In 1996, negotiations went down to the wire on trade deals for semiconductors and insurance. In 1997, the U.S. closed its ports to Japanese ships in response to what the U.S. viewed as unfavorable Japanese port practices. Each time, the tensions were accompanied by veiled threats from the Japanese to either stop buying U.S. Treasuries or even to sell U.S. Treasuries and buy gold. Each time rumors of a sell-off of U.S. Treasuries circulated, stocks and bonds declined. Once again, investors fleeing stocks and bonds would need alternatives.
Hard assets are the ultimate alternative investments.
The U.S.-Japanese trade relationship remains rocky and it is unlikely to improve soon. It is very fashionable to talk about investing in China and about the miracle of the Chinese economy. The resulting modernization, fueled largely by Western investment and technology, has produced one of the fastest growing economic juggernauts in the world. The Chinese economy may be an historic opportunity, but its government is a brutal communist dictatorship that oppresses its people, bullies its neighbors, and sells ballistic missiles and nuclear technology to countries like Iran, Iraq, and North Korea. Despite the increased trade that continues to come out of the Chinese-American relationship, the Chinese have had a change in their fundamental view towards the U.S. China's leaders are still communists and they now view the U.S. as their key rivals for control of Asia.