I recall forty years ago, when I was a new professor working in the field of Chinese and Japanese international relations, that Edwin O. Reischauer once commented, “The great payoff from our victory of 1945 was a permanently disarmed Japan.” Born in Japan and a Japanese historian at Harvard, Reischauer served as American ambassador to Tokyo in the Kennedy and Johnson administrations. Strange to say, since the end of the Cold War in 1991 and particularly under the administration of George W. Bush, the United States has been doing everything in its power to encourage and even accelerate Japanese rearmament.
Such a development promotes hostility between China and Japan, the two superpowers of East Asia, sabotages possible peaceful solutions in those two problem areas, Taiwan and North Korea, left over from the Chinese and Korean civil wars, and lays the foundation for a possible future Sino-American conflict that the United States would almost surely lose. It is unclear whether the ideologues and war lovers of Washington understand what they are unleashing — a possible confrontation between the world’s fastest growing industrial economy, China, and the world’s second most productive, albeit declining, economy, Japan; a confrontation which the United States would have both caused and in which it might well be consumed.
Let me make clear that in East Asia we are not talking about a little regime-change war of the sort that Bush and Cheney advocate. After all, the most salient characteristic of international relations during the last century was the inability of the rich, established powers — Great Britain and the United States — to adjust peacefully to the emergence of new centers of power in Germany, Japan, and Russia. The result was two exceedingly bloody world wars, a forty-five-year-long Cold War between Russia and the “West,” and innumerable wars of national liberation (such as the quarter-century long one in Vietnam) against the arrogance and racism of European, American, and Japanese imperialism and colonialism.
The major question for the twenty-first century is whether this fateful inability to adjust to changes in the global power-structure can be overcome. Thus far the signs are negative. Can the United States and Japan, today’s versions of rich, established powers, adjust to the reemergence of China — the world’s oldest, continuously extant civilization — this time as a modern superpower? Or is China’s ascendancy to be marked by yet another world war, when the pretensions of European civilization in its U.S. and Japanese projections are finally put to rest? That is what is at stake.
Alice-in-Wonderland Policies and the Mother of All Financial Crises
China, Japan, and the United States are the three most productive economies on Earth, but China is the fastest growing (at an average rate of 9.5% per annum for over two decades), whereas both the U.S. and Japan are saddled with huge and mounting debts and, in the case of Japan, stagnant growth rates. China is today the world’s sixth largest economy (the U.S. and Japan being first and second) and our third largest trading partner after Canada and Mexico. According to CIA statisticians in their Factbook 2003, China is actually already the second-largest economy on Earth measured on a purchasing power parity basis — that is, in terms of what China actually produces rather than prices and exchange rates. The CIA calculates the United States’ gross domestic product (GDP) — the total value of all goods and services produced within a country — for 2003 as $10.4 trillion and China’s $5.7 trillion. This gives China’s 1.3 billion people a per capita GDP of $4,385.
Between 1992 and 2003, Japan was China’s largest trading partner, but in 2004 Japan fell to third place, behind the European Union (EU) and the United States. China’s trade volume for 2004 was $1.2 trillion, third in the world after the U.S. and Germany, and well ahead of Japan’s $1.07 trillion. China’s trade with the U.S. grew some 34% in 2004 and has turned Los Angeles, Long Beach, and Oakland into the three busiest seaports in America.
The truly significant trade development of 2004 was the EU’s emergence as China’s biggest economic partner, suggesting the possibility of a Sino-European cooperative bloc confronting a less vital Japanese-American one. As Britain’s Financial Times observed, “Three years after its entry into the World Trade Organization [in 2001], China’s influence in global commerce is no longer merely significant. It is crucial.” For example, most Dell Computers sold in the U.S. are made in China, as are the DVD players of Japan’s Funai Electric Company. Funai annually exports some 10 million DVD players and television sets from China to the United States, where they are sold primarily in Wal-Mart stores. China’s trade with Europe in 2004 was worth $177.2 billion, with the United States $169.6 billion, and with Japan $167.8 billion.
China’s growing economic weight in the world is widely recognized and applauded, but it is China’s growth rates and their effect on the future global balance of power that the U.S. and Japan, rightly or wrongly, fear. The CIA’s National Intelligence Council forecasts that China’s GDP will equal Britain’s in 2005, Germany’s in 2009, Japan’s in 2017, and the U.S.’s in 2042. But Shahid Javed Burki, former vice president of the World Bank’s China Department and a former finance minister of Pakistan, predicts that by 2025 China will probably have a GDP of $25 trillion in terms of purchasing power parity and will have become the world’s largest economy followed by the United States at $20 trillion and India at about $13 trillion — and Burki’s analysis is based on a conservative prediction of a 6% Chinese growth rate sustained over the next two decades. He foresees Japan’s inevitable decline because its population will begin to shrink drastically after about 2010. Japan’s Ministry of Internal Affairs reports that the number of men in Japan already declined by 0.01% in 2004; and some demographers, it notes, anticipate that by the end of the century the country’s population could shrink by nearly two-thirds, from 127.7 million today to 45 million, the same population it had in 1910.
By contrast China’s population is showing signs that it will stabilize at approximately 1.4 billion people, and is heavily weighted toward males. (The government-imposed one-child-per-family policy and the availability of sonograms have resulted in a ratio of 129 boys born for every 100 girls; 147 boys for every 100 girls for couples seeking second or third children.) Chinese domestic economic growth is expected to continue for decades, reflecting the pent-up demand of its huge population, relatively low levels of personal debt, and a dynamic underground economy not recorded in official statistics. Most important, China’s external debt is relatively small and easily covered by its reserves; whereas both the U.S. and Japan are approximately $7 trillion in the red, which is worse for Japan with less than half the U.S. population and economic clout.
Ironically, part of Japan’s debt is a product of its efforts to help prop up America’s global imperial stance. For example, in the period since the end of the Cold War, Japan has subsidized America’s military bases in Japan to the staggering tune of approximately $70 billion. Refusing to pay for its profligate consumption patterns and military expenditures through taxes on its own citizens, the United States is financing these outlays by going into debt to Japan, China, Taiwan, South Korea, Hong Kong, and India. This situation has become increasingly unstable as the U.S. requires capital imports of at least $2 billion per day to pay for its governmental expenditures. Any decision by East Asian central banks to move significant parts of their foreign exchange reserves out of the dollar and into the euro or other currencies in order to protect themselves from dollar depreciation would produce the mother of all financial crises.
Japan still possesses the world’s largest foreign exchange reserves, which at the end of January 2005 stood at around $841 billion. But China sits on a $609.9 billion pile of dollars (as of the end of 2004), earned from its trade surpluses with us. Meanwhile, the American government and Japanese followers of George W. Bush insult China in every way they can, particularly over the status of China’s breakaway province, the island of Taiwan. The distinguished economic analyst William Greider recently noted, “Any profligate debtor who insults his banker is unwise, to put it