How Will Future Economic Trends in Asia Affect the Global Security Environment?

RAND researchers recently completed two overlapping projects, one funded by the Department of Defense and the other by the Smith Richardson Foundation. The studies examined economic trends in the major economies in Asia, including the People's Republic of China, India, Indonesia, Japan, and South Korea. These two studies provide an update on the aftermath of the Asian Economic Crisis of previous RAND work that was done in 1989 and 1995 for the Office of the Secretary of Defense to examine the link between economic trends and military expenditure in the region. The most recent effort found some noticeable changes in the expected trends in key countries. 

One prediction that emerged from these studies is that the Japanese economy will expand at a relatively slow pace, averaging only 1.2-1.6 percent per year over the next 15 years. The Japan Economic Institute (JEI) Report recently interviewed Dr. Charles Wolf, Jr., a RAND senior economic adviser and one of the collaborators on the study, about the study's implications for how the U.S. relationship with Japan and the other Asian countries might evolve during the 15-year period they examined.

Wolf predicted that the pace of Japanese liberalization, reform and market-opening would be modest. According to Wolf, unlike the rapid growth and competitiveness of Japan's economy in the 1980s that caused tension between Japan and the United States, the current slow pace of Japan's economic restructuring is unlikely to cause any animosity between the two countries. 

The United States-Japan relationship is also likely to be heavily influenced by the common interests of Japan and the United States in sustaining and nurturing the bilateral security treaty. "The agreement to share the R&D costs of a theater missile defense system is one indicator of that," noted Wolf. On the issue of the United States' relations with China, Wolf said that strong economic growth in China might offer a reasonable chance for a resumption of cross-straits discussions on substantive matters, such as the One-China principle and economic issues of liberalization, reform, and market-opening. "In that scenario, the outlook for the U.S.-China relationship is fairly benign, but," he cautioned in the JEI Report article, "there are other variations that would be quite dangerous."