Tag: japan

China Now World’s 2nd Largest Economy: Ho Hum

China is now officially the world’s second largest economy, overtaking Japan in the quarter that ended in June and likely for all of 2010. While the story has been widely reported (more than 1,500 articles on Google News this morning), it is less significant than it first appears.

The news will probably ruffle the feathers of the China hawks, who will see in it a threat to America’s influence in the world, but China’s rise to no. 2 is really another sign of the world returning to normal.

China is home, after all, to one-fifth of mankind. Its population of 1,330 million is more than 10 times that of Japan (127 million) and more than four times that of the United States (310 million), according to the CIA Factbook. So even though China’s gross domestic product is now larger than Japan’s, its GDP per capita is still only one tenth that of its east Asian neighbor.

If China sticks to its path of market liberalization, it’s close to inevitable that its GDP economy will eventually surpass that of the United States in overall size. That news event is likely to grab headlines in 15 to 20 years based on current rates of growth. Even then, China’s per capita GDP will only be a quarter of what we enjoy in the United States.

China’s rank as no. 1 will be nothing new in history. According to the late British economic historian Angus Maddison, China’s economy had been the largest in the world for most of the past two millennia. In his magisterial 2001 book The World Economy: A Millennial Perspective, Maddison estimated that as recently as 1820 China’s GDP was 30 percent larger than the economies of Western Europe and the United States combined (p. 117).

After centuries of war, civil strife, and self-imposed isolation, China is only now rightfully reclaiming its rank as one of the world’s largest economies. That development is nothing to be feared.

What’s Going on in Japan?

Two weeks ago in Defense News, I argued that America’s alliances are growing increasingly detached from American security interests.  With reference to Defense Secretary Bob Gates’ visit to the newly-minted government in Japan, I wrote that

after imploring [new Japanese PM Yukio] Hatoyama to continue Japan’s minuscule contribution to the war in Afghanistan and not to reconsider the deal to realign U.S. forces in Japan, Gates was asked whether the U.S. military role in Japan might be scaled back. Offering the obligatory reference to the countries’ “shared interest” in regional security, Gates admitted that “the primary purpose of our alliance from a military standpoint is to provide for the security of Japan … It allows Japan to have a defense budget … of roughly 1 percent of GDP.”

This is an excellent reason why the Japanese should support the alliance, but it raises the question of why U.S. taxpayers should want to pick up the tab for Japan’s security.

FutenmaMCAS Futenma

But the Hatoyama government seems intent on reopening old wounds.  Aside from its insistence on renegotiating the Futenma agreement on shifting US forces around in Japan, now comes the news that the just-elected Democratic Party (DPJ) is going to (*ahem*) open the kimono and reveal “evidence of a decades-old secret pact between Tokyo and Washington that allowed U.S. ships and aircraft to carry nuclear weapons on stopovers in Japan.”

The idea of a Japanese government breaking Japanese law in order to allow American military vessels to carry nuclear weapons in Japan is wildly unpopular among Japanese.  In large part, this is a pretty transparent move by the DPJ to stick it to the now out of power Liberal Democratic Party (LDP) by tying them to illegal and secretive practices that huge majorities of the Japanese public oppose.

But the broader point is that for those of us who have been advocating a larger role in Asia for Japan and a smaller one for the United States, the increasingly independent nature of the new DPJ government ought to be seen as a feature, not a bug.  If the Japanese are really feeling their oats and aren’t too excited at continuing the LDP’s lockstep alliance with the United States, more power to them.  If they want fewer US troops in Japan, terrific.  We’re militarily overextended as it is and have serious economic problems to deal with.  The Bush administration took some baby steps in this direction.  The Obama administration should keep the ball rolling.

American officials ought to be quietly thinking about how to use the developments in Japan to start handing off responsibility for defending Japan to the Japanese government.

Weekend Links

  • Cato v. Heritage on the Patriot Act, Round II. Today’s topic: “Where are the demonstrated examples of abuses of liberties because of the Patriot Act? Are there any provisions of the law that civil libertarians would find acceptable?”
Topics:

Is Buying an iPod Un-American?

We own three iPods at my house, including a recently purchased iPod Touch. Since many of the iPod parts are made abroad, is my family guilty of allowing our consumer spending to “leak” abroad, depriving the American economy of the consumer stimulus we are told it so desperately needs? If you believe the “Buy American” lectures and legislation coming out of Washington, the answer must be yes.

Our friends at ReasonTV have just posted a brilliant video short, “Is Your iPod Unpatriotic?” With government requiring its contractors to buy American-made steel, iron, and manufactured products, is it only a matter of time before the iPod—“Assembled in China,” of all places—comes under scrutiny? You can view the video here:

In my upcoming Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, I talk about how American companies are moving to the upper regions of the “smiley curve.” The smiley curve is a way of thinking about global supply chains where Americans reap the most value at the beginning and the end of the production process while China and other low-wage countries perform the low-value assembly in the middle. In the book, I hold up our family’s iPods as an example of the unappreciated benefits of a more globalized American economy:

The lesson of the smiley curve was brought home to me after a recent Christmas when I was admiring my two teen-age sons’ new iPod Nanos. Inscribed on the back was the telling label, “Designed by Apple in California. Assembled in China.” To the skeptics of trade, an imported Nano only adds to our disturbingly large bilateral trade deficit with China in “advanced technology products,” but here in the palm of a teenager’s hand was a perfect symbol of the win-win nature of our trade with China.

Assembling iPods obviously creates jobs for Chinese workers, jobs that probably pay higher-than-average wages in that country even though they labor in the lowest regions of the smiley curve. But Americans benefit even more from the deal. A team of economists from the Paul Merage School of Business at the University of California-Irvine applied the smiley curve to a typical $299 iPod and found just what you might suspect: Americans reap most of the value from its production. Although assembled in China, an American company supplies the processing chips, a Korean company the memory chip, and Japanese companies the hard drive and display screen. According to the authors, “The value added to the product through assembly in China is probably a few dollars at most.”

The biggest winner? Apple and its distributors. Standing atop the value chain, Apple reaps $80 in profit for each unit sold—an amount higher than the cost of any single component. Its distributors, on the opposite high end of the smiley curve, make another $75. And of course, American owners of the more than 100 million iPods sold since 2001—my teen-age sons included—pocket far more enjoyment from the devices than the Chinese workers who assembled them.

To learn a whole lot more about how American middle-class families benefit from trade and globalization, you can now pre-order the book at Amazon.com.

Week in Review: Stimulus, Sarah Palin and a Political Conflict in Honduras

Obama Considering Another Round of Stimulus

With unemployment continuing to climb and the economy struggling along, some lawmakers and pundits are raising the possibility of a second stimulus package at some point in the future. The Cato Institute was strongly opposed to the $787 billion package passed earlier this year, and would oppose additional stimulus packages on the same grounds.

“Once government expands beyond the level of providing core public goods such as the rule of law, there tends to be an inverse relationship between the size of government and economic growth,” argues Cato scholar Daniel J. Mitchell. “Doing more of a bad thing is not a recipe for growth.”

Mitchell narrated a video in January that punctures the myth that bigger government “stimulates” the economy. In short, the stimulus, and all big-spending programs are good for government, but will have negative effects on the economy.

Writing in Forbes, Cato scholar Alan Reynolds weighs in on the failures of stimulus packages at home and abroad:

In reality, the so-called stimulus package was actually just a deferred tax increase of $787 billion plus interest.

Whether we are talking about India, Japan or the U.S., all such unaffordable spending packages have repeatedly been shown to be effective only in severely depressing the value of stocks and bonds (private wealth). To call that result a “stimulus” is semantic double talk, and would be merely silly were it not so dangerous.

In case you’re keeping score, Cato scholars have opposed government spending to boost the economy without regard to the party in power.

For more of Cato’s research on government spending, visit Cato.org/FiscalReality.

Sarah Palin Resigns as Governor of Alaska

Alaska Governor Sarah Palin resigned from office last week with 18 months left in her term, setting off weeklong speculation by pundits.

Cato Vice President Gene Healy comments:

Palin’s future remains uncertain, but it’s hard to see how her cryptic and poorly drafted resignation speech positions her for a presidential run. Nonetheless, her departure presents a good opportunity to reflect on the Right’s affinity for presidential contenders who - how to put this? - don’t exactly overwhelm you with their intellectual depth.

It’s one thing to reject liberal elitism. It’s another thing to become so consumed with annoying liberals that you cleave to anyone they mock, and make presidential virtues out of shallow policy knowledge and lack of intellectual curiosity.

Writing at Politico, Cato scholars David Boaz and Roger Pilon weigh in on what her resignation means for the former Vice-Presidential candidate’s political future:

Boaz:

Will we one day say that her presidency was ‘born on the Fourth of July’? I doubt it. This appears to be just the latest evidence that Sarah Palin is not ready for prime time. The day McCain chose her, I compared her unfavorably to Mark Sanford. Despite everything, I’d still stand by that analysis. At the time I noted that devout conservative Ramesh Ponnuru said ‘Palin has been governor for about two minutes.’ Now it’s three minutes.

Running for president after a single term as governor is a gamble. Running after quitting in the middle of your first term is something else again. If this is indeed a political move to clear the decks for a national campaign, then she needs adult supervision soon. But I can’t really believe that’s what’s going on here. I suspect we’re going to hear soon about a yet-unknown scandal that was about to make continuing in office untenable.

Pilon:

It seems that since her return to the state following the campaign, activist opponents and bloggers have bombarded the governor’s office with endless document requests. And she’s faced 16 ethics inquiries, with no end in sight. All but one have since been resolved, but the politics of personal destruction has cost the state millions, as Palin noted. Add to that the unrelenting, often vicious and gratuitous attacks on her and even on her family, and it’s no wonder that she would say ‘Enough.’ It has nothing to do with ‘quitting’ or with being ‘unable to take the heat.’ It has everything to do with stepping back and saying you’re not willing to put your family and your state through any more. She seems confident that history will judge her more thoughtless critics for what they are. I hope she’s right.

Honduras’ President Is Removed from Office

In reaction to Honduran President Manuel Zelaya’s attempt to stay in power despite term limits set by the nation’s Constitution, armed forces removed him, sending the Latin American nation into political turmoil.

Juan Carlos Hidalgo, an expert on Latin American affairs, comments:

The removal from office of Zelaya on Sunday by the armed forces is the result of his continuous attempts to promote a referendum that would allow for his reelection, a move that had been declared illegal by the Supreme Court and the Electoral Tribunal and condemned by the Honduran Congress and the attorney general. Unfortunately, the Honduran constitution does not provide an effective civilian mechanism for removing a president from office after repeated violations of the law, such as impeachment in the U.S. Constitution. Nonetheless, the armed forces acted under the order of the country’s Supreme Court, and the presidency has been promptly bestowed on the civilian figure — the president of Congress — specified by the constitution.

To be sure, Hidalgo writes, the military action in Honduras was not a coup:

What happened in Honduras on June 28 was not a military coup. It was the constitutional removal of a president who abused his powers and tried to subvert the country’s democratic institutions in order to stay in office.

The extent to which this episode has been misreported is truly remarkable.

Finally, an Ally That Doesn’t Wait for America

Washington’s willingness to toss security guarantees about the globe like party favors has encouraged other nations to do little for their own defense.  From the European, Japanese, and South Korean standpoint, why spend more when the Americans will take care of you?

But it looks like Australia takes a different view, and is willing to do more to defend itself and its region.  Reports the Daily Telegraph:

The latest defence White Paper recommends buying 100 advanced F-35 jet fighters and 12 powerful submarines equipped with cruise missiles, a capability which no other country in the region is believed to possess.

The “potential instability” caused by the emergence of China and India as major world powers was cited as the most pressing reason for this military build-up. In particular, Australian defence planners are believed to be concerned about China’s growing naval strength and America’s possible retreat as a global power in the decades ahead.

Chinese officials say their country’s growing power threatens no-one. Behind the scenes, Beijing is thought to be unhappy about Australia’s White Paper, with one Chinese academic saying it was “typical of a Western Cold War mentality”.

But the Chinese navy has almost doubled the number of secret, long-distance patrols conducted by its submarines in the past year. The reach of its navy is extending into Australian waters. China is also acquiring new amphibious assault ships that can transport a battalion of troops.

So instead of calling Washington to deal with Beijing, the Australians are building up their own navy.  Novel approach!  Now, how can we implant a bit of the Aussie character in America’s other friends around the globe?

Time for Japan to Do More

It seems that the Japanese government no longer seems entirely comfortable relying on America for it’s defense.

Reports Reuters:

A draft of Japan’s new mid-term defense policy guidelines is calling for the reinforcement of military personnel and equipment in the face of growing regional tensions, Kyodo news agency said.

The draft, obtained by Kyodo, says Japan needs to reverse its policy of reducing its defense budgets in light of North Korea’s missile launches and nuclear tests, as well as China’s rise to a major military power, the news agency said.

The document urges the government to raise the number of Ground Self-Defense Forces troops by 5,000 to 160,000, Kyodo said.

The new National Defense Program Guidelines, covering five years to March 2015, are scheduled to be adopted by the government by the end of the year.

The draft also says there is a need to “secure options responsive to changing situations” of international security, indicating Tokyo’s intention of considering if it should be capable of striking enemy bases, Kyodo said.

This is good news.  Historical concerns remain, of course, but World War II ended more than six decades ago.  The Japan of today is very different than the Imperial Japan of yore – the mere fact that Japanese have been so reluctant to become a normal country again illustrates the change.

There’s still a substantial distance for Japan to go.  But the Japanese government is moving in the right direction.

Obviously, peace in East Asia benefits all concerned.  That peace will be more sure if Tokyo is prepared to defend itself and help meet regional contingencies.  It is time for prosperous and populous allies to stop assuming that Washington’s job is to defend them so they can invest in high-tech industries, fund generous welfare states, and otherwise enjoy life at America’s expense.