Never make one more enemy than you absolutely have to. In 1998, with Asian economies in bad shape, the United States and China worked out an understanding to mitigate the regional effects. Washington and Beijing, despite their differences, decided to play ball on an unprecedented economic scale.
For its part, China maintained a steady currency course against pressures from the torrid undertow of Asian devaluations, including the influential and sinking Japanese yen, and resisted pressure from exporters at home who wished to increase their foreign sales by lowering prices and increasing volume.
In return, the United States, led by then-Secretary of the Treasury Robert Rubin, worked to cushion the biggest shocks, using US billions to put a floor under the yen and reducing the competitive pressure on other currencies, especially the Chinese Renminbi.
This dramatic backstage cooperation, engineered largely by China's Premier Zhu Rongji, as well as Rubin and his ace deputy, Lawrence Summers, bears recalling anew.
An even bigger problem may occur, again requiring China's intimate economic cooperation. But elements within the Bush administration appear to be advocating an Asian course that would chill relations with Beijing and erode bilateral trust.
Here's the problem: The trigger of the 1997-99 Asian financial crisis was the collapse of the baht of Thailand, whose Gross National Product isn't much greater than one-third the market value of General Electric.
Now, experts increasingly worry that the next meltdown in Asia could be triggered by the collapse of the yen. And unlike Thailand's, Japan's economy is second in size only to that of the United States.
"This potential crisis," says Kenneth Courtis, vice president of Goldman Sachs for Asia and a well-known Asian seer, "is the biggest one to surface since the 1930s."
Courtis was one of the few economists to foresee the implications of the 1997 Asian financial crisis. For the past several years, he has been predicting a regional economic earthquake if Japan fails to tackle its mounting problems. Tokyo's latest numbers indicate further stagnation and decline.
Everyone hopes that the popular Koizumi government will concoct the right prescription for Japan.
If the yen erodes further, warns Courtis, this could trigger "the mother of all devaluations," putting severe pressure on other East Asian currencies, including China's, creating a massive US dollar bubble and ushering in possible worldwide recession, or worse.
From Courtis's perspective, Washington's policy shift in Asia from active engagement with China to something more like a hot peace- seems misconceived and ill-timed.
"The reality," he says, "is that we're going to have to work hand in hand with Beijing to address the huge spillover from the Japan crisis.
Trust between the two governments will be the most precious and necessary asset. There's nothing to gain from poking China in the eye."
When the time comes to pick up the world's fiscal pieces, let's hope American policy hasn't inadvertently converted China into an enemy, when in fact it is the one economic ally that might be able to help the most.
(Editor's Note: This article is published by Tribune Media Sevices.The author,Tom Plate, is a professor of communications at UCLA.)
(Chinadaily.com.cn 07/12/2001)
