For decades now, the United States has been expanding all manners of relations with Japan and China–economic and business, financial, military, cultural, tourism, education, and more. As a result, the three economies have essentially merged and the web of interdependencies is enormous and complicated. The center of the world’s economy has shifted to Northeast Asia as a result, with China now the world’s second largest economy followed closely by Japan as No. 3.
President-elect Trump simply is not prepared to confront this tangle of issues particularly if, as seems likely, he spurns the advice of people who have been involved in managing the relationships for their entire careers. The first challenge will be that Japanese Prime Minister Shinzo Abe has secured a meeting with Trump next week in New York. Abe has been worried about China’s military expansionism in the East China and South China seas. He’s also worried about North Korea, which has proclaimed itself a nuclear power. Trump probably won’t even try to offer definitive answers as to where he will take American policy, but the slightest hint that the United States does not stand behind Japan and South Korea as they confront the challenges from China and North Korea will set off a chain reaction. Abe will have to assume the worst and begin planning accordingly.
Another burning question will be the Trans-Pacific Partnership (TPP), in which both the Japanese and Americans have invested heavily as a counterweight against China’s expanding power. Trump has expressed opposition to the TPP. Is he going to stick to that position or will he flip? My guess is that TPP is dead. It will be non-negotiable. That will send shock waves throughout the region. About 12 nations in Asia and South America had hoped it would work.
Of course, China poses far greater challenges because the possibility exists that we could revert to full-scale ideological, military and economic confrontation, an eventuality that does not seem likely with the Japanese. Keith Bradsher suggests in today’s Times that Trump will have economic power over the Chinese. He might be able to get away with imposing duties on Chinese goods.
This is very dangerous because Bradsher does not seem to understand, nor could Trump even imagine, just how many tools China would possess if it chose to counter-attack. Start with the fact that most of America’s major companies–Apple, Microsoft, General Motors, Boeing, McDonald’s, Intel, and General Electric, to name a few–have major investments in China and depend on those operations to generate profits that support their bottom lines. The Chinese would have countless ways to make life more difficult for American companies in China. It would not be as minor as denying sales to Boeing. Profits and share prices across the Fortune 500 would take a sickening turn downward.
Moreover, imposing duties on Chinese-made goods would have enormous impact on American consumers. This was always a factor in the trade wars with the Japanese in the late 1980s and 1990s. If the Clinton Administration had imposed duties on Lexus sedans in 1995, how many dentists and physicians would be denied their prized trophies? Why would we want to deny our own consumers?
The simple fact is that the vast majority of the stuff Americans buy at Wal-Mart, Home Depot, Target as well as Dollar General comes from China. Does Trump want to see Americans face broad across-the-board increases in the prices that Americans pay? That would instantly create inflation in the American economy.
And lastly, there is no mention in the Bradsher article that the Chinese are among the largest investors in U.S. government debt. They and the Japanese take turns being No. 1 and No. 2 in the market for Uncle Sam’s bonds and notes. They are, in effect, financing the U.S. government. Neither would likely make sudden moves because that would affect the value of their holdings, but even gradual long-term pull-outs would have enormous financial shockwaves on the value of the dollar, on interest rates and on the ability of Americans to manage their debt.
So my message to the President-elect is take these relationships very seriously. Proceed ever so cautiously. Because one rash move could set off a chain of consequences that no American president could control.
