How to win a trade war: when the United States attacked Japan

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In the 1980s, Japan was the big bad guy. Its economy was booming – the second largest in the world – and many in the United States feared being on the verge of being outmoded.
Articles have been published warning against "Japanning of America" ​​or "Pearl Harbor Economic", while Japanese companies were buying American companies and monuments. Lawmakers and commentators warned of a growing trade deficit between the two countries and complained about Japanese companies stealing US intellectual property and benefiting from unfair trade agreements.
In an interview with the "Morton Downey Jr. Show" in 1989, Trump himself complained that Japan had "systematically sucked blood from America – sucked blood!"
"It's a huge problem, and this problem is going to get worse," Trump said of the US-Japan trade balance. "And they make fun of us."

At that time, however, the change was already under way. And far from overtaking the United States, Japan was about to fall far behind.

Commercial War

After the inauguration of President Ronald Reagan in 1981, the United States began to press Japan to open its market to US companies and reduce the trade imbalance between countries.

While Japan was accepting measures that included limiting the number of cars exported to the United States, the panic over Japan's trade power was increasing – and lawmakers on both sides demanded action.

In approving a bill calling for harsh trade retaliation against Japan, Robert Packwood, then chairman of the Republican Senate's finance committee, promised to give Tokyo "an eye for an eye … it's all that they understand ".
At a hearing before the Finance Committee in 1985, Democratic Senator Max Baucus said: "Reagan has predicted" a future in which trade will be king, the eagle will soar and l? 39 America will be the most powerful trading nation on the planet. "Well, trade may be king, and eagles can skyrocket, but they are not American eagles. have never been so bad. "
That year, five countries – the United States, West Germany, France, the United Kingdom and Japan – signed the Plaza agreement, devaluing the US dollar compared to the Japanese yen (and the German mark). This was a boon for the United States, leading to an increase in their exports and a reduction in their trade deficit with many Western European countries.
Yet, the Plaza Agreement was not the end of US action against Japan. In 1987, Washington imposed 100% tariffs on Japanese imports for $ 300 million, blocking them from the US market.

Things quickly turned sour for Tokyo. As the yen has increased in value, Japanese products have become increasingly expensive and countries have turned away from the powerful single export engine. Efforts by the country's central bank to keep the value of the yen down triggered a stock market bubble, whose collapse helped to plunge the country into recession and lead a "lost decade".

"Japan's export and GDP growth virtually halted in the first half of 1986," economists Joshua Felman and Daniel Leigh wrote in a report by the International Monetary Fund. They concluded that although the Plaza Agreement was not at the root of Japan's economic slowdown, it did trigger a series of events, compounded by the wrong decisions made in Tokyo, which led to the collapse.

Course in competition

Some of Trump's early forays into politics involved partying in Japan in the 1980s and early 1990s. During this time, he started claiming the use of tariffs as a commercial weapon.
Although he did not refer to US-Japan historical relations during the recent conflict in China, Washington's success against Tokyo could influence his thinking on how to run Beijing. Robert Lighthizer, one of his leading trade advisers, also took part in negotiations with Japan in the 1980s.
In 2011, as Trump flirted with a presidential race, Lighthizer praised his "skepticism toward the dogma of pure free trade."

Ronald Reagan, the icon of modern conservatism, has imposed quotas on imported steel, protected Harley-Davidson from Japanese competition, restrained semiconductor and auto imports and has taken countless similar steps to maintain the strength of the US industry, "he wrote.

Yet, while Lighthizer and Trump can draw positive lessons from the 1980s trade war, Beijing is also paying attention – and Chinese leaders have no intention of copying Japan's mistakes.

In an editorial last year, the Chinese news agency Xinhua warned that "Japan had been seriously hurt by its inappropriate response" to the agreement on the Plaza and to US trade pressure .

He accused the United States of making Japan scapegoats because of problems in the national economy, adding that a "strong protectionist sentiment was the direct driver of the deal." Plaza ".

This is a recurring theme in the media coverage of the state media trade war: the United States seeks to blame Beijing for issues beyond its control.

Donald Trump in 1989. At that time, he was trying to Japan to take advantage of US trade.

Repeat the story

Of course, 2019 is not 1985 and China is not Japan. Beijing is much stronger economically and politically than Tokyo was in the 1980s. Japan depends on the United States for its national security and is less willing to risk Washington's anger.

"Japan was an easy target for the US After the Second World War, Japan was both politically and economically dependent on the United States, which resulted in limited bargaining power to thwart the United States, "badysts Alicia Garcia-Herrero and Kohei Iwahara wrote. . "China is better positioned to withstand US pressures."

In this case, the risk is not to learn from history, but to ensure that both parties take the wrong lessons.

Trump and Lighthizer, after clenching their teeth in the battles against Tokyo, might badume that such an aggressive policy would prompt Beijing to comply with their demands. Chinese negotiators have already learned what happens when you oppose Trump. Trade talks collapsed this month after Beijing tried to change the deal at the last minute.

The failure of these talks led to an immediate escalation of tensions, with new tariffs imposed by both parties. This could be attributed to late changes in Beijing, but also to Washington's refusal to negotiate.

At the same time, China's interpretation of the 1980s could also lead it to commit missteps.

On Thursday, Foreign Ministry spokesman Lu Kang said that "any mutually beneficial agreement must be based on mutual respect, equality and favorable outcomes for all." But as many observers have noted, what Chinese leaders see as "win-win" often means a win on its terms. If you want to avoid repeating Japan's mistakes, Beijing could refuse to suffer a minor loss that could ultimately lead to better overall agreement.

Japan is currently celebrating the beginning of the Reiwa era, under a new emperor, time to clear the slate and start again. American and Chinese negotiators might be interested in copying this lesson rather than those of the 1980s.

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