January 30, 2002

THE CANARY IN THE ASIAN COAL MINE

By Tom Plate

When Japan spends, Hawaii parties; when it doesn't, the party's over

(C) 2002 Asia Pacific Media Network

HONOLULU --- There's trouble in this gorgeous Hawaiian paradise. The tourists from Asia aren't rolling ashore in their usual waves; visitor spending this year will probably run $600 million below that of the year before last. The Honolulu Advertiser, the state's leading newspaper, recently offered a special section: "The Road to Recovery." But, as staff writer John Duchemin put it, "So much depends on the outside world."

Hawaii is in effect the canary in the coal mine connecting America to Asia. When Asia spends, Hawaii parties. A local wag claims that this place is so obsessed with the state's No. 1 industry, tourism, that he can imagine a newspaper headline here someday reading: "CHINA INVADES JAPAN; Negative Impact on Tourism Predicted."

Funny line -- but facts are facts, and the economic indicators are generally clear: Despite a few bright spots, Hawaii is in recession.

The reasons are obvious. Americans are flying less as images of Sept. 11 and long airport security lines linger in their minds, and the American economy itself is virtually grounded. Equally ominous (from Hawaii's perspective), the economy of Japan is, too. After mainland America, this is the state's No. 1 tourist provider, accounting for a quarter of the travel and hotel pie. It is hoped that the U.S. economy will perk up soon, but not many are so hopeful about Japan.

From this perspective, President George W. Bush's planned swing through Asia next month couldn't come at a better time. His urgent mission should be to help achieve a regional consensus about what can be done to stem Japan's woes. A further slide of the world's No. 2 economy could undermine regional stability -- not to mention Hawaiian tourism.

Bush needs to emphasize that point. Only a holistic regional approach can tackle the problem. Japan is having a hard time mustering the political will to make the necessary economic reforms, so its neighbors need to help in any way they can. Instead of sitting on the sidelines, quietly relishing the sight of Japan's impasse, they need to recognize that this wounded giant's threat to itself is in fact a threat to them all. Why should they bother, though? After all, there's little love lost between China and Japan, or between Seoul and Tokyo; bitter wartime memories die hard. Why not let Japan dig itself out of the hole?

One response is that the Japanese economy and Tokyo's foreign aid program over the decades have contributed immeasurably to the region's economic standing. It's hard to imagine the Asian economic miracle of the last decade occurring without Japan having attained the runner-up spot in the global economy. But if there is no particular feeling of payback due, it is nonetheless in everyone's direct economic interest that Japan be revived.

And this is where America's happy warrior from Texas comes in. In both Beijing and Seoul, the American president needs to make the case that only short-term pain can achieve long-term recovery for Japan -- and thus for the region as well. For starters, this means that Asians have to stop complaining about the decline in the value of the yen. It's an immediate, if only partial, antidote to Japan's stultifying deflation, sagging import revenue and domestic economic lassitude.

But many in Asia regard an increasingly weaker yen as a kind of economic Pearl Harbor. Chinese exporters do fine by underselling just about everyone with lower prices. That price margin narrows whenever the yen becomes cheaper. Chinese exporters complain -- and the government intimates that perhaps China should devalue its currency, too. But such a move would trigger convulsive currency devaluations region-wide. Besides, as most economists know, head-to-head competition between Chinese and Japanese products is a relatively minor portion of the two economies.

Even some sophisticated Hawaiians bemoan the yen's slide in value against other currencies, especially the dollar. They are fixated on the short-term effect: Immediately it becomes more expensive for the Japanese tourist to travel abroad and spend freely. This is factually a clear-eyed view, but policy-wise shortsighted. For the long-term impact in the region of a possible Japanese financial collapse could trigger worldwide recession. A temporarily weaker currency could kick-start Japan's economy and get things moving again everywhere.

Reversing Japan's economic direction is as vital to the world as containing terrorism. During his trip, Bush needs to induce everyone to bury the anti-Japan hatchet -- what the Japanese did in the war and so on -- and work together on shoring up the region's economy. Sure, it'll be a tough sell. But if Bush succeeds, he will promote not only a new regional vision but a fresh vision of himself: not just as happy warrior but as world-class diplomat

Previous Columns:

Crony Capitalism, American Style (January 23, 2002)

The Medium is in the Message (January 16, 2002)

The Importance of Being Optimistic (January 9, 2002)

(C) 2002 Asia Pacific Media Network