One significant reason for the friendship that now exists between Australia and China must be the fact that we were an ally of China during her war with Japan, and that the suffering of our prisoners-of-war at the hands of the Japanese, particularly on the Thai railway, equalled the suffering of the Chinese people under Japanese occupation, even though it involved far fewer people. Australia's good relations with both Japan and China may make it possible for us to act as a bridge between them, in the same was as we can between China and the United States.

The link between China and Australia that plerdsus mentions is one of many that developed over the 20th century, although it might be remembered that Chinese immigrants to Australia were very poorly treated.

Prompt diplomatic recognition of The People's Republic of China by the Whitlam government following that of the US Nixon Administration in 1972.

Undoubtably significant too is the large Chinese diaspora in Australia, markedly strengthened in recent years by immigration of substantial numbers of well educated Chinese. In contrast there are few Japanese living in Australia and Japan is not a country that welcomes immigrants from other nations.

Would it be true to say that, as a nation, Japan might prefer to lead a secluded, introverted existence, whilst China is extroverted and gregarious?

Patty,

The large US trade deficit together with its government's domestic budget deficit are matters of active debate amongst trade economists.

Common sense says that if a country keeps on spending more on imports than it earns on exports, sooner or later it must come a gutser. However common sense is not always a guide in these matters. In most years since Federation, Australia has run a trade deficit and is still doing so, but we are not bankrupt yet.

It is true that in the US, government, the housing market and consumer expenditure are soaking up increasing proportion of the rest of the world's savings. It is also true that the US Administration seems to have no plan to do anything about this, apart from complaining that the Chinese yuan is undervalued. If the rest of the world jacks up by refusing to buy US bonds at current interest rates to fund the continuing deficit, interest rates will rise sharply, the US dollar will drop and we will likely see a recession in the US.

This may well lead to a recession in China, as US purchases of Chinese goods will plummet, and then a recession here, as Chinese purchases of extractable materials will drop.

But global macroeconomic theory is like long-range weather forecasting. Economists and weather forecasters can generally explain after the event why it happened, but are hard pressed to make precise predictions.

Indeed, some economists even say that worrying about the US trade deficit is worrying over a glass half empty. The other side of the coin, the US's burgeoning capital account surplus, is a glass half full. The problem, they say, is a savings glut in Asia - consumers just aren't consuming the way they are supposed to. Surplus cash has to go somewhere to be invested, and the US is obligingly finding a home for it.

There's an op-ed piece on the subject 12 months ago at http://www.findarticles.com/p/articles/mi_qn4158/is_20050421/ai_n14596344 where Jeremy Warner quotes economist Herb Stein's famous dictum: if something can't go on forever then it won't.

Eventually we will see whether Stein was right.