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5 CHINA AND THE
US Part 11: Japan's strategy to be a
'beautiful nation' By Henry C K
Liu
(To see the previous installments
in this series, please use the links at the bottom
of this article.)
While Japan had been
keenly aware of the need to maintain harmonious
relations with its Asian neighbors by keeping the
ugly head of militarism below radar range all
through the Cold War, a persistent push for a
revival of militarism has steadily emerged since
the end of the Cold War in 1991. Japan's ruling
circles have since concluded that Japan must
aggressively protect and
enhance its national
interests with remilitarization amid a rapidly
changing post-Cold War international environment
in which force is routinely preferred by the sole
remaining superpower to implement its global
policy of transformation.
To be an ally of
consequence, Japan needs to remilitarize when that
superpower has sidelined diplomacy to a means of
last resort to solve international disputes. The
US-led "global war on terrorism" is a shoot first,
ask questions later operation in which
multilateral diplomacy begins only when war fails,
as the current situation in Iraq demonstrates.
Japan's aspiration to be again a player of
consequence in international affairs requires it
to develop credible force-projection capability.
As Japan moves to imitate US neo-liberalism in
economics, it moves also to echo US militarism in
international relations.
Despite Japan's
close post-World War II relations to the US as a
deferential ally, the 1970s were times of
antagonistic US anxiety over an alleged "Japanese
threat" as the defeated nation re-emerged as a
rising economic power through its opportunistic
exploitation of US overseas spending in the Cold
War and the United States' preferential treatment
for Japanese exports to its markets. All through
the Cold War, the security alliance with the US
was an economic benefit to Japan.
As the
Cold War settled down to detente and the need for
Japan as a US captured ally against communism in
East Asia subsided, anti-Japanese feeling grew
from what US companies viewed as predatory trading
practices in key sectors in the US economy such as
steel, shipbuilding, auto manufacturing,
electronics and real estate. The contrast between
Japanese industrial policy and US market
fundamentalism led to a US demand for a "level
playing field" in bilateral trade with Japan, in
effect demanding that Japan shoulder an increasing
share of the cost of the security alliance.
China replaces Japan as US trade
target Beginning around the 1980s, China
gradually emerged as the new target of US concern
over outsourcing of US jobs, taking Japan off the
crosshairs of US animosity over trade.
The
new economic hostility toward China is different
than that toward Japan, on several levels.
Geopolitically, China is still a communist nation
and not a subservient US ally like Japan. However,
Chinese export to US markets is largely financed
by US investment, unlike the situation in Japan,
where US capital faced an uphill struggle trying
to break through entrenched Japanese protectionism
left untouched by US Cold War-era tolerance. As a
result, anti-Japan noises of the 1980s came from
US big business, while anti-China noises now come
from US populist sentiments and are dismissed by
big business.
US exchange-rate
warfare Unable to break down intractable
Japanese protectionism, the US resorted to
exchange-rate warfare and succeeded in defeating
the Japanese threat. Now the same exchange-rate
war is being launched against China.
China
has been on a high-growth path over the past two
decades, albeit from a dismally low base, while
Japan fell into protracted economic stagnation off
a high plateau as a result of the United States
strong-arming the Plaza Accord in 1985 to force a
sudden, sharp rise in the exchange value of the
freely convertible yen. The currency eventually
stabilized, but only after rising more than 51%
against the US dollar, forcing the Japanese
economy on a downward path for more than two
decades. The yen rose from 360 to the dollar in
1971 to top out at less than 80 in April 1995.
The Japanese economy has yet to recover
fully from the meltdown of its financial sector
brought on by financial globalization through US
dollar hegemony, even though it remains an
unmatched industrial competitor. The dark
experience of Japan and to a lesser degree South
Korea leaves China justifiably apprehensive about
making its own currency fully convertible with
floating rates and opening its financial markets.
Gulf War reignited Japanese militarism
Besides economics, the negative impact of
the first Gulf War in 1990-91 on Japanese foreign
relations came as a shock to Tokyo.
Within
the limits of its pacifist constitution, Japan
backed the US fully as a dutiful ally. However,
being prevented by its constitution from sending
combat troops overseas, Japan ended up paying
heavily for the financial cost of the war while
gaining few diplomatic benefits.
The 1990s
proved to be a decade of self-doubt for the
Japanese ruling elite. The post-World War II
Japanese economic miracle and resultant prosperity
were abruptly interrupted by the catastrophic
collapse of the property- and stock-market bubbles
in the late 1980s, resulting in devastating price
deflation and persistent economic stagnation.
Keeping yen interest rates low for extended
periods failed to revive the economy because of
what John Maynard Keynes had identified as a
liquidity trap, in which banks are unable to find
willing or creditworthy borrowers in a dire market
of shrinking demand. All the low yen interest rate
did was to allow international currency
speculators to profit from the yen "carry trade"
by borrowing low-interest yen to lend overseas in
high-interest dollars, while hedging exchange-rate
risks with derivatives. Japan fell into a
deepening debt spiral domestically while it
emerged as the world biggest creditor nation
overseas, with the largest foreign-exchange
reserves.
To this day Japan, despite
facing a crisis at home of excessive domestic
debt, continues to own a huge amount of US dollars
that cannot be spent at home and that have to be
lent back to the United States at terms dictated
by the US Federal Reserve, which set dollar
interest rates by fiat, in defiance of global
market forces.
Japan's long-term gross
national debt of US$7.4 trillion amounted to 160%
of its gross domestic product (GDP) of $4.6
trillion in 2006. It was the highest of any Group
of Seven (G7) nation and more than twice that of
the US, which was at 67%. Japan has been unable to
use sovereign credit to meet effectively the
investment needs of its private sector. As a
result, it looks to international capital (mostly
from the US), money (more than $2 trillion) that
really belongs to Japan, having earned it from
export. Despite residual protectionism, Japan has
been selling increasingly larger stakes in its
supposedly successful industrial enterprises to US
transnational corporations and financial
institutions while it holds about $1 trillion
foreign reserves denominated in paper dollars.
Japan among first victims of dollar
hegemony Despite its industrial prowess,
the Japanese economy was among the first of many
victims of dollar hegemony, a monetary virus
created by the US dollar, a fiat currency since
president Richard Nixon took it off gold in 1971,
continuing to assume the status of the key reserve
currency for international trade while falling
more than 50% against the yen through the 1970s.
US-Japan trade became a game where the
United States produced fiat dollars at will while
the Japanese produced real goods that dollars
could buy at a dysfunctional exchange rate. The
more Japan earns in trade surplus with the US, the
more real wealth leaves Japan for the US through
dollar hegemony.
LDP suffers policy
paralysis The Liberal Democrat Party of
Japan was formed in 1955 to "unite conservative
forces and stabilize politics" to solidify the
purge of the left in Japanese politics by US
occupation. The LDP is a political monopoly that
has ruled successfully on a strict regime of
industrial policy designed to facilitate postwar
economic
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