Japan has established its presence in the region so rapidly that talk of a “coprosperity sphere” is already a cliche. Tokyo’s direct investment in its neighbors has created jobs and lifted living standards. Where once there were inward-looking, agriculturally based economies, now there are competitive, export-oriented manufacturing industries. This year, for the first time since the Organization for Economic Cooperation and Development began keeping statistics, the Asian nations of Japan’s yen bloc will generate more real economic growth than either the European Community or the combined economies of North America. “The beginning of the 1990s will be remembered as a watershed in the economic history of the region,” says Paul Summerville, senior economist at Jardine Fleming Securities Ltd. in Tokyo. “It can now weather economic storms raging in other parts of the world.”
Yet as Japan’s economic clout grows, America’s is shrinking. The loss shows up on the corporate bottom line. When nine telecommunications companies awarded a $316 million contract for a regional fiber-optic network last week, the big winner was Japanese computer giant Fujitsu Ltd. Smaller shares of the deal went to another Japanese company and a unit of AT & T. Though American companies are competitive in the field, no others even made the list of finalists. And the more time passes, the more entrenched Japanese companies will become, making it even more difficult for America to loosen Tokyo’s economic grip.
Broader consequences of Japan’s economic dominance in East Asia are beginning to register in Washington. The United States still considers itself a great Pacific power, and despite the apparent demise of the Soviet Union as a threat, the United States remains a welcome military cop on the beat in the region– including in Japan. The problem, some critics contend, is that the beat it patrols has bought up by Tokyo. Ezra F. Vogel, a Harvard University professor and author of a forthcoming book on Tokyo’s growing global influence, says that the United States, some 50 years after the bombing of Pearl Harbor, “simply isn’t regarded as a first-rate economic power in Asia anymore.”
That perception is gradually but inexorably changing the balance of power. The United States is already “drawing down” its military forces in Asia. If the economic rout continues, some officials in Washington wonder how much longer the United States will continue to pay the bills to defend Japan’s trading lanes in Asia—and whether Japan will take on the task. “That,” says Tommy T. B. Koh, former Singaporean ambassador to Washington, “would not be welcomed by anyone in the region.” The nations that suffered at the hands of the Japan 50 years ago prefer to see Tokyo exercise its economic power alone.
For the world’s lone superpower and largest economy–whose exports to Asia have actually been booming recently–talk of decline might seem alarmist. But even the most optimistic U.S. policymaker can’t help but be sobered by recent statistics from the region. Relative to its own past performance, America’s economic position in Asia is improving. Relative to Japan’s however, it is on a major slide. In 1990, despite economic problems at home, Japanese companies outinvested the United States for the 14th consecutive year in the burgeoning economies like Taiwan, Hong Kong and Malaysia–in some by as much as 10 to 1. Over the last five years corporate Japan has poured $26.8 billion into Asia’s fast-growing economies (compared with $7.4 billion for the United States), while Japanese government overseas development assistance (ODA) kicked in an additional $10 billion.
Corporate Japan’s drive began as an unintentional consequence of Washington’s desire to aid American manufacturers in the mid-’80s. With the dollar at stratospheric levels in 1985 and American companies taking a pounding from (primarily Japanese) imports, the g-7 nations agreed that among Japanese executives bordered on intensive, low-tech operations offshore at a furious rate. More recently, Japan’s acute labor shortage has accelerated the trend as firms move labor-intensive manufacturing processes to relatively low-wage locations.
Today most of those investments are paying off handsomely, as Asia’s economic boom rolls on. While markets in the United States and Europe slump, Honda recently announced that its production in Taiwan, Malaysia and Thailand will rise this year by 28,25 and 18 percent respectively. Japan’s merchandise trade surplus will soar in 1991-reversing four years of declines-thanks mainly to the strong demand for Japanese-made machines tools an other investment-related purchases. Today, more than ever, says one Tokyo diplomat in the region, “Japan and Japanese companies view Asia as their sphere of influence.”
Nowhere is the American slump more visible than in Malaysia, one of the fastest-growing countries in the region. While Japan invested $725 million in Malaysia last year, U.S.companies invested only $241 million-and the level of American funds has dropped in the last five years. Says Paul Cleveland, the United States ambassador to Malaysia,“I’m tempted to gnash my teeth and clench my fists and say ‘Those damned Japanese.’ But it’s us. We’ve got to get our act together.”
Not everyone believes Japan’s growing presence is bad news for the United States. Trade is not a zero-sum game, and some executives believe that as long as the regional tides are rising everyone’s boat gets lifted. “Investments create sales,” says Robert Galvin, former chairman of Motorola Inc. “If Japanese make an investment in Malaysia, it will increase our sales.” Robert Broadfoot, founder of the Hong Kong Political & Economic Risk Consultancy Ltd., likes to cajole U.S. companies into grabbing a foothold any way they can. One recommendation:tying up with “overseas Chinese companies and other non-Japanese Asian firms that are globalizing.”
Still, there is almost no question that the Japanese juggernaut in Asia could have severe consequences for American companies well into the next century. If Japanese competitors consolidate a huge, unchallenged strategic base in Asia, that will only strengthen their hand in the U.S. market. Marcus Noland, an economist at the University of Southern California, has estimated that by the year 2000, manufactured imports from East Asia could cost the United States 700,000 potential jobs.
America’s loss will certainly be Asia’s gain. And no one knows that better than Mahathir Mohamad, the prime minister of Malaysia. Since the mid-80’s, Mahathir has opened his country to foreign direct investment, the bulk of which has come from Japan, and has urged Malaysians to mold their economy in Tokyo’s image. More recently he has irritated Washington with a proposal for an East Asian trade bloc led by Tokyo but excluding–in at least one version–the United States. In Malaysia as int he rest of East Asia, the message grows louder by the day: hello, Tokyo. And sayonara, America.
While Japan’s direct investment in these six countries reached $17.6 billion between 1988 and 1990, the United States spent $4.6 billion.
Japanese Direct Investment IN BILLIONS OF DOLLARS COUNTRY 1988 1989 1990 TAIWAN .37 .49 .45 HONG KONG 1.66 1.90 1.79 THAILAND .86 1.28 1.15 MALAYSIA .39 .67 .73 SINGAPORE .75 1.90 .84 INDONESIA .59 .63 1.11 SOURCE: JAPAN MINISTRY OF FINANCE
