By Clyde Prestowitz

June 2, 2014 -- Japanese Prime Minister Shinzo Abe is now following through on actions laid out in his recent bold speech calling for Japan to defend allies who might be under attack.

But wait, you may ask, hasn’t the United States had a mutual security treaty with Japan for more than half a century?

Well, not quite. Yes, Washington has had a mutual defense-security treaty with Tokyo since 1951. But Japan is not committed to defending the United States or any of its armed forces. In fact, Japanese forces are prohibited from helping Washington in time of war — even if the war is in defense of Japan.

This goes back to the postwar U.S. Occupation of Japan and the creation of the Japanese constitution. Determined that Tokyo would never again pose a threat to its Asian neighbors or the United States, Occupation leader General Douglas MacArthur and his staff were sympathetic to Japanese pacifists’ proposal to include a no-war making article in the constitution, then being written with oversight by the Occupation authorities. This worked with the policies of then-Prime Minister Shigeru Yoshida, who wanted to focus on rebuilding the Japanese economy — without the distraction of creating a major defense force.

So Japan’s constitution prohibits engagement in war. Despite using the term “mutual” to describe the U.S.-Japan agreement, there has never been anything mutual about it. It has always been a unilateral U.S. guarantee of Japan’s defense.

This has long suited the U.S. foreign policy leadership, both Democratic and Republican. Washington has preferred to direct a forward defense against possible threats instead of relying on possibly pesky allies. It uses Japan as its most important forward base — particularly for the Seventh Fleet, which patrols Asian and South Pacific waters. The U.S. security community has therefore largely supported Japan’s pacifist policies — while quietly urging that the constitutional interpretation be broadened to allow more support for U.S. and U.N. peacekeeping efforts.

This may have been the right policy for Washington to pursue when the U.S. economy made up about 50 percent of the global gross domestic product; when U.S. military dominance in the Asia-Pacific region was absolute, and when U.S. and Japanese interests more or less coincided. But that situation no longer prevails.

The U.S. economy is now roughly 22 percent of global GDP, on the way to perhaps 15 percent. Relative military power has also shifted. The Pentagon, for example, would not today sail two aircraft carriers into the Taiwan Straits between China and Taiwan as it did in 1995, at a time of tension between Taiwan and mainland China. Nor do U.S. and Japanese interests coincide to the same extent.

Consider, the unoccupied Senkaku Islands, administered by Japan but whose Japanese ownership is disputed by China. These barren rocks are of no strategic or economic value to the United States. Yet, Washington could find itself going to war with China over them because of the peculiarities of the Japanese constitution and the U.S.-Japan security relationship.

Abe’s moves are likely to be greeted with suspicion, even violent opposition, by many in Asia. Some in the United States may also resist it. This is partly because of the still-festering wounds of World War Two and political expedience in Asia. But it is also due to U.S. concerns about Abe’s past as a right-wing, somewhat anti-American politician.

These concerns, however, should not impede U.S. support for the prime minister’s proposals. Washington does not have to agree with everything Abe says in order to support him when he says something that makes sense.

There is a growing risk that Washington may be drawn into confrontation with Beijing as a result of parochial issues between China and some U.S. allies. Japan, by taking greater responsibility for its own defense and that of its allies, would be moving to decrease this risk of having to put more Americans in harm’s way.

Washington should not only support this — it should welcome it. Despite the inevitable howls from some Asian capitals.

(This article originally appeared in the June 2, 2014 edition of Reuters)

By. Clyde Prestowitz

May 25, 2014 -- By charging five Chinese military officers with hacking into U.S. corporations on behalf of Chinese industry, the Obama administration claims it is taking a tough step to protect the intellectual property of American companies. In fact, the move isn't so much tough as toothless.

Given the massive U.S. snooping program revealed by former National Security Agency contractor Edward Snowden, the Justice Department took pains to explain why China's cyberespionage is bad but America's isn't. Its argument: The U.S. hacks only for national security purposes, whereas China is stealing trade and technology secrets at the behest of Chinese companies.

"This is a tactic that the U.S. government categorically denounces," said Atty. Gen. Eric H. Holder Jr. "We do not collect intelligence to provide a competitive advantage to U.S. companies, or U.S. commercial sectors."

Many people might not take him at his word. But in my experience as a high-level Commerce Department official in the Reagan administration, it is true. GE or Boeing or Intel cannot call up the NSA and ask it to obtain specific information, as it seems Chinese companies routinely do with their military and spy agency hackers.

But so what? The administration is basing its argument on the assumption that it is morally or economically wrong for governments to help corporations obtain valuable industrial, technological and commercial information. The White House further assumes that this is a widely accepted point of view. But neither of those assumptions is necessarily valid.

It has become increasingly obvious that China and many other countries don't fully accept the American way of thinking. For one thing, many countries have state-owned or partially state-owned corporations.

Renault is partially owned by the government of France. Singapore Airlines is partially owned by the government of Singapore. Most of the largest oil companies are owned by governments. In China, this is writ large: State-owned enterprises generate half or more of the nation's GDP.

But not one of the above countries draws the stark line between government and business that the U.S. does. To be sure, they are all members of the World Trade Organization and other so-called free-trade pacts. But that doesn't deter them from assisting companies they consider vital to their national economies.

Political economists make a distinction between countries that are largely devoted to free-trade policies and those that are more devoted to mercantilist policies. In this taxonomy, the U.S. is a free-trader; it generally keeps markets open to imports and doesn't protect or promote key industries or companies. The problem for Washington is that, aside from Britain and a few others, the rest of the world accepts a degree of mercantilism, or a belief that it's good for governments to subsidize exports or support favored industries to speed up economic growth and secure technological advantage.

Many countries have found ways to implement mercantilist policies while avoiding censure under the rules of the WTO and other agreements. For example, Ireland provides generous investment subsidies to induce companies to move production there. Japan's recent currency deflation is seen by some as a deliberate move to boost its export industries. Washington has averted its eyes from the mercantilism of these and other allies for reasons of national security, alliance maintenance and theoretical economics.

Now, suddenly, in the case of Chinese hacking, Washington has drawn a line in the sand. It's not going to work. The Chinese government certainly isn't about to extradite five members of the People's Liberation Army to face trial in a U.S. court. No one charged will suffer any punishment beyond an inability to visit the United States, which they probably didn't plan to do anyway.

More important, Chinese Internet attacks won't diminish as a result of these charges. If the White House was serious about retaliating against China for its hacking and about truly protecting U.S. intellectual property, it would make a formal case to the WTO protesting China's policies that force U.S. and other foreign companies to transfer technology as a condition of entrance to the Chinese market. Then it would lock the Chinese corporate recipients of purloined data out of the U.S. market. That it has not done so means that this is a charge without a punishment.

The United States might do better to play the game everyone else is playing. I know from my own experience that U.S. intelligence agencies discover quite a lot of economically valuable information. It would be an easy step to start handing that information over. Even more powerful would be to focus some intelligence efforts on helping U.S. companies maintain their advantage.

The days when America could ignore the importance of using intelligence to keep the country economically competitive are rapidly coming to a close.

This article originally appeared in the May 25, 2014 edition of the LA Times.

April 23, 2014

President Barack Obama will spend the next few days on an awkward mission to Asia. Essentially, he is going to try to tell the Koreans, Japanese, Filipinos and Malaysians that their lives and welfare are more precious to America than those of the Afghans, Ukrainians and Syrians to whose rescue America has recently declined to come. That may not be the truth.

The White House says the president will reassure our Asian allies that they are the country’s top foreign policy priority and that America will act as a protection against the power and influence of China. It says the US will further integrate its economy with those of Asia by concluding the Trans-Pacific Partnership trade deal with 11 North American and Asia-Pacific countries. This is in response to Asian leaders’ laments that they feel neglected by Washington and uncertain of its commitments to them.

At first glance, both the Asian complaints and the new American response seem logical and straightforward. In fact, they are totally backwards. Listening to the Asians, you would never know that the US Seventh Fleet has been stationed in Yokosuka, Japan, and tasked with patrolling the western Pacific for the past 69 years; or that there are 30,000 American troops stationed in South Korea and another 50,000 in Japan; or that the South Korean army is under US command in time of war; or that America is committed to the unilateral defence of Japan and South Korea under its mutual security treaties with them. That means America is committed to defend Japan and South Korea if they are attacked but those nations are not committed in any way to defend America if it is attacked.

So it appears the US is more lonely and neglected than any of its Asian allies. We need to ask what they do for America: why does Washington have these allies? Indeed, perhaps in light of the lack of a reciprocal defence commitment they would better be called protectorates. Nor are they even allies of one another. Japan and South Korea are constantly bickering and do not even exchange national security intelligence directly. Rather, they speak to each other through the offices of the US. The Philippines is weak and unable to provide much to America, except perhaps military bases that are not really needed; and Malaysia, while a friendly country, provides little of any strategic value.

Similarly, in the economic realm, the flow of benefits has been heavily in favour of the Asia-Pacific countries. Most of them have based their development on mercantilist export-led growth policies, using protectionism and currency manipulation to generate huge trade surpluses with the US.

The crucial question is: in response to what threat do these countries need reassurance of support? The obvious answer is China, against whose rising power the Asians want a counterweight. And indeed, the strategic “pivot” to Asia that Mr Obama proclaimed early in his first term is a response to this wish.

To read article in its entirety in The Financial Times, please click here.

April 10, 2014

Typically, countries pursue free trade agreements (FTA) with each other because they share common negotiating objectives and subscribe to broadly similar economic principles.

And based on those commonalities, they see benefit in deepening their trade and investment relationship by taking on a higher degree of mutual commitments within the context of an FTA or regional trade agreement (RTA).

Today, however, more and more countries in Southeast Asia appear to be pursuing or considering FTAs based on an entirely different set of considerations. Trade policy has become increasingly driven not so much by a full-hearted embrace of common principles or the objectives of the trade initiative at hand, but rather by a desire not to be left out or left behind as other ASEAN neighbours move forward with bilateral or regional FTAs.

Click here to continue reading article in its entirety.

January 30, 2014

In his State of the Union message, President Obama suggested apprenticeships, tax reductions on new investments, and building new infrastructure as ways to increase jobs and reduce inequality in America.

But he said virtually nothing about what is probably the single biggest cause of lost jobs and stagnating earnings for all but the richest of America's citizens: the U.S. current account deficit, which includes the trade deficit.

Although the Federal Reserve Bank says we're in the midst of a recovery, and the official unemployment rate has fallen below 7%, the economy is far from being out of the woods. That official rate — technically known as U-3 — doesn't begin to tell the real story. It is only one of six unemployment measures kept by the U.S. government and counts all those who say they are unemployed and looking for work. But it does not include those discouraged unemployed workers who have given up looking for a job or those who would like to work full time but are only able to find part-time work. The rate that includes all those people — U-6 — is about 13%. Granted, that is below the 17% of 2010, but it is still far above the 8% of 2007, as we navigate what is being called a recovery — albeit an abnormally slow one.

Perhaps even more disturbing is the dramatic increase in the gap between the incomes of the wealthiest 5% of Americans and the rest. Virtually all of the benefit of the present "recovery" is going to those in the top income brackets. As far as the rest are concerned, it's still the Great Recession.

Please click here to read the article in its entirety.

American Review April 29, 2013 - Conventional wisdom says that America is in decline, that the American century is over, and that the future belongs to the rest, especially the rest in Asia. Dates vary, but predictions that China?s gross domestic product will soon surpass that of the US to become the world?s largest economy are legion. In 2011, the International Monetary Fund predicted it will happen in 2016.

More recently, The Economist put the date at 2019. Regardless of the exact time, prominent authors such as CNN commentator Fareed Zakaria (The Post American World) and Lee Kuan Yew School dean Kishore Mahbubani (The Great Convergence: see review page 66) have rushed to publish books predicting an historic shift in the global balance of power as a result of this change in relative share of global GDP. Indeed, the Australian government recently indicated its agreement with this thinking by moving to redeploy its resources and reorient its policies in response to a white paper on Australia in the Asian Century.

Click here to read the entire article at American Review 

1 November 2013

Emerging markets from Latin America to Southeast Asia breathed an audible sigh of relief when the US Federal Reserve – contrary to most market expectations – refrained from initiating its much anticipated policy of "tapering" at its last FOMC meeting in September. Tapering would have in essence signaled the beginning of the end for the Fed's extraordinary and unprecedented stimulative effort known as Quantitative Easing. Through its monthly purchases of $85 billion in securities, the Fed has been pumping massive amounts of capital into the economy and keeping interest rates near zero – all in effort to spur economic activity in the sluggish post-global financial crisis environment.

The implications of QE, however, have been felt far beyond the shores of the US. Much of the capital pumped out by the Federal Reserve has ended up in emerging markets, in search of higher rates of return. Equity markets and various asset classes – real estate, in particular – have surged, especially in key growth markets in Southeast Asia. "Easy money" from the US has funded everything from condo developments and shopping malls, to generous government programs paid for with a credit card.

Anchorage Daily News April 29, 2013  - The Alaska World Affairs Council presents Clyde Prestowitz, founder and President of the Economic Strategy Institute, speaking on "The Betrayal of American Prosperity: Free Market Delusions, America's Decline, and How We Must Compete in the Post-Dollar Era". Lunch Program. RSVP to 276-8038 or This email address is being protected from spambots. You need JavaScript enabled to view it. . Online registration available at a discount. At the door $26 for Members, $30 for Non-Members, $15 for Coffee and Dessert. Students and UAA staff receive lunch for free.

Click here to read the entire article at the Anchorage Daily News

By Zachary A. Goldfarb - The Washington Post July 13, 2012
As he campaigns for reelection, President Obama has embraced soaring political rhetoric, pledging to harness the ingenuity of America "to bring manufacturing back." In beat-up factory towns across the land, he has promoted a vision to rebuild manufacturing after decades of shuttered plants and vanishing middle class jobs. But he wasn't always so sure. Three years ago, confronting the issue in an Oval Office debate, Obama was less of the chest-thumping politician he is today. Vice President Biden led a group of advisers who were making the case for an ambitious plan to reverse the industry's long decline. Obama had witnessed the devastation of lost factory jobs from his earliest days as a community activist in Chicago and felt in his gut that there must be some way to help, but the president, a policy wonk and onetime professor, also wanted to know what the research showed. "There's a narrative that countries have to make things to be successful," Obama said to his economic advisers. "What's the evidence?"

Click here to read the entire article at the Washington Post