Pacific Perspective
Llewellyn D. Howell
War is in the air in Asia
The war is in Iraq. CNN and MSNBC make the war seem close to us here in the middle of the Pacific. But this war and others are far closer than they might seem in the media images or on a map. In the age of globalization, there isn't any escape from war, wherever it is. The war with Iraq long ago made its way into the politics, societies and economies of Asia.
A ground war in the Middle East is under way, but that war and others are in the air in Asia. North Korean fighter jets tried to force down an American reconnaissance plane. Six American Stealth fighters passed through Hawaii on their way to participate in war games in South Korea, a first for these exercises. U.S. bombers shift out to Guam. North Koreans warn of an impending ballistic missile test and Japan sends a ship to the Korean coast.
There is not yet military warfare in Asia but war is having its effects nevertheless. Fear of war, preparations for war, and ramifications of war are driving significant alterations in the economies of the Pacific region.
The shaping of a war with North Korea's megalomaniacs may be getting under way. The simmering conflict in the southern Philippines has spread from being just embers of a ground war to being a political war in Manila, one side wanting American troops on the ground, another now recalling massacres by American troops in their conquest of the Southern Philippines a century ago. Widespread terrorist threats throughout Islamic Indonesia have resulted in explicit warnings to Americans to stay away. Pan-Islamic sympathies with Middle East issues, including Iraq, reach throughout Asia but especially to Indonesia, Malaysia, Thailand and the Philippines.
At the most obvious level, tourism has been down around the region for months. Planes are flying between Japan and the U.S. half full, airline bookings are being canceled and refunds demanded in Hawaii and on the mainland.
Vietnam and China, in particular, had hoped to capitalize on tourists fleeing terrorist threats in Indonesia and elsewhere in Southeast Asia. But another war is also in the air in Asia. SARS is the new war, a health war. An epidemic of the severe acute respiratory syndrome has resulted in stern warnings from Western embassies, the World Health Organization, and the Centers for Disease Control in Washington to avoid travel to the region; sending tourists away from Asia entirely. On March 24, the U.S. Embassy in Hanoi officially warned U.S. citizens that "the Department of State has suspended official travel to Vietnam until further notice" and that it "warns U.S. citizens to defer non-emergency travel to Vietnam at this time." Today the numbers of infected in China and Hong Kong are still rising and a new case was reported in Vietnam on April 2, just after the Vietnam government reported the epidemic there contained.
SARS is having such a powerful impact for several reasons. First, there is a relatively high death rate among those who are infected, about 2 percent to 4 percent. Second, the virus apparently spreads easily. Third, it now appears the disease can be spread in contained environments, like airplanes.
The impact of these physical and health wars extends far beyond tourism. Foreign investment in the region is in decline, especially in South Korea with significant concern about a potential conflict with North Korea. Apart from the nuclear potential, more than 10,000 North Korean artillery pieces line the northern edge of the Demilitarized Zone, targeted at Seoul. Trade is being disrupted as the U.S. economy falters. Even the shipping in Asia is reduced due to movement of vessels to the Middle East to provide supplies for American and British troops.
Stock markets are in turmoil, with the Bank of Japan's policy board buying more stocks from the country's lenders in hopes of stabilizing financial markets unnerved by the war in Iraq. Added to this concern is the closing of office buildings, schools, factories, and shopping facilities in China in an attempt to quarantine the disease. Japanese investors there are predicting a significant downturn that will have a major impact on the Japanese economy.
Once the Iraq war runs its course, there is considerable expectation in Asia that the Bush Administration will take some action to contain the North Korean nuclear threat that could involve Japan, China and Taiwan, as well as the United States and South Korea. The possibility of a new war on the Korean peninsula has begun to scare long term foreign investors. A safer climate now seems to be China, as international rather than domestic political risks come to the forefront. Internally in South Korea, consumer fears of both an Iraq war and a reopening of the Korea conflict have resulted in a drop in spending, with department store sales down in February 13.7 percent from a year earlier.
Tourism can recover in the short term. But foreign direct investment has decision cycles that run five to 10 years and are heavily psychological. And Americans seldom think about how much the world depends on the American market. In that market, as gas prices go up, available spending power for other imported goods goes down. In turn, purchases of products from South Korea or China or Japan go down. At every turn, the business environment of Asia is burning. The future of tourism, investment and trade in Asia can only be described as dim or dimmer.
Llewellyn D. Howell is a senior research fellow with the Pacific Asian Management Institute and director of the University of Hawaii at Manoa College of Business Administration's Vietnam executive MBA program. Reach him at lhowell@cba.hawaii.edu.