CHAPTER NINE
THIS should be a harvest time for the United States and her post-war allies in the Asia-Pacific region. The collapse of the Soviet Union has eased the security environment. Internationally oriented growth has become entrenched throughout East Asia, from South Korea and China to Indonesia, now extending even to Vietnam. There has been a well-established, if uneven, trend towards political liberalisation in East Asia. The economic and increasingly political success of the Western Pacific is, on any objective view, the crowning achievement of post-war American policy.
But we don't hear in the United States noises of self-congratulation. Instead, this is a time of self-doubt and self-recrimination in English-speaking North America. There is disillusionment in the post-war home of economic liberalism with the effectiveness of markets in delivering economic growth and its wide distribution.
Recession at home in the English-speaking countries has coloured perspectives on the international economy. But the collapse of the Soviet Union, and of belief in "economic planning" more generally, has left no coherent alternative to economic liberalism. So in the English-speaking countries we battle on, weakly committed to shoring up old frameworks of open trade and competitive markets.
Australia, the United States and the Asia-Pacific region face great challenges through what is a really tough time for the international economy. There is deep and persistent recession in Europe, America and Oceania, and worries about the buoyancy of production in Japan. In the English-speaking countries, efforts at recovery are vastly complicated by the heavy debt burden carried both in the private sector (especially Australia and the United Kingdom) and the public sector (especially the United States and Canada). The struggle is to maintain commitment to open markets through the disappointments of slow, debt-ridden recovery.
THE ASIA-PACIFIC ECONOMIC OPPORTUNITY
Australia's international opportunities are overwhelmingly in the Asia-Pacific region. Internationally oriented economic growth has turned East Asia into a market that, during the last financial year, absorbed six times the value of Australian exports which were taken into the United States. Both growth and its orientation towards international markets emerged in the post-war trading system, within the GATT, under the economic leadership of the United States. Such leadership allowed the labour-abundant, capital- and resource-poor economies of East Asia to trade their economic strengths for necessary raw materials and capital goods. This trading system was critical to the economic dynamism that emerged in Japan, Hong Kong and Taiwan from the 1950s, South Korea from the 1960s, most of the ASEAN countries during the 1970s and 1980s, and China from the late 1970s.
All of this was as American strategists in the early post-war period would have hoped for, had they dared to hope beyond reasonable expectations. In fact assumptions of success always lag behind the realities. The eminent American scholar and diplomat Edwin O. Reischauer, in his autobiography, notes how every edition of his book The United States and Japan was greeted with the criticism that it was too optimistic about the future of Japan. Reischauer observes that in successive editions (the book first appeared in 1950), he was forced by the realities to revise his book in a more optimistic direction. He was somewhat more optimistic on the politics than on the economics of Japan, continuing to express doubts about the economy. In retrospect he comments that he was always wrong on the side of pessimism, and he invites his readers to note how much more wrong his critics had been.
Most of the international community did not recognise the strength of the impetus to economic growth in South Korea and Taiwan until it had gone a long way. Or in the ASEAN states. Or now in China, where, since the late 1970s, the strength of trade expansion and economic growth has persistently exceeded the most bullish public assumptions.
Australian assumptions have also lagged behind the realities, but not so far as American ones have, because these developments matter more to us and we have to watch them more closely. This is noticed in East Asia, and Americans have found our views useful. All of this has been part of our qualification for playing an important role in discussion of regional co-operation.
The lag that is most damaging at the moment relates to the liberalisation which has been occurring since the mid-1980s in East Asian foreign trade. If the extent of import liberalisation, affecting especially trade in manufactured goods, were understood better, it would be helpful to the American discussion on protection, strengthening commitment to competitive markets. The misconception contributes to the difficulties that the liberal international system now faces.
STRENGTHENING THE INTERNATIONAL SYSTEM
It is crucial for Australia, and important for America, that the beneficent process of internationally oriented economic growth continues in the Pacific. It has never been without problems and weaknesses: Australians and New Zealanders know too well the exceptions to liberal agricultural trade; and the East Asian developing countries know too well the exceptions to liberal textiles trade. The Uruguay Round includes in its grand designs an attempt to address these old weaknesses at the same time as it addresses new issues in services, investment and elsewhere.
But the Uruguay Round, all of the hard issues having been substantially negotiated by the middle of 1992, is at a point of crisis, as profound as the crisis in the international system itself. Success or failure are both real possibilities. Disillusionment following failure would greatly add to contemporary problems of the international system.
It is a hard time for Europe to do what is necessary to allow success in the Uruguay Round: thanks to the stress of Maastricht; the stress of accommodating structural change in Russia and Eastern Europe; the pain of German monetary policy in other European economies in deep recession.
In the United States, the crisis in the Uruguay Round coincides with the debilitation of slow recovery and diminished commitment to economic liberalism in the multilateral system -- the latter deriving from the consequences of a decade of large budget deficits.
In these times of stress, the United States finds it difficult to confront competitively the dynamism and increasing economic mass of Japan, China and other parts of East Asia. Latin America looks easier. There the United States is in control and the scale of the issues is more manageable.
The biggest danger for the Asia-Pacific region's economic expansion, and Australia's greatest nightmare, is that under all of these stresses the Pacific will slip down the middle. Regionalism and protectionism in the United States and Europe invites a regionalist East Asian response. Japan doesn't want it. Other Western countries have much to lose from it. A mid-Pacific fissure would be no-one's design. But it is not impossible; it becomes likely if we project far into the future the recent trends in American thought about trans-Pacific trade and recent tendencies in East Asian responses.
The errors in American views of the East Asian situation increase the danger of fracture in trans-Pacific relations. The trade imbalances are the result of American domestic imbalances and not proof of trans-Pacific perfidy. Japan's external surpluses are, viewed objectively, of considerable value to the international community in these years when the old German surpluses are disappearing, apparently without trace, into Eastern reconstruction. China's official exchange rate devaluation is a necessary reform step, bringing rates closer to market rates, and not a reasonable target for external criticism on the grounds that it confers unwarranted trading advantage. America now debates annually whether it should withdraw Most Favoured Nation treatment from China: this at the very time when market-oriented reform has gone furthest and is moving fastest.
In parts of East Asia, the errors in interpretation of trans-Pacific actualities are just as profound. The complex processes of American policy-making are misunderstood as being more protectionist and regionalist than the realities suggest. There is too little appreciation of the desire in America to realise some more tangible return on a generation of heavy investment in the peace and prosperity of the Western Pacific. There is little trust in American assurances that the North American Free Trade Area will not raise external trade barriers, stirring interest in exclusive trading arrangements in parts of East Asia.
HOLDING THE ASIA-PACIFIC SYSTEM TOGETHER
The challenge is to hold the Asia-Pacific system together and to make it a source of strength for a liberal international trading system. The rest of us, who have benefited so much from the American-led system of the post-war years, can now contribute our share of leadership when open markets need some support in the United States. It is in the interests of Australia, and the whole region, for the US to remain deeply engaged (economically and politically) in the Western Pacific: and for the United States' relations with our regional economy to be embedded in structures that join us all.
This means co-operation within APEC. The APEC agenda which has emerged in recent ministerial meetings -- focusing on such trade-enhancing "public goods" as knowledge of opportunities, of communications, of standards and of commercial laws -- is of high importance. We can go further towards regional discussion of sectoral trade liberalisation, focusing on issues in which a number of member economies have important interests.
Our shared interest in world-wide open trade requires us to undertake liberalisation in a non-discriminatory manner. This presupposes, incidentally, providing opportunities for European trade expansion -- to this region's benefit, not to its cost -- and making some contribution to the carrying of Europe's Eastern burden.
It is unlikely that any of this can work without Japan's commitment to taking further liberalising steps, especially in agriculture, earlier and more strongly than has been its custom. Japan understands the need to play leadership roles at this crucial time. There is a big gap between understanding and performance. But the dimension of the stakes may help to bridge that gap.
AUSTRALIA'S ECONOMIC STAKE
For Australia, a prosperous Asia-Pacific economy on the post-war pattern, and open Western Pacific trade régimes on the pattern of the 1980s and early 1990s, is a necessary support for its own historic transition to internationally oriented growth. The important changes in the structure of the Australian economy have been under way since the mid-1980s, obscured for the moment by persistent recession. The export share of Australia's GDP has been rising over the last seven or eight years, after several decades when Australia alone amongst the OECD countries remained stagnant. Services and manufactured goods of surprising variety from a wide range of enterprises are contributing much more to exports than they did even ten years ago, and are now poised to overtake traditional primary exports later in the 1990s. The greater part of our export expansion of primary products, manufactures and services through these early stages of transition has been to East Asia.
Australia and the United States share vital interests in Asia-Pacific co-operation. While we are making regional co-operation work, we shall be building the better-informed views that will help to avoid a trans-Pacific fracture. The avoidance of such a division must be the first objective of Australian international economic diplomacy.
Some Americans may feel that they have alternatives to a worldwide or Asia-Pacific future in a Pan-American destiny. But this option does not do justice to America's past, or to its future. It would be a cruel history that divided the United States from the crowning success of its post-war international policy, its successes in the Asia-Pacific region.
For Australia the stakes are higher. We are still, and shall remain, bound to the great democracies of the North-East Pacific by strategic interests, culture and inclination. I don't think that Australians could manage politically the balancing of relations with an Asia-Pacific region divided in mid-Pacific.
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