most relevant in such cities as Detroit and Nagoya, all East Asia has a vested interest in their resolution. If Japanese-American trade frictions aren't resolved adequately, Asians fear a spiral of protectionism which will affect them particularly.

The growth of regional trade over the past decade has been significant; the industrializing nations of Asia now have large and growing business accounts with each other. Yet they continue to rely on industrialized nations to provide the profitable hard-currency markets which underwrite their own prosperity. Although the ratios have dropped in recent years, all but one East Asian nation still sends the majority of its goods into industrialized markets. In 1981, for example, Hong Kong exported 59 percent of its products to industrial nations; Malaysia 51.4 percent and Indonesia 90 percent. Only Singapore, of the free market economies, sent less than half (40.7 percent), and even China-which has neither commodities nor high technology goods to export in bulk-shipped a full 49.7 percent of its products to the richer nations.

Thus the need for a pickup by industrial economies is crucial; East Asian nations cannot sustain real growth without it. "The Singapore economy can stand recession in the United States and Europe for one or two more years," Prime Minister Lee Kuan Yew warned last August, "but no longer." Other leaders express similar views.

At year end, a panel of private economists-polled by The Asian Wall Street Journal-revised downward their 1983 growth forecasts for ten East Asian countries from their more optimistic mid-1982 assessments. Their new growth forecasts ranged from 3.4 percent for the Philippines to 7.1 percent for Singapore. In all ten cases their forecasts were somewhat better than the 1982 results, but less than expected only months earlier. But even these cautious predictions could prove too optimistic. In his own gloomy year-end speech, Prime Minister Lee said Singapore may expand by only two or three percent in 1983, largely because of slow U.S. recovery.

For all that, these difficulties must be viewed in context. East Asia remains the world's most buoyant economic region, with a vitality and flexibility which would enable it to exploit quickly any world upturn, and its success is envied throughout the developing world. Even through 1982's relatively hard times, most of the region's nations scored real growth rates of four percent or better. Many achieved export increases in value terms, if not always in quantity, while commodity exporters continued high volumes of oil and gas, rubber, tin and rice shipments-even if generally far below potential and often at deflated prices. Employment remained high in the more industrialized locations, such as Taiwan, Hong Kong and Singapore. Nor did it worsen significantly in the more populous nations such as Indonesia and the Philippines, where underemployment remains a chronic problem. The region does not suffer severe shortages of basic human needs, such as adequate food, as do some other Third World regions, and it has no grave civil disorder.

However, the present slowdown came after years of high growth rates for most of the region, which began to consider such rates normal. "The last two decades have seen phenomenal growth in the developing market economies of East Asia," states a recent World Bank staff working paper. This has, among other things, brought "considerable" progress in meeting "basic needs of nutrition, education and health . . . as well as in significant improvements in adult literacy and life expectancy," the study concludes. By such varied measures as the amount of rice in food shops or the number of Mercedes autos stalled in urban traffic jams, East Asia has been on a growth binge.

Now the binge seems over, and Asian governments face more difficult economic times than they've known for a decade or more. They face the need for a combination of belt-tightening and borrowing to get through the coming year or so, but in addition several have domestic problems which complicate their futures. Let us review specific situations briefly:

Hong Kong. A combination of export problems, a real estate market collapse and uncertain political prospects have brought a marked slowdown. Financial Secretary John Bremridge revised 1982 growth estimates downward from eight to six to four percent during the year, and the latter figure now seems optimistic. For the first time since 1975, the colony will have a budget deficit, causing several transport and other projects to be delayed. The government, which bases its fiscal system on low taxes on high prosperity, is considering an upward revision of tax rates in order to balance its budget. Exports are affected by slipping demand overseas, and by such actions as the Common Market's decision to reduce the colony's textile quotas.

Underlying these dim short-term prospects is a basic uncertainty about the colony's future status. China has made clear that it intends to reclaim sovereignty over Hong Kong, probably by 1997 when certain "unequal treaties" with Britain expire, but hasn't explained just how it will do so. While it promises to maintain prosperity by giving Hong Kong considerable autonomy, this too remains undefined. Prime Minister Margaret Thatcher's visit to Beijing in September helped focus the Chinese leadership's attention on the issue-after years of procrastination- and did not create antagonisms or complications which would hinder the chances for an eventually satisfactory solution. Most analysts believe China's pragmatic leaders will compromise the issue in ways which will allow the colony to keep its important role as a foreign exchange earner for the mainland-it may provide as much as $8 billion annually-but this assumption alone isn't enough for many of Hong Kong's citizens, who must risk their lives and livelihoods. Unless China defines its intentions more clearly within a year or so, economic activity may slowly wind down even if a modest worldwide upturn occurs.

The Philippines. Economists from private banks, foreign governments and the World Bank, among others, unanimously list this country as Asia's most troubled nation, politically and economically. Following two decades of below average economic growth plus a decade of martial law which made few structural economic changes, the Ferdinand Marcos government must contend with two insurgencies which appear to be growing in size and popularity. One is a communist movement in the northern islands, the other a Muslim separatist movement in the south. Neither poses an immediate challenge to the government, but they do raise troublesome questions about its political future. The failure of President Marcos to establish a reliable system of succession, after 17 years in power, compounds the issue.

As the year ended, President Marcos ordered arrests of his most visible and vocal opponents, many on subversion charges. A newspaper was closed, certain members of the Catholic clergy were denounced and various labor and political opposition leaders were jailed or threatened with reprisals. The reasons remained unclear. None of these foes posed an obvious threat to the administration's hold on power, and some Filipinos feared the main result would be to further radicalize the political opposition.

But the basic problems are economic. According to the World Bank staff study, the Philippines achieved only a modest per capita GNP growth of 2.6 percent annually between 1960 and 1979. This is by far East Asia's lowest rate, and is in fact substantially below the world average for large (more than ten million population) developing nations. Since 1979, the record has worsened. Prime Minister Cesar Virata now estimates the GNP and population growth rates at 2.7 percent-no gain at all on a per person basis. Others say per capita income is declining, with the gap between rich and poor growing substantially wider.

This reflects the Marcos government's inability to end the country's reliance on coconut, copper and sugar shipments, even though manufactures have risen rapidly. Prices for those commodities have fallen, prompting government marketing and subsidy schemes which it cannot afford much longer without outside financial help. Manila is seeking, for example, a $120-million soft loan from Japan to subsidize copper mines. Meantime, the business climate has suffered from widespread belief that close connections to senior officials, more than sound management, are needed to make investments profitable. Although the Marcos government has put skilled and respected technocrats in senior positions, the general feeling remains that beneath them there hasn't been a notable increase in administrative competence. In sum, given prospects for slack overseas markets, the economic outlook isn't optimistic.

Indonesia and Malaysia. These two oil and gas exporters, who also rely on such commodities as tin, both suffer from reduced demand and falling prices. Indonesia's export earnings are down about one-third from earlier expectations, and growth has slipped to about four percent, half the 1981 rate. Malaysian exports have declined only slightly but for the second consecutive year; the overall GNP growth rate is down to 3.9 percent from 6.5 percent a year earlier. Neither nation expects things to get much better soon.

Efforts to diversify their economies haven't reduced reliance on these commodity exports, especially for Jakarta. Indonesia, Asia's only OPEC member, can't maintain official posted prices for oil, while the Malaysian government apparently backed a failed effort to corner the tin market and push that metal's price artificially high. Indonesia has a 150-million population, but one too poor for a thriving consumer society. Malaysia has higher personal incomes but only 14 million people. This has prompted Prime Minister Mohamed Mahathir to propose a slightly odd economic recovery program: shelter infant industries behind protectionist barriers and produce larger families. If the country's population can reach 70 million, he suggested, it might support self-sustaining prosperity. Just how serious the prime minister was remains unclear. In the meantime, both nations, like so many others in Asia, await a Western economic revival.

Singapore, South Korea and Taiwan have a common problem: falling demand for factory products. Although South Korea's exports are up in dollar terms, there isn't much volume increase. Taiwan is showing a six-percent drop while Singapore is experiencing only modest rises. This is a major factor behind an economic slowdown in all three nations, and feeds a growing sense of frustration; there is not much they can do to keep domestic economies buoyant when overseas demand sinks.

One result is increased borrowing. South Korea's foreign debt surpassed $32 billion, one of the world's largest totals. The Philippines' debt has reached $16 billion, a more dangerous sum given its greater difficulty in generating large foreign exchange receipts. Even such recently prosperous nations as Indonesia and Malaysia, no longer able to pay their way with oil and gas revenues, are turning to capital markets in diverse ways. Such overseas borrowings may enable Asians to finance development projects (though at a reduced pace) and meet budget deficits until an economic recovery restores greater earnings. In any case, international bankers don't seem seriously worried about their prospects; the possible exception is the Philippines, although few put it in the same debt league as Mexico or Brazil. This is partly because interest rates are falling; each one percent drop means a $70-million annual interest saving for the Manila government, and aids other countries in a similar fashion.

But borrowing is more an expedient than a cure. East Asia's free market economies face some fundamental policy choices in the years just ahead if they are to retain the vitality of the past two decades. They somehow must reduce their large current account payments deficits without also reducing growth rates, so that poverty can be eradicated where it remains a serious problem-particularly in Indonesia and the Philippines. This requires improved economic management and use of resources, especially channeling investment into job-creating industries while conserving expensive (usually imported) energy. For reasons of "equity and social stability," notes the World Bank study, special emphasis must also be placed on raising living standards of the rural poor, which means much investment must be diverted from modern infrastructure and capital-intensive industrial projects.

Yet East Asia has enormous resources, and its chances of continued success remain good. Education and technical skills are highly prized, as is hard work. Governments generally have intelligent investment policies, yet keep hands off daily management. Entrepreneurs who succeed are allowed to reap the benefits. Those nations which depend most on natural resources are trying with some success to diversify their economies, though they have far to go. Those without resources have developed special skills in adapting to overseas markets and exploiting trends or changes. If the World Bank is correct, the free market nations-once the current slowdown is behind them-should again achieve long-term annual growth rates in the six to eight percent range.

V

Of all Asian nations, China had perhaps the most successful year. Continuing the gradual move away from the radical policies and radical politicians of the Mao Zedong era, it made a special effort to institutionalize the pragmatic approaches of Deng Xiaoping. A new constitution-the fourth since 1949-was approved; on paper it strengthens certain individual rights. More important, new laws were promulgated in an effort to bring predictability to civil life, so that (as one Beijing official put it) laws will not change every time leaders change their minds. After so much turmoil in recent years, a degree of public cynicism must exist, yet the effort to govern China in moderate and flexible ways seems generally welcomed.

The economy reflected this trend. China seems to be enjoying what may be a long period of gradual expansion, some four to five percent annually in real terms, which is exactly what the current five-year plan anticipates. (The plan was finally announced after two of its years were completed.) As explained by Premier Zhao Ziyang, Beijing's goal is steady growth through the decade. Consumer goods and foodstuffs will get higher priority than in many Maoist years, but there were no promises of great leaps, which risk great falls.

Foreign trade and investment play a growing part in the overall plan, and it seems likely that an autonomous Hong Kong will continue its crucial role in expanding China's economic relations overseas. Revolutionary zeal seems to be gone, and-if that makes China a bit more dull-it means China is becoming more predictable and, slowly, a bit more prosperous. The effective dissolution of communes and introduction of the "responsibility" system play an important part in this; work goals are set by smaller, even family-size units rather than the village-size production teams of Chairman Mao's day.

China continued its important American relationship, but also accelerated the effort to establish itself as an independent force with close ties to the developing world. The most dramatic example was resumption of Sino-Soviet diplomatic talks aimed at improving official (including economic) relations with Moscow. The effort seems entirely plausible from Beijing's viewpoint; hostile relations with a neighboring superpower can be both costly and dangerous. But China also needs predictable ties with the United States and other industrial states for economic and technological reasons. This may explain why, after much early quarreling, Beijing and Washington reached their mushy compromise on the Taiwan arms issue.

The year ended with the Deng Xiaoping moderates clearly in charge of policy. Some elderly senior officials were pushed into semi-retirement, including the defense minister, a conservative figure who reportedly didn't get along well with the People's Liberation Army, and some other military men also were removed. Their replacements, however, were clearly Deng appointees and no signs of a serious split with PLA leadership-over the size of the arms budget, for example-were evident. The National People's Congress in December confirmed and continued existing economic policies, including the trend toward limited decentralization, and more use of economic incentives.

In the party, meantime, the politburo gained seven new members and dropped six, increasing its size to 25. The leading casualty was Mao Zedong's chosen successor as Party Chairman, Hua Guofeng, too closely identified which the radical policies of "Gang of Four" days to retain his influence even though he did keep a central committee seat. Of the 348 members and alternate members elected to the Central Committee in September at the 12th Party Congress, 60 percent were newcomers. In general, they represented the Dengist policy of choosing younger, better-educated leaders. A full 59, for example, have specialized technical training-up from only nine named at the previous (1977) Party Congress.

Some internal opposition to this pragmatic line continued. However, it was often on bureaucratic rather than policy grounds. Cautious Chinese cadres, many of whom suffered from past policy changes, remain reluctant to assume the decision-making responsibility that Beijing sometimes tries to thrust upon them; in the past, taking decisions all too often led them into trouble. Others had been conditioned to the frequently lethargic workstyle of a centralized state, and resisted by inaction Beijing's efforts to modify their ways. This bureaucratic resistance causes the Center much frustration, and has led to talk of sweeping administrative reforms. Relatively little has happened to date, though, partly because any fired bureaucrats will need jobs elsewhere.

VI

As the year ended, little optimism was found on the trade front, either in the Japanese-American context or as a result of the GATT Ministerial Meeting in November (where the Japanese wisely stayed aloof as Europeans and Americans argued about the merits of freer trade). The new Japanese Cabinet was, like its predecessors, sending contradictory signals, though a stronger note of resistance seemed to be emerging. "We Japanese should put an end to the habit of panicking and asking ourselves what to do each time a trade partner makes demands," the new Trade and Industry Minister stated in an interview.

Prime Minister Nakasone's visit to Washington in January 1983 was the occasion for his making some forthcoming statements on Japan's defense role. But the limited Japanese concessions announced before the visit only eased the atmosphere, and it is clear that his ability to offer important changes continues to be sharply restricted by political and bureaucratic pressures at home. Meantime, domestic pressures favoring retaliation continue to rise inside the United States, despite President Reagan's outspoken attacks on protectionism as "an ugly specter stalking the world," which in the long run destroys rather than saves jobs.

The other Asian free market nations found little solace in the President's efforts, because the trend toward protectionism continued. The European Community, for example, cut quotas for five "sensitive" Hong Kong textile products by 6.3 percent to 8.3 percent, while applying "restraint levels" to 34 others. The ASEAN states all had similar experiences with the Common Market, while American companies kept asking their government for similar help. South Korea and Taiwan also saw industrial markets decline as protectionist barriers were at least considered, if not erected. Even Japan, already under fire for its existing measures, contemplated new trade restrictions aimed at other Asian producers. Japanese makers of textiles, petrochemicals and steel, among others, sought government protection from what they called "dumping" of cheap products by Asian rivals.

After the Russians tried to open trade doors with Japan back in 1805, a poet in Edo expressed a common view in haiku form:

O New Year pine decorations

dishearten the barbarians

and chase them away.

As Professor Toru Haga of the University of Tokyo puts it, "the Japanese reaction to shocks activated by foreign pressure has not changed much since the days of the Tokugawa regime, when the country's doors were closed to the rest of the world."

Unfortunately, the economic prosperity and eventually, perhaps, the political stability of East Asia rest on the joint willingness of Japanese, American and European governments to rise above traditional attitudes and overcome their reluctance to forego short-term defensive measures. But their ability to do so requires a degree of political courage which to date seems beyond them.

4 These figures are as of the end of September for industrial production, and the end of November for the inflation rate. Others cover the whole year.

5 Theodore H. White, America in Search of Itself: The Making of the President, 1956-1980, New York: Harper & Row, 1982, p. 424.

6 Details of these restrictions were published by The Wall Street Journal, which obtained documents issued by an office of the Japan Tobacco & Salt Corp. (JTS), the government-owned monopoly which controls tobacco trade.

Foreign cigarette sales are officially restricted to 20,000 of the nation's 250,000 tobacco outlets, and government-imposed tax and pricing rules require prices 60 percent above those of Japanese-made cigarettes, even though the landed price in Japan for American cigarettes is about the same as factory prices of domestic products. Advertising for and test marketing of imported tobacco products are subject to special restrictions; imports intended as free giveaways, for example, must pay a special 180 percent tariff, compared to the regular 35 percent tariff which foreign companies already consider discriminatory. (This rate is now scheduled to drop to 20 percent in April 1983-a gesture to the United States.)

But the tobacco case goes beyond these formal restrictions. According to official JTS documents issued by a Tokyo office, its bureaucrats were instructed to remove foreign advertising materials from purchase points, stock foreign cigarettes only in machines with limited capacities, tear down foreign advertising posters and otherwise make foreign sales difficult. The president of JTS conceded such practices did occur at times, and promised to halt them. But subsequent trade negotiations involving JTS officials have failed to produce agreement. The Wall Street Journal, September 30, October 14, November 3, November 10, December 24, 1982.

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  • Robert Keatley has been Editor of The Asian Wall Street Journal since 1979. He was previously Foreign Editor of The Wall Street Journal, its diplomatic correspondent in Washington, and bureau chief in Tokyo and Hong Kong. He is the co-author of China: Behind the Mask.
  • More By Robert Keatley