Obama Gets Earful on 5-City Economic Road Show

Last Updated: November 15, 2009 14:00 EST

Commentary by William Pesek

Nov. 16 (Bloomberg) -- Heard about the next cold war?

It doesn’t involve Russia, China or even the forces of communism, but Japan. The nation’s new government is pulling away from the U.S. and telling officials in Washington what they can do with their policy ideas. At least that’s the impression one gets reading the media these days.

Don’t believe the hype. The theory that Yukio Hatoyama’s Democratic Party of Japan is blowing off the U.S. is as fanciful as it is wrong. Those losing sleep over the state of this vital economic and security relationship aren’t thinking through how much Hatoyama needs Barack Obama, and vice versa.

The U.S.-Japan dynamic is indeed changing. Yet think of it more as evolution than confrontation. This story is about more than Tokyo and Washington. It’s about the rise of China and a vibrant region amid deepening U.S. troubles.

Look no further than Obama assuring Asia-Pacific leaders yesterday in Singapore that he’ll take “serious steps” to reduce a $1.42 trillion budget deficit that’s spooking world markets. Japan holds $731 billion of Treasuries, and the rest of Asia holds trillions more. The days of the U.S. lecturing Asia to emulate its policies are over. It’s now about reassuring creditors that the largest economy won’t let them down.

Neither, in the post-Lehman Brothers, post-Guantanamo Bay world, is the U.S.’s political clout what it once was. Ten years ago, a presidential visit to Asia was a show-stopper. Today, it often gets no more attention than Chinese leaders jetting in.

Dollar Concerns

Obama wants to rebuild influence after eight years of neglect under George W. Bush. As he swings through Tokyo, Singapore, Shanghai, Beijing and Seoul, Obama is promising broader engagement in a region where countries have been forging partnerships that don’t include the U.S.

Many in Asia still want strong U.S. involvement as a counterweight to China, which next year may surpass Japan’s economy. They just don’t want the U.S. lecturing them.

“The size of China makes it impossible for the rest of Asia, including Japan and India, to match it in weight and capacity in about 20 to 30 years,” Singapore’s Minister Mentor Lee Kuan Yew said in Washington last month. “So we need America to strike a balance.”

Those comments crystallized the thinking in many Asian capitals. China isn’t just attracting much of the world’s investment, but also getting much of the attention. Many observers have dropped the word “nascent” from descriptions of China as an economic superpower.

Long Way to Go

China still has a long way to go. It’s a developing nation that must continue raising living standards even as it maintains a weak currency, censors Google and limits human rights. The undervalued yuan is running afoul of the U.S. and Asian neighbors. Also, today’s stimulus efforts could be setting China up for a bad-loan crisis a few years from now.

Yet the drift of the Bush years was good to China. It allowed the third-biggest economy to go on a commodity-buying binge and score big points with developing nations with trade agreements and financial aid. Japan lost traction in Asia, too, as China’s growth trumped its return to deflation.

Japan was all but ignored during a recent panel discussion I chaired at Insead Business School in Singapore. When I mentioned Japan, the audience seemed decidedly uninterested. It seemed like a cue to pull out the Blackberrys or take a bathroom break. That’s become a common experience in this region.

Tuning Out Japan

It’s not clear Japan’s new leaders understand the extent to which investors are tuning out their economy. Here, increased focus on the region will help. It’s a logical and healthy shift, considering China is now Japan’s biggest trading partner.

The shift in Japan’s stance should come as no surprise and doesn’t necessarily bode poorly for the U.S. Japan is a stable democracy and the second-biggest economy -- why shouldn’t it seek a more equal relationship with the U.S.? A major failure of the Liberal Democratic Party, which until September ruled Japan almost uninterrupted for 54 years, was leaving the nation subservient to the will of Washington.

The LDP thought it could flex its muscles by being in lockstep with the U.S. and visiting Tokyo’s Yasukuni Shrine, which critics say glorifies Japan’s wartime militarism. Hatoyama is less interested in hollow gestures than real global clout and independence from the West.

Hatoyama’s campaign rhetoric raised expectations at home. That was amply on display last week in Okinawa, where 20,000 people took to the streets to protest America’s massive military presence as the U.S. and Japan reassess a half-century old security alliance.

That doesn’t mean Hatoyama’s DPJ can afford to lose Japan’s U.S. alliance. It would be a grave mistake in a region colored by North Korea’s nuclear weapons, China’s military ambitions and the continued importance of the U.S. consumer. You can already see signs Hatoyama and Obama are working to reduce temperature levels.

The relationship will change, as it should. Fears of a worsening rift between the world’s No. 1 and No. 2 economies just don’t stand up to realities on the ground.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net