A recent New York Times story about Google manufacturing, or perhaps I should say assembling, its new Nexus Q wireless media player in the United States has resulted in a rash of hopeful commentary about how manufacturing may be moving back to America from China and the rest of Asia and Europe.

To be sure there are some encouraging examples. Airbus has just announced plans for an aircraft assembly plant in Alabama. This follows other announcements by Caterpillar and GE of the return of some assembly and manufacturing operations to the United States from Asia. And ET Water Systems recently received a lot of attention when it announced it was moving its manufacturing operations from Dalian, China to Silicon Valley because it needed proximity to of manufacturing to the rest of its operations. The linkages within the company were deemed more valuable than the savings in labor achieved by producing in China. Of course, in this, as in all cases, the labor savings are becoming relatively less because of rising wages and inflation in Asia and especially in China. As former U.S. trade negotiator and international consultant Charles Blum says, "imagine what we could move back to America if we actually had a strategy and tried."

Nevertheless, Harvard Business School professor Willy Shih is correct to warn that recovering extensive manufacturing for the United States will be no simple task of just waiting for the macro-economic forces and the magic of the market to do their work. Shih noted in an e-mail exchange with me that the key is not assembly but components. He points out that E Ink, for example, "commercializes electrophoretic beads from the MIT Media Lab for the Kindle.  But in order to have a complete product, they need low-temperature polysilicon sheets (available only in Asia from LCD manufacturers) and release films (they have to go to Japan for that.  So even though they own the product concept, they can't build it in the US ... none of the capability in what I call the industrial commons is around anymore.  They end up capturing a small part of the overall value, eventually PrimeView of Taiwan scooped them up (they then took on E Ink's name)."

Or, says Shih, "let's pick apart a Google tablet. Take the LCD display. The only ones who have that capability to produce it are Korea, Taiwan, Japan, China.  So you would have to buy it there.  All the ICs ... even if they were designed in the US, were fabbed (manufactured) in Taiwan or China.  Some small parts may come from Japan or Korea, but most come from China.  China has captured the electronics supply chain, something that is unprecedented in history."

Because the supply chain moved to Asia as the result of the strategic industrial policies carried out by Japan, the Asian Tigers, and now China, Shih believes it will be extremely difficult, if not impossible, to recapture much of it without some kind of a similar U.S. industrial policy involving close collaboration between the U.S. government and industry.

Perhaps the Nexus Q can serve as a kind of pilot project. Google seems to have found U.S. suppliers for most of the parts. While the $300 price is high, economies of scale stemming from mass production should bring that substantially down. Shih believes that if Google can be competitive with this product from a U.S. base, that should be a signal for the U.S. government to get very aggressive about persuading, cajoling, and enticing foreign component makers to move production to America as part of a strategy to recapture the supply chain.

Dare we imagine that things can again be Made in America? All eyes will be on Google.

I told you Obama is lucky didn't I? Everything fell his way one more time. The EU moved a half step toward eventual euro bonds and of all people, it was arch conservative U.S. Supreme Court Chief Justice John Roberts who saved Obama Care by making the tax argument that Obama's own lawyers had downplayed. I mean, you have to admit it. Luck is better than skill any day.

So, with the Supremes backing him up and the Europeans taking decisions that have the markets soaring today, it looks like the skids are being greased for an Obama return to the White House in November.

But while the news from Europe was positive, it was far from signaling the end of the game. To be sure, establishing the European Stability Mechanism (ESM) as the single body in charge of recapitalizing Europe's ailing banks is a big step in the right direction, it still leaves much unclear and undecided. For starters, the bailout fund still doesn't technically exist. It must be formally approved by each of the 17 countries that use the Euro by July 9. That's coming up fast. So there is not much time for further conferencing if there are any unseen bumps in the road. Then there is the small question of where the money is coming from. The main focus of the ESM at this moment is to assist Spain and Italy by recapitalizing the Spanish banks and be reducing the cost of public debt issues for both countries. But 30 percent of the ESM's capital is supposed to come from Spain and Italy. Does this mean they're partially going to bail themselves out?

Even assuming this all gets sorted out quickly and smoothly and that the ESM gets enough money to achieve its objectives, the fact remains that they are still short term objectives. Italian Prime Minister Mario Monti has succeeded in persuading and scaring the Germans into recognition of the need for unified banking and for measures to reduce the cost of Spanish and Italian public debt service. That is a signal accomplishment. But by itself it won't stop the repetition of market ups and downs and crises over the euro. There will have to be further follow on measures to establish credibility and confidence.

These will have to include some kind of centralized control over European national budgets along with pan European taxation and the issuance of Eurobonds guaranteed by all the member states or at least by those that share the Euro. At the same time, the problem countries and even countries like France that aren't yet identified as problem countries but that are suffering from declining competitiveness must demonstrate their long term commitment to fiscal responsibility, labor market flexibility, and the achievement of lasting competitiveness. Finally, the European Central Bank must act more like the U.S. Federal Reserve in acting to do whatever it takes to stimulate growth.

By the time you read this today, the fate of the E.U., U.S., and global economies as well as that of President Barack Obama may well have been decided by the most recent summit of EU leaders meeting in Brussels and by the Supreme Court of the United States issuing judgment in Washington.

Only days after the Greek elections and yet another rescue of Spanish banks, the top EU leaders will be meeting today in hopes of preventing a further deepening of the Spanish crisis. But the real name of the game will be Italy. It cannot remain solvent as a country if it must continue to auction its bonds at present interest rates. The country probably has about a month to get the rates down before it will have to face the decision to withdraw from the Euro. That, of course, would also be a decision likely to trigger collapse of the Euro and perhaps also of the EU itself, at least of the EU as we have known it. It's getting to be a simple equation. Italy cannot continue with the Euro and the EU as they are, and the EU cannot really continue with Italy as it is. Something has to give and today is getting awfully close to when it has to give.

The minimum requirement at this moment is that European stabilization funds and/or European Central Bank funds be available in some way for buying Italian and other European government debt so that there is, in effect, a buyer of last resort for such debt that will be able to reduce the interest rates at which it is sold. These arrangements are not a long term solution. They just buy time to get to the solution. But if they can't be done, then there is no more time, and the euro and very possibly the whole EU project are toast. So also will Barack Obama likely be toast.

The EU is by far the biggest market for U.S. exports. I know, I know you keep hearing about China and Asia and emerging markets and how American exports to them are surging. Yes, but they're surging from a tiny base. The EU is where the real export action has always been for the United States and where it remains. Moreover, the earnings of U.S. corporations in Europe dwarf their earnings in all other markets except the U.S. market itself. A renewed recession in the EU would be very negative for U.S. multi-nationals and for the price of their shares on Wall Street. And let's not forget U.S. banks whose full exposure to Europe is not fully known but who surely will not escape damage from turmoil across the pond. The totality of all this would almost surely push the United States back into recession and dramatically increase the chances of Obama being a one term President.

Now, let's suppose that the Supreme Court also declares Obama Care unconstitutional, at least in part. Out of control health care costs are already eating up twice as much of U.S. GDP as in other major countries. With new uncertainty about the future of U.S. health care regulations and coverage and no long term cost abatement measures any longer in place, the outlook would be for health care to be taking 20-25 percent of GDP within five to ten years. That would surely discourage investment, production, and GDP growth in the United States. And also throw Obama's chances into further question.

But, wait. Obama's been an incredibly lucky guy all his life. Maybe the EU will find a way to save Italy and the Supremes will find a conservative justice to vote for upholding ObamaCare. Remember, the only sure thing in life is the unexpected.    

As the fateful month of August approaches in Europe, the time has come for the countries of Euroland to consider reversing the procedure and timetable of World War I. That is to say, that France, Italy, Spain, and all rest of the Euro-15 should plan to invade and occupy Germany.

Of course, none of the European countries are quite the military powers that they used to be, but France has more capability than any of the others including Germany and it has an independent nuclear force. So, in alliance with the others, France should be able relatively easily to overcome Germany resistance. Recall that in World War I, the German Schlieffen plan of invasion sent German troops through neutral Belgium into France. Now, Belgium is no longer neutral and would willingly, nay, enthusiastically, open its roads and provide support for a French thrust into Germany. Recall also that the road to hostilities in World War II began with the German remilitarization of the Rhineland. Hitler sent troops in under orders to withdraw immediately if there was any sign of a French reaction. Sadly, there was no such reaction and the German troops stayed. Hitler later said it had been the most nervous night of his life. He had gambled and won.

French Prime Minister Francois Hollande and his Euroland allies could try a similar move. They could send troops into the Rhineland with orders to high-tail it out at the first sign of German resistance. But if there is no resistance, they just keep marching until they occupy the German Central Bank and the German Finance Ministry in Berlin. There they direct the German officials to agree to support measures for a European Bank Union and a Europe-wide sharing of financial risk in conjunction with the kinds of reform and austerity measures already underway in Italy and Spain.

Okay, I know it's whimsical and totally beyond the bounds of reality, but it points to the main problem in Europe today which is Germany, not Spain or Italy or the periphery. Sure, sure, the peripheral countries must bear their share of the burden of blame, especially, in the case of Italy, for its vastly uncompetitive labor rules and bureaucratic machinations. But the real problem here has been German exceptionalism. The Germans have forgotten that it was the United States willingness to bear the broad common risks of supporting investment to rebuild Europe after World War II that underpinned its so-called Wirtshaftswunder. They have also forgotten that it was the willingness of the rest of Europe to help bear share the cost that made it possible for them to reintegrate Eastern Germany with the Federal Republic on terms of parity for the East German Mark with the Deutsche Mark. They have also not understood that their present vaunted competitiveness has much more to do with the fact that the euro is undervalued with regard to Germany than to any of the reform measures they adopted several years ago.  Most importantly, the Germans are still not understanding that as painful as providing their support to their fellow Europeans might be, the pain of a collapse of the Euro would be far greater.

Invasion of Germany is clearly a bridge too far, but someone has to be brutally frank in speaking to Germany. Perhaps Italy's Prime Minister Mario Monti is the best placed person to do so. If the euro goes down, the consequences for Germany will not be pleasant. But the euro cannot survive without Italy. Monti thus has the potential, if he is willing to take a bit of risk (invade the Rhineland), to threaten Germany with withdrawal from the eurozone unless Germany can bring itself to act in the broad European interest (which is also the true German interest) rather than in the narrow German interest (which is not the true German interest). Of course, he does not want to withdraw and will not do so except in extremis. But the terms the Germans are presently offering are such as to create a state of extremis, and Italy must therefore consider, however reluctantly, the possibility of withdrawal. Getting this message across may be the only chance left for the euro, Euroland, and the EU.

As one of Washington's leading trade negotiators during the 1980s period of intense U.S.-Japan economic friction, I was sometimes labeled a "Japan basher" because of my analysis of how Japan's industrial policies were distorting global trade and undermining key U.S. industries.

After recently attending several conferences in Tokyo and interviewing a variety of business, academic, political, and media leaders, I am now urging a comeback of the old Japan. As it faces increasingly difficult prospects, Tokyo needs an effective industrial policy and would do well to consult its old playbook on the route back to its future.

At the moment, the country is drifting dangerously with neither a clear understanding of what has gone wrong nor a clear strategy for fixing the problems. All the talk of "two lost decades" is mostly misleading and beside the point. Over those two decades, visitors to Japan have not found Japanese living standards dropping compared to those of Europe and the United States and investment in critical Japanese infrastructure and R&D has outpaced that of America. Moreover, the truth is that if you compare U.S and Japanese average annual GDP growth from 1990 through 2011 and adjust for differentials in inflation and population growth, the results are about the same. The United States had higher ups, but it also had lower downs that evened out close to Japan's average. Of course, the United States had positive population growth while Japan's population was shrinking. So in terms of absolute, unadjusted GDP growth, America comes out ahead. On the other hand, in terms of per capita GDP growth, Japan comes out ahead, and in terms of productivity growth per capita, Japan also comes out a bit ahead.

Much is also made of Japan's national debt at over 200 percent of GDP being far above that of Greece. But Japan's interest rates are close to zero because money is flooding into Japan as a safe haven. Investors don't seem to think of Japan and Greece as being in the same boat for the very good reason that it is not. More than 90 percent of Japan's debt is funded from within Japan as compared to, say the United States, which funds more than half its national debt from foreign sources.

But Japan has been suffering dramatic reverses in two critical areas - population and cutting edge industries. With nearly a quarter of its people already over 65, Japan is aging more rapidly than any other major country and will see 40 percent of its people at the age of 65 or older by 2050. Also, by 2050, the total population will drop from today's 128 million to only 95 million. That will make achieving any kind of growth and paying the retirement and health costs of the elderly extremely difficult. Meanwhile, on the industrial scene, much of the Japanese semiconductor industry that nearly killed off Silicon Valley in the 1980s recently declared bankruptcy in the face of aggressive competition from the likes of Korea's Samsung and Hynix and Taiwan's Taiwan Semiconductor Manufacturing Company.  Similarly, Korea's Samsung and LG are running away with the flat panel electronic display market once the preserve of Japan's Sony and Sharp. Finally, Korea's Hyundai/Kia Motors is taking great chunks of market share away from the Japanese auto companies in the North American, European, South American, and Chinese markets while the Korea ship builders have pushed the Japanese into only a small share of the high end ship building business.

In discussions with senior Japanese government officials over the past month, I noted that Japan seems to be losing out in the industries in which it has been especially noted for competitiveness and asked what plans there are to reverse the trends and what their vision of the future is. They replied that the vision is one of a "Cool Japan" and that the plan is to focus on promoting activities in which Japan seems to have particular aptitude such as cooking, manga (cartoons), and anime (animation).  When I heard this from the institutions that fashioned what used to be known as Japan,Inc. I nearly fell off my chair.

It is clear that a shift has taken place in Japan with power moving away from the bureaucracy toward the politicians and traditional lines of communication between industry, bureaucracy, and politicians severed. The result is that the politicians have power but no ideas. The bureaucrats have ideas but not necessarily good ones because they no longer know what's happening in industry. In contrast to this, Korea, Taiwan, China, Singapore, and many others have adopted good old fashioned Japanese style industrial policies to promote their own industries. Without their traditional support from government, the Japanese industries are hunkered down and facing the onslaught of the former students of Japanese industrial policy in lonely isolation.

At last week's Japan Roundtable conference in Tokyo, there was emphasis on the need to change traditional attitudes toward the role of women and to make it easier for women to have children and to enter, leave, and re-enter the work force.

As I sometimes advise the United States, Japan must also reconstitute its industrial policy at least to the extent of responding to the targeting policies of its trading partners and competitors. For instance, one hears much of China's currency manipulation, but many others such as Korea, Taiwan, Brazil, and Singapore also manipulate their currencies.  Japan may have to respond to this more actively and may also have to counter more actively the special tax incentives, subsidies, and other benefits provided by many countries to their special targeted industries either by matching these programs or challenging them in the World Trade Organization.

It all worked for Japan once. Why not again?  

The talk about the prognosis of the Euro, the Euro-zone, and the EU centers on Germany, Greece, Spain, and Italy these days. Nevertheless, the future of all will be determined by France.

Many are calling for eurobonds, a single continent-wide finance agency, and a European bank union as the only feasible solution because it is based on community-wide sharing of risk and obligations. This seems right and those I respect most in economics and finance are proposing such measures. Yet, if France were to require a bail out a la this past weekend's deal with Spain, none of the above would make any difference. There is simply not enough money even in Germany to bail out Spain, Italy, and France.

So the current conversation is based on the assumption that France is basically sound and that, in the end, it will be part of the solution and not part of the problem. But is that true? How sound is France?

Well, for starters, its bonds now have a 150 basis point spread over German bunds. So France is paying roughly 3 percent to Germany's 1.5 percent. Not terrible. Not dangerous (yet), but also not as good as Germany. For the moment, France remains reasonably within most of the red lines. It's public debt of about 85 percent of GDP, for example, is high but only a bit above Germany's 80 percent and the EU average of 83.5 percent. But the trends are all bad and have been for some time.

Productivity has been lagging while unit labor costs have been rising steadily for ten years. As a result, according to the European Commission's recent France Review, Paris has lost 19.4 percent of its export market share and the current account balance has fallen from a surplus of 3.2 percent of GDP to a deficit of 2.2 percent of GDP that is expected to deteriorate further to about 2.9 percent of GDP, entailing the need for further borrowing. Labor markets are rigid, unemployment high and rising, especially among for youth. Because it is so difficult to layoff a worker once hired, companies prefer to employ temps, making France's Adeeco temp agency the primary source of youth employment. Of course, that does little for worker training and improvement of job skills. Retirement is early, public strikes frequent, and holidays plentiful.

In recent years, there were some efforts, however halting , to reverse some of these trends. President Nicolas Sarkozy actually spoke at times of following Germany's lead in pushing out the retirement age, holding the line on wages and salaries, and keeping inflation under control. That this rhetoric bore little fruit is demonstrated by the continuation of the negative trends. But at least there seemed to be some recognition of the need for discipline and thus grounds for some hope that France and Germany might continue together to make use of the European crisis to create a more soundly integrated and revitalized Europe.

The new regime of President Francois Hollande is raising serious doubts about all that. In Italy, the rise of Mario Monti to the premier's office was followed immediately by reforms aimed at opening up monopolies like the taxi service and achieving greater flexibility in labor markets, especially for young people. Monti also began reducing expenditures while he avoided calls for significant new taxation. Monti has been urging the Germans to accept that only austerity is not enough and that there must be measures for growth and that Germany must consume more and be prepared to lend more and to take higher inflation. But he has not denied the necessity for Italy to get its house in order.

That would be a good road for Hollande to take as well. And he could take it with less difficulty, more assurance of success, more flexibility, and more credibility with the Germans and the bond markets than Monti. But that does not appear to be the road he is taking. Yes, there is talk in Europe of Hollande having a Nixon-in-China moment, but my sources in Paris say that's all happy talk. They are convinced that Hollande is  going to do exactly what he has been saying he's going to do. That is to raise taxes on corporations and middle and upper income families, roll back some of the extensions of the retirement age, increase the minimum wage, and essentially do nothing about the rigidity of labor markets and youth unemployment.

His hope apparently is that the increase in taxes will reduce the budget deficit while the increase in wages will stimulate spending and growth and that a virtuous cycle will ensue in which growth generates new tax revenue and further reduces debt. But it is just as, if not more, likely that the rise in taxes coupled with relaxed retirement ages and further public projects will cut growth and taxes while increasing debt. In any case, none of the tax measures will touch the problems of lack of opportunity for youth and of skilled youth emigration.

So the omens for France are not good. And if France falls, so too does the euro, and possibly the E.U. and what we have come to know as Europe as well.

U.S. Secretary of Commerce John Bryson had a bad weekend. After what appears to have been two hit and run accidents he was eventually found asleep or unconscious over the steering wheel of his car. He has now taken a "medical leave of absence."

That was obviously bad for Bryson, bad for the people he hit, and embarrassing, at least politically, for the Obama administration. But the incident didn't seem to have any real far reaching significance. There was, however, a further detail. The car the secretary was driving was a Lexus.

"So what," you say. A lot of people drive Lexuses. What's the big deal about that? Well, the thing is that Lexuses in the United States are totally imported from Japan. The Secretary of Commerce -- the official most responsible for carrying out President Obama's export doubling campaign -- is driving an import. Top Japanese officials don't drive imports. Top German officials don't drive imports. Top South Korean officials don't drive imports. All of their countries have trade surpluses.

How is the United States supposed to double exports, reduce its trade deficit and thereby create jobs domestically when its top official in charge of the export-doubling doesn't even drive a U.S.-made car? Couldn't he at least drive a Honda or a Toyota Camry or a Mercedes or BMW? All of these are foreign brands, but at least they are also made in America. He doesn't have to be xenophobic, just conscious of creating American jobs.

The coincidence of Bryson's troubles with the release by the Federal Reserve of a report showing that the median net worth of Americans fell by 39 percent between 2007-10 couldn't have been more apt.

The Fed report concluded that the Great Recession has wiped out about two decades of American wealth accumulation. This means the average family is back to where it was in 1992 in terms of its net worth. The fact that that is two decades ago suggests an interesting if discouraging comparison with Japan. How many times have you heard of Japan's "lost decades" over the past several years? Well, it seems the real lost decades have been in the United States.

Over the past twenty years, Japan along with South Korea, Taiwan, China, Germany and other countries have been producing and exporting to the U.S. market and running trade surpluses while accumulating vast reserves that they have invested to help fund their long term health care, pension and other needs. During this time, the United States ran continuous trade deficits and transferred much of its productive capacity offshore. But the country achieved what appeared to be high growth and steadily rising net worth by blowing bubbles. First was the dot.com bubble of the latter half of the 1990s. This collapsed in 2001, but was quickly followed by the real estate bubble of that finally burst in 2007-08 and led to the Great Recession from which we are still struggling to recover.

The truth is that we never really had the wealth, the net worth, we thought we had. It was a mirage, a fake. We weren't actually producing wealth like other countries. We were only blowing bubbles and importing their Lexuses.

In 1979, Harvard professor Ezra Vogel's book, Japan As Number One, became a runaway best seller in both Japan and the United States. After a swing through Asia the past two weeks, it's clear to me that Ezra needs to do a rewrite with a new title: Korea as Number One.

The South Koreans have long been confident that anything the Japanese can do, they can do better, but now they're proving it. In the 1970s-80s, the likes of Sony, Panasonic, Sharp, Toshiba, Hitache, NEC, and Fujitsu killed off RCA, Motorola, and the rest of the American consumer electronics industry and came close to killing off Intel and closing down the U.S. semiconductor industry from which Silicon Valley takes its name. Yet, today, it's the Japanese who are on the ropes as the likes of Samsung, LG, and Hynix have seized the high ground. Whereas Sony used to be the king of TV, now it's Samsung. Developed initially in the United States in response to military needs, the market for flat panel electronic displays was quickly taken over by the Japanese who out-invested the American producers and whose dominance of television and then of VCR production gave them an in-house source of demand for mass production and its related economies of scale.

Indeed, the VCR is a classic example. America's Ampex developed the initial professional video tape recording technology, but never got a consumer product off the ground as the Japanese preempted the market through quick, massive investment. Because VCRs were massive users of semiconductor memory chips, the dominance of the VCR business coupled with use of the same tactics in the semiconductor industry gave the Japanese producers a strong position from which to attach the Silicon Valley chip makers. In 1984-85, many U.S. companies left the business and the Japanese became the dominant players in DRAMS (dynamic random access memories).

Well, in the past month, both of Japan's main chip makers (Elpida and Renasas) have declared bankruptcy while leading flat panel maker Sharp is selling off pieces of itself to Taiwan's HonHai. Rudely pushing the Japanese aside are South Korea's Samsung, LG, and Hynix. Nor, is it only and electronics phenomenon. In the auto industry South Korea's Hyundai/Kia Motors is gobbling up market share in the U.S., European, Chinese, Indian, and Southeast Asian markets at the expense of the Japanese producers. The same goes for shipbuilding and even soap operas where the Korean shows are even all the rage in Japan. Perhaps most telling is the fact that South Korea's GDP per capita is now about 90 percent of Japan's and appears to be on track to surpass Japan's in the next couple of years.

To achieve all this, the Koreans have used a well known, tried and true formula. For starters, they have worked like crazy, saved like crazy, and invested like crazy. At the same time, like the Japanese, they have rejected American ideas and advice about specializing only in what they do best and trading for the rest. Rather, they have concentrated on developing world class capabilities where before they had none. They did this by protecting and subsidizing in various ways new, infant industries like steel, consumer electronics, and semiconductors. But they also knew their own market was not big enough to yield the necessary economies of scale. So they have had to focus on exports and become competitive in global markets by keeping their currency, the won, somewhat under-valued and by often selling abroad at prices below their own domestic prices. The most successful Korean companies are either those like steel maker Posco that was founded with government investment or those like Samsung that are giant family dominated conglomerates with extensive special relationships with the government and monopoly or quasi -monopoly positions in many interlocking industries and technologies.

This is, of course, the classic Japanese formula. It is the formula Lee Kuan Yew of Singapore had in mind when the advised his countrymen to "look East" for a model to imitate for their own development. It really works, and the Koreans are again proving that anything that works for the Japanese can be made to work better by Koreans.