For reasons I've never fully understood, Americans have an aversion to naming the dominant racial group in East Asia. When I was growing up, the accepted term was Oriental. It was no more controversial a term than Asian is today. For example, The New York Times in 1985 described Haing S. Ngor as "the first Oriental actor to win an Oscar." But around the early '90s, the term fell out of use and came to be regarded as an anachronism if not a slur, much like the word Negro had done a generation earlier. Suddenly, everyone was expected to say Asian when referring to people of Chinese, Korean, or Japanese descent.
In this new scheme, Arabs, Iranians, and Turks are not Asian, even if they live on the Asian continent, and even if their ancestors lived there for thousands of years. It's true that other continental terms have also acquired a racial sense; after all, people often use European to mean "white" and African to mean "black." But Asian is the only continental adjective that has been narrowed to such an extreme that it now refers only to a segment of the continent's traditional boundaries.
How did this happen? I'm not sure. The narrow sense of Asian goes back a long time. For example, a 1979 journal article notes that "Most literature on ethnic studies has...narrowed the term 'Asian Americans' to refer mainly to those people coming from the Far East and Southeast Asia." But this very same article unhesitatingly uses the phrase "Oriental children." It took a while before the media decided that Asian was not simply an alternative, but the only acceptable term.
The most frequent explanation offered is that Oriental is too Eurocentric. The term comes from a Latin word meaning "to rise," and it was first applied to the area now called the Middle East, because that area lay in the direction where Europeans observed the sunrise. (This meaning is still used in the phrase "Oriental Jew," though because of its association with the Arab world, it is even applied to Jews from Morocco, which ironically is farther west than almost all of Europe!) Eventually the term was transferred to the Far East, and that's when it acquired its racial connotations.
But if Eurocentric terminology is inherently offensive, why do we still say Middle East, or for that matter Western civilization? Besides, according to the Online Etymological Dictionary, the word Asia itself may come from an Akkadian word meaning "to rise," and, if so, it came to refer to that part of the world for precisely the same reason that Oriental did.
In fact, etymology has very little to do with why we regard certain words as offensive. For example, Negro is simply the Spanish word for "black." In the mouths of English speakers, it acquired a derogatory sense over time. That's apparently also what has happened with the word Oriental.
The term Asian American gained popularity around the same time that African American did. The apparent purpose of these coinages was to replace the language of race with the language of geography, on the assumption that if people stop talking about race, they'll stop thinking that way as well. Unfortunately, this assumption reflects a naive understanding of how language works. When people say Asian today, they mean exactly what people from a generation ago meant when they said Oriental. The thinking hasn't changed one bit; only the label has. All we've accomplished is taken a previously race-neutral term (Asian), destroyed its original geographic meaning and given it a new racial meaning.
Not that I'm advocating going back to saying Oriental. The shift is here to stay, and those who object are fighting a lost cause. Hopefully as time goes by, we will no longer need to use racial terms altogether. But we haven't reached that point today. America remains a race-conscious society, and that's not going to disappear just because we change the way we talk. The notion that it will is the linguistic equivalent of running away from one's shadow. As long as race continues to play a role in society, racial thinking will follow us wherever we go, no matter how many changes we make to our speech. Only by working directly on people's attitudes can we make a real difference.