The New, Hotter, Cold War — Part II

Before he passed away, Dad and I talked frequently about global conflict — especially in East Asia.

Before World War II, he wrote extensively about the escalating trade war between Japan and the U.S., virtually pleading for the two countries to talk peace seriously.

Many years later, I lived in Japan for two years for my doctoral research.

And today, my son has followed in our footsteps, working in Tokyo and traveling around Asia.

Two weeks ago, in Part I of this series, I focused on the Middle East, especially Syria, Iraq and Iran.

But in terms of the potential economic impact, the conflicts in the Middle East are actually small in comparison to …

The Threat to Global GDP from East Asian Conflicts

The combined GDP of Iraq, Syria and Iran is less than one trillion dollars — $723.2 billion to be exact.

In contrast, the combined GDP of China and Japan, the second and third largest economies of the world, is $13.1 trillion, or 18 times more!

So while the Mid-East crisis can have a temporary impact on oil prices, the conflicts in East Asia are far more worrisome for global GDP and world trade.

What’s the biggest threat?

Based on what’s been at the top of the news, you’d probably think it’s the fierce saber-rattling by North Korea’s brash young dictator, Kim Jong-un. And that crisis does indeed conjure up some frightening scenarios.

But, again, in terms of its impact on global economic growth and trade, no other hot spot in East Asia is nearly as large as the new cold war that pits China against Japan.

Just this week, members of the Japanese Prime Minister’s cabinet — plus 168 Japanese lawmakers — paid homage at the Yasukuni Shrine of Japanese war heroes, including those convicted of war crimes against China.

This is no trivial event. In recent years, official visits to the same shrine have triggered violent protests in China and mass Chinese boycotts of Japanese products.

Moreover, the size of this week’s visit is the largest — and potentially most incendiary — of all so far.

Also this week, in the East China Sea,

• The Japanese Coast Guard reported that eight Chinese patrol boats entered waters near disputed islands that are controlled by Japan and also claimed by China, while, at the same time …

• Ten boats carrying members of a Japanese ultranationalist group appeared on the scene, and …

• Expert observers believe the repercussions of these events have barely begun to play themselves out.

But the conflict between Japan and China is not new. It …

• Began with Imperial Japan’s invasion of Manchuria on September 19, 1931 …

• Escalated dramatically with Japan’s 14-year colonization of China, and …

• Unfortunately, did NOT truly end with Japan’s surrender to allied forces on September 2, 1945.

For more info, click on image.

Jennifer Lind, a well-respected consultant for RAND and the Defense Department on this subject, is not optimistic.

In her insightful book, “Sorry States: Apologies in International Politics — as well as her other writings — she explains the problem this way:

“More than 60 years after the end of World War II, chilly relations in East Asia stand in stark contrast to the thaw in western Europe.

“Germans have spent decades confronting and atoning for the crimes of the Nazi era. Today, Germany is welcomed as a leader in trade and diplomacy, and its military forces fight alongside those of its allies in UN and NATO operations.

“In Asia, by contrast, Japan’s neighbors still keep a wary watch over the country that brutalized them in the early part of the twentieth century. Tokyo’s official apologies for its past aggression and atrocities are dismissed as too little, too late.

“Worse, they often trigger denials and calls of revisionism in Japan, which anger and alarm the country’s former victims.

“In 2005, when Japan’s Education Ministry approved textbooks widely perceived as whitewashing Japan’s past atrocities, violent protests erupted across China. Demonstrators overturned and torched Japanese cars, vandalized Japanese-owned businesses, and threw rocks and bottles at Japan’s embassy in Beijing.”

Japanese leaders have made — or tried to make — multiple apologies over the years. But most backfired.

Lind writes: “As Japanese leaders began expressing remorse for the country’s past … other politicians and some intellectuals decried the trend.”

As one of many examples, “In 1988, another cabinet member, Seisuke Okuno, defended Japanese imperialism as ‘Asian liberation,’ declaring that ‘Caucasians’ had been the real aggressors in Asia.”

And subsequently …

“When liberal [Japanese] parliamentarians proposed a landmark national apology in the form of a Diet resolution, prominent conservatives denied, justified, and sometimes even glorified Japan’s past violence.”

In China, meanwhile, Lind sees equally disturbing trends.

“To make matters worse,” she writes, “the Chinese Communist Party, left ideologically adrift after the country’s embrace of capitalism, has been known to stoke anti-Japanese sentiment to bolster its domestic political legitimacy …

“Many China watchers worry that the party will increasingly appeal to nationalism and xenophobia if the remaining sources of its legitimacy — economic growth and the claim to Taiwan — are jeopardized.”

In an email exchange this week, I asked her where we go from here.

Her answer: “I think that as Japan-China security relations worsen (i.e. territorial dispute), historical issues will exacerbate distrust on each side, and will further create a negative feedback loop.”

I agree. I have dedicated half my life to studying both countries. I have learned to speak both languages. As I said at the outset, our interest in the region is based on a long family tradition. So I can tell you flatly …

Japan and China are now moving full swing

into an escalating war of words — and actions.

Worse, they’re doing so on multiple fronts:

• On the streets of China: Riots and attacks on Japanese companies and citizens in China.

• Military: Despite some possible skirmishes, most experts do not foresee an all-out military conflict in the near term. But major new military expenditures on both sides are already underway, or on their way.

• Economic: Expect widespread boycotts of Japanese goods in China; major cutbacks of Japan’s capital investments in China; a big decline in what could otherwise be the most profitable trading partnership in Asia; and if things get much worse, significant hits to GDP growth for the entire region.

NOW, we can talk about the North Korea crisis …

Now, we can put that crisis into the right context, because …

It’s well known that the threat from North Korea is a pivotal event helping to drive United States policy in the region.

It’s well known that it’s prompting the U.S. to push harder on Japan to move away from its postwar pacifist constitution and to remilitarize — perceived by China as a direct threat.

It’s widely understood that it’s driving the U.S. to accelerate its own “pivot” to Asia, especially in its alliance with Japan, further antagonizing China.

And it’s also clear that North Korea is giving every major power in the region the pretext to jump headlong into a cold-war-style military build-up.

What’s NOT widely understood is just how fragile Japan-China relations have become!

Unfortunately, torpedoing those relations is exactly what North Korea’s Kim Jong-un may have wanted all along. It threatens to create chaos in the entire Pacific region. And it’s the ultimate form of global blackmail.

But whether that’s his motive or not is immaterial. Because that’s what’s starting to happen. And right now, there’s very little anyone can do to stop it.

My recommendation: Be sure to follow our updates regularly.

We will be watching Japan and China very closely. If the conflict begins to careen out of control, we’ll send you an alert to re-evaluate all your investments, especially those directly tied to East Asia.

Good luck and God bless!

Martin

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