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In the future, China may overtake Japan's position as the major economic power in the Pacific Rim, and that would be good news for the United States.

It's no secret that a trade war is brewing between the United States and Japan. However, Japan today is in no better position to dominate the world economically than it was militarily during World War II.Japan, as a resource-poor island nation, simply is too small and vulnerable to any disruptions in trade. Then as now, Tokyo's appetites for dominance extend well beyond what is reasonable or possible.

Yet, Japan persists in resisting free trade, and this will be its downfall - especially as the rest of the Pacific Rim develops into viable markets as well as manufacturing sources.

Enter China and its current rebellion. Although government hard-liners currently have the upper hand, they will not be able to hold back the drive toward modernization and democracy initiated a few years ago.

The impact of recent events in China on the average American consumer and worker will be staggering. Perhaps it won't occur in the next month or even the next year, but China will break free. The prospect of a free China could open great opportunities for more jobs here and investment potential there. A budding business relationship with China ultimately would help keep the cost of living low for Americans.

Ten years ago, it would have been absurd to think that democracy and capitalism would be sweeping the world. But today it is. And, as the country with the freest economy, best communications system and most advanced technology, the United States is in an ideal position to capitalize on these changes.

Whether it's the Soviets or the Chinese, today everybody wants to buy into the American way of life. It doesn't matter if we are selling ideas, music, clothing styles or airplanes, they want to be like us.

Emerging democracies represent huge markets for us. China potentially may become the largest democratic/capitalist state in the world, and the Chinese are patterning themselves after us.

The Chinese democratic movement is very American. The students got their cues from Thomas Jefferson, their methods from Martin Luther King Jr., and their tools and techniques from the American media. These intangible assets are our most important exports.

The advent of mass communications, American-style, has made it impossible for any large totalitarian state to keep its people bottled up or sheltered from the truth on the outside. The forces unleashed today will not go away - ever.

Lenin, Marx and Mao had it wrong. The workers of the world do not want to bring down the rich, they want the chance to be like them. Japan, watch out!

-The inflation-fearing Fed finally found the facts: The economy is slowing. The Federal Reserve, the nation's central bank, is allowing interest rates to fall. While this latest development comes as no surprise to readers of this column, the need to lower interest rates is becoming widely acknowledged.

Last week the Fed allowed the federal funds rate, the cost of overnight loans to banks, to slide to 9.56 percent after hovering above 9.75 percent for the past several months.

"The general consensus says that the Fed is finally easing credit," said Brian Wesbury, an economist with Stotler Economics in Chicago. "But on Wednesday, the Fed drained reserves to keep the Fed funds rate above 9.5 percent. Even if they have eased, they are doing little. They should allow Fed funds to drop to 9.25 percent in order to avoid a recession."

-Yields on Treasury instruments plunged last week. The yield on 90-day T-bills fell to 8.44 percent from 8.92 percent last week, and the 180-day T-bill yield dropped to 8.35 percent from 8.98 percent.

The 30-year T-bond yield was at 8.40 percent, down from 8.63 percent last week and far below its 9.10 percent yield one month ago. The 10-year T-bond dropped to 8.35 percent from 8.63 percent last week and 9.17 percent a month earlier.

-The nation's major banks cut their prime lending rate to 11 percent from 11.5 percent. Although the prime rate was traditionally the rate banks charged their best customers, many consumer loans, such as home-equity loans, are now tied to the prime rate.

-Mortgage interest rates continued to fall last week. The average 30-year fixed mortgage cost 10.51 percent, down from 10.60 percent last week. Fifteen-year fixed loans dropped to 10.31 percent from 10.46 percent, while adjustable rates fell to 9.32 percent from 9.37 percent.

-Yields on certificates of deposit were lower. If you are a saver, now is the time to lock in rates.

Reader questions will be answered and may appear in this column, when mailed to Gary S. Meyers at 20 West Hubbard St., Chicago, IL 60610.