TRADE-APEC: Pacific Century Could be a Swamp

By Jim Lobe Reprint | | Print |

Analysis - Jim Lobe

WASHINGTON, Nov 20 1997 (IPS) - Just one year ago, U.S. President Bill Clinton was touting what he called “a simple, loud and clear message:

“The United States is more determined than ever to create an Asian Pacific community of shared efforts, shared benefits, and shared destiny,” he said while on his way to the annual summit of the Asia Pacific Economic Cooperation (APEC) forum at Subic Bay in the Philippines.

Last year, of course, East Asia’s “tiger” economies were speeding along at a combined annual growth rate of almost nine percent. They were attracting record amounts of foreign investment, offering billions of dollars in contracts and trade opportunities and luring by the planeload U.S. and other western executives anxious for a piece of the action.

But what a difference a difference one year makes. Now, as he prepares to leave for next week’s APEC summit in Vancouver, Clinton may be expected to dispense with his theme of “sharing.”

With East Asian stock markets and currencies in virtual free fall, banks tottering on the edge of collapse, and the International Monetary Fund (IMF) preparing its biggest and most complex rescue operation in history, Clinton must insulate the U.S. economy from the turbulent waters that threaten to swamp the “Asian miracle.”

With the slide of East Asian markets since last summer, fear and trembling have largely replaced the sense of keen anticipation which dominated Washington’s stance towards East Asia since the mid-1980s, when pundits realised that Asia had eclipsed Europe as America’s top trading partner.

At that time, U.S. policymakers began stressing that Washington was a “Pacific power” in what would become “the Pacific Century.”

For Washington, the Pacific Century is now looking more like a Pacific swamp. And just as the abnormally warm water in the seas off Indonesia signalled the advent of a record ‘El Nino’ this year, the current turmoil in East Asian markets has U.S. policymakers braced for stormy weather.

That could come in different but inter-related forms, according to buisiness analysts.

Economists are concerned that countries like Thailand, Indonesia, Malaysia, and South Korea – whose currencies and stock markets have plunged most in value, will try to claw their way back to health through massive export drives targeted chiefly at the United States, the world’s largest single market.

By permitting the value of their currency to fall, these countries have given their exports a strong competitive advantage. Indeed, the present financial crisis appears to have at least some of its roots in China’s 1995 devaluation of the yuan, which resulted in a surge of Chinese exports to the United States and rising trade deficits in its Southeast Asian neighbours.

“If only one or two countries devalue, it’s not especially threatening to other exporting countries,” according to ‘Newsweek’ magazine economist Robert Samuelson. “But the more countries devalue, the more other exporting nations may want – or be forced to follow suit.” That appears to be what is happening now.

Not only do Asian exports become cheaper, but U.S. exports, to Asia, worth more than 200 billion dollars last year, become more expensive and hence less affordable. “The US trade deficit (with Asia) could soar to 300 billion dollars next year if exports drop by 10 top 15 percent and imports rise by 20 to 25 percent,” says ‘Business Week’ magazine.

That would not bode well for the global trading system, which has historically relied on the U.S. market to soak up excess goods, according to most analysts. The result is deflation, a word whose usage has spread in lock-step with the turmoil in Asia.

“Today, for the first time in years, there is worldwide overcapacity in industries, from semi-conductors to autos,” notes Business Week. “And the excess supply will get even worse as Asia tries to export its way out of trouble.”

For one thing, the US economy, despite its strong performance, may not be able to absorb the surplus goods as it has in the past. “Americans have already bought lots of cars and VCRs,” notes Samuelson.

Clinton’s decision last week to withdraw – in the wake of solid opposition by fellow-Democrats – his request to Congress for “fast-track” authority to negotiate new trade agreements with Latin American and Asian markets suggests that the public wants to tighten – rather than ease – access to the U.S. market.

For years, Washington has pressed Tokyo for years to open its market much wider to imports from Asia and North America and to stimulate its economy to encourage consumers to buy those imports. But its demands have become much more urgent now.

Earlier this month, Treasury Secretary Robert Rubin sent a private letter to his Japanese counterpart expressing concern that Tokyo may be tempted to permit the yen to fall to keep up with the downward spiral of South Korea’s won. The won has fallen almost 10 percent in less than one month.

“If we get into another round of competitive devluations, the 554-point drop in the stock market we had the other day will look like child’s play,” said Fred Bergsten of the Institute of International Economics and the former chairman of APEC Eminent Persons Group, which advises the forum on policy.

“This is very serious stuff,” he warned a Congressional panel and compared the situation to the 1930s.

Officially, Clinton and his advisers are more sanguine and believe the crisis can be confined to Asian shores. In testimony last Friday, Deputy Treasury Secretary Lawrnece Summers said “nothing that has happened to date represents a threat to the robustness” of the U.S. economy.

The shaving of a few percentage points in the growth rates of Washington’s main Asian trading partners for 1998 will not by itself have more than a fractional influence on the growth of the almost eight trillion dollar-a-year US economy, most analysts agree.

But, as Newsweek’s normally sanguine Samuelson notes, “The crisis is already worse than (the optimists) have expected, and plenty could still go wrong.”