2010-07-10

Declining social mood evident in the Pacific

The Vanishing American Consumer and the Coming Trade War
It’s clear American consumers can’t get the economy going on their own. They can’t restart the jobs machine. They’ve run out of money and credit.

It’s not just that one out of four Americans is unemployed or underemployed (working part-time, overqualified, or at a lower wage than before). More significantly, the Great Recession burst the housing bubble that had let American consumers turn their homes into ATMs. Now the cash machines are closed.

So the Administration figures foreign consumers will have to fill the gap.
Economists used to call recessions depressions, until the Great Depression. Now we have the Great Recession. They're going to need a new word. Back to Reich talking about the drive to sell to Chinese and Indian consumers...
Yes, but. As of now China and India are still relying on net exports to fuel their growth. Even if you think their middle classes will eventually become so big and rich they can buy everything these nations will be able to produce, that doesn’t mean they’ll also buy what the rest of the world produces.

Yes, global companies will do wonderfully well. General Motors is well on the way to selling more cars in China than it does in the U.S. But American workers won’t get the jobs, and nor will workers in Europe, Japan, or the rest of the world. GM makes the cars it sells to Chinese consumers in China.
And he says that productive capacity is growing faster than consumption...
This means Obama and others won’t easily find the export markets they need to create enough jobs to make up for the vanishing American consumer.

When the world’s productive capacities exceed the buying power of the world’s consumers, every government wants to increase exports and discourage imports. That spells trade war.
It also spells deflation.
And watch out for under-the-radar protectionist moves. Since the start of 2008, when the Great Recession began, countries around the world have already imposed at least 443 measures to block imports, according to the Center for Economic Policy Research.

This is just the start.
The key thing to me is that we are seeing deterioration in bilateral relationships such as U.S.-China even as there's supposedly an economic recovery and a stock market rally. The currency push was big news recently, but the Obama administration declined to call China a currency manipulator. When the next decline kicks off, relations will be in a worse place than they finished at the end of the previous decline and the probability of a more direction confrontation on trade will be much higher.

U.S. Tomahawk Missiles Deployed Near China Send Message
That's why alarm bells would have sounded in Beijing on June 28 when the Tomahawk-laden 560-ft. U.S.S. Ohio popped up in the Philippines' Subic Bay. More alarms were likely sounded when the U.S.S. Michigan arrived in Pusan, South Korea, on the same day. And the Klaxons would have maxed out as the U.S.S. Florida surfaced, also on the same day, at the joint U.S.-British naval base on Diego Garcia, a flyspeck of an island in the Indian Ocean. In all, the Chinese military awoke to find as many as 462 new Tomahawks deployed by the U.S. in its neighborhood. "There's been a decision to bolster our forces in the Pacific," says Bonnie Glaser, a China expert at the Center for Strategic and International Studies in Washington. "There is no doubt that China will stand up and take notice."
It's not like the U.S. is acting without support:
Many nations in the eastern Pacific, including Australia, Japan, Indonesia, South Korea and Vietnam, have been encouraging the U.S. to push back against what they see as China's increasingly aggressive actions in the South China Sea.
And on that note...

Japan takes a shot at China- via Taiwan

Japan has extended its Air Defense Identification Zone (ADIZ) near Taiwan in the East China Sea without consulting Taiwanese authorities in advance. Taiwan's Kuomintang (KMT) government has condemned Japan's unilateral move in a tone unusually firm compared with previous Taiwanese administrations that dealt with similar issues.
This is interesting because Japan's prime minister was forced to resign because he did not follow up with a pledge to get the Americans out of Okinawa.
Yonaguni is the western-most island of Japan and lies 180 kilometers from the Taiwanese east coast. The ADIZ line, which has defined two-thirds of Yonganui's airspace as being Taiwanese and one third as Japanese, was drawn by the US military after World War II.

On June 26, Japan unilaterally extended the ADIZ line westwards by 22 kilometers. As a result, Taiwanese and Japanese AIDZs now overlap. That Tokyo seems willing to put up with the prospect of doing damage to Taiwan-Japan relations shows how much it worries about China's military activities in the East China Sea. At least three disputed economically and militarily important areas lie in this part of the Pacific Ocean.

The roots of the Sino-Japan East China Sea conflict lie in the cryptic wording of the "Preamble to the United Nations Convention on the Law of the Sea, Article 76". There, it is stated that "The continental shelf of a coastal state comprises the seabed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines from which the breadth of the territorial sea is measured where the outer edge of the continental margin does not extend up to that distance".

According to China, the Okinawa Trough, an arc-shaped ocean trench that runs from southwestern Japan to northeastern Taiwan, separates China's and Japan's continental shelves. Beijing therefore claims that its territorial waters extend to the trough's center line. To Japan on the other hand, the Okinawa Trough is nothing but an "accidental depression" in the ocean floor and not the clear-cut boundary between continental shelves as China claims. Therefore, according to Tokyo's logic, it's the "200 nautical miles" mentioned in Article 76 that define the edges of China's territorial waters in the East China Sea.

The knowledge that the few kilometers where waters claimed by both Beijing and Tokyo overlap not only hold large reserves of oil, gas and fish but also are of strategic importance has been fueling the dispute. In recent years, both sides have significantly increased their military presence in the region.
And that increased presence has led to more incidents:
From a Japanese perspective, China has been challenging Japan's interests in the East China Sea in ever-shorter intervals. China's navy has been coming closer and closer and has crossed sea lines considered sensitive by Japan. It's obvious that Japan's extension of its ADIZ is to be seen in the context of the complicated East China Sea sovereignty disputes. Tokyo's choice to go ahead with the extension without consulting Taiwan's authorities is revealing since it demonstrates that Japan worries to a high degree.
It's not hard to see where this could be headed, but the economic conflict will erupt first. How the economic confrontation is handled will shape how this situation evolves.

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