Japanese lesson in China on the fight against Trump's trade war



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US President Donald Trump speaks at a campaign rally at Florida State Fairgrounds Expo Hall in Tampa, Florida on July 31, 2018. (Photo: Saul Loeb / AFP / Getty Images)

The President of the United States, Donald Trump, has threatened to pass from 10% to 25% the new customs duties on Chinese imports in the amount of 200 billion dollars. It would be a serious escalation if it came true. Will China begin to retreat in the face of increasing US pressure, which Trump is likely to see? & nbsp; In this context, it is instructive to revisit the trade war that the United States waged against Japan in the 1980s, largely forgotten today by many, but obviously not by Beijing. What happened in Japan is precisely what Beijing is determined to avoid now. What is this lesson of Japanese?

Japan recorded its first post-war trade surplus with the United States in 1965, thanks to a fast-growing export-oriented manufacturing industry. According to IMF data, it continued to grow over the next two decades, reaching 1.3% of US GDP in 1986. America began complaining in the early 1970s of Japan's growing trade surplus. . But it is the dramatic increase in the world price of oil following the oil shocks of the 1970s that triggered the US trade war against Japan.

The lightning rod was Japanese auto exports. After the oil shocks, the energy-efficient and well-built Japanese cars, the US market share has grown rapidly to the detriment of US automakers. In 1979, Chrysler, then one of the largest US automakers, was on the verge of disappearing. He needed a $ 1.5 billion bailout from the government to avoid bankruptcy. Suddenly, there has been an increase in the number of complaints about Japan's unfair trade practices putting the national security of the United States at risk and putting American workers out of work. Sound familiar?

Between 1976 and 1989, the United States initiated 20 investigations under Section 301 of the Trade Act of 1974 (the same section 30 as that invoked by the Trump administration) against the United States. Japanese exports to the United States, not only in the automobile, but also in steel. , telecommunications, pharmacy, semiconductors and others. The Japanese government has surrendered and accepted a series of "voluntary restrictions" on exports, applied to all products in dispute.

When the US trade deficit with Japan did not decline despite these voluntary restrictions, the US government then pressured Japan to import more from the US and & nbsp; Once again, the Japanese government has responded to US demand by easing its monetary policy to encourage increased domestic consumption. Domestic consumption in Japan has increased, particularly in the real estate market, fueled by rising debt based on low interest rates, but has done little to increase imports from America.

This led to the third and final act of the trade war. The US government accused Japan of manipulating its currency, keeping the yen exchange rate against the US dollar, giving Japanese exporters an unfair advantage. Japan was forced to appreciate its currency at the Plaza Agreement in September 1985. This was the agreement developed by the United States as the main manipulator of the currency, Japan, France, the United States. West Germany and the United Kingdom are complicit in varying degrees of reluctance to jointly depreciate the US dollar against the yen and the German mark. As far as currency manipulation is concerned, Plaza Accord has worked. Between 1985 and 1988, the yen rose 88% against the US dollar, according to data from the US Federal Reserve.

Nevertheless, the trade deficit of the United States with Japan has not disappeared. But by that time, it had also become irrelevant. Years of ultra-loose monetary policy have led to massive asset bubbles in Japan, particularly in the stock and real estate markets; and this economic bubble burst in 1989. The collapse and ensuing recession were compounded by the networks of Japanese companies that made it difficult to clear the market for a fresh start. Two decades of economic stagnation followed. Even if the US trade deficit with Japan persisted, the United States could not do much with a prostrate Japan plagued by recession.

Beijing can only see that the US trade deficit with Japan has not disappeared, even though the Japanese government has yielded to all the demands of the United States.

From Beijing's point of view, the lessons learned from the Japan-US trade war are clear: do not give in to American pressures like Japan and do not become dependent on America as an export market like Japan. And today's China is in a much stronger position to put these teachings into practice. While Japan's GDP was only 40 percent of the US GDP in the mid-1980s, China's GDP was nearly 70 percent of America's GDP last year, according to the IMF. Japan's total import has never been enough to allow it to have a real international influence, while China is now the most important market for a growing number of countries, including Japan, Australia , Brazil, Russia, South Africa and South Korea.

In the trade war with the United States, China will not become another Japan.

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US President Donald Trump speaks at a campaign rally at Florida State Fairgrounds Expo Hall in Tampa, Florida on July 31, 2018. (Photo: Saul Loeb / AFP / Getty Images)

The President of the United States, Donald Trump, has threatened to pass from 10% to 25% the new customs duties on Chinese imports in the amount of 200 billion dollars. It would be a serious escalation if it came true. Will China begin to retreat in the face of increasing US pressure, which Trump is likely to see? In this context, it is instructive to re-examine the trade war that the United States waged against Japan in the 1980s, largely forgotten today by many, but obviously not by Beijing. What happened in Japan is precisely what Beijing is determined to avoid now. What is this lesson of Japanese?

Japan recorded its first post-war trade surplus with the United States in 1965, thanks to a fast-growing export-oriented manufacturing industry. According to IMF data, it continued to grow over the next two decades, reaching 1.3% of US GDP in 1986. America began complaining in the early 1970s of Japan's growing trade surplus. . But it is the dramatic increase in the world price of oil following the oil shocks of the 1970s that triggered the US trade war against Japan.

The lightning rod was Japanese auto exports. After the oil shocks, the energy-efficient and well-built Japanese cars, the US market share has grown rapidly to the detriment of US automakers. In 1979, Chrysler, then one of the largest US automakers, was on the verge of disappearing. He needed a $ 1.5 billion bailout from the government to avoid bankruptcy. Suddenly, there has been an increase in the number of complaints about Japan's unfair trade practices putting the national security of the United States at risk and putting American workers out of work. Sound familiar?

Between 1976 and 1989, the United States initiated 20 investigations under Section 301 of the Trade Act of 1974 (the same section 30 as that invoked by the Trump administration) against the United States. Japanese exports to the United States, not only in the automobile, but also in steel. , telecommunications, pharmacy, semiconductors and others. The Japanese government has surrendered and accepted a series of "voluntary restrictions" on exports, applied to all products in dispute.

When the US trade deficit with Japan did not shrink despite these voluntary restrictions, the US government then pressured Japan to import more from the United States. Again, the Japanese government responded to US demand by easing monetary policy to encourage domestic consumption. Domestic consumption in Japan has increased, particularly in the real estate market, fueled by rising debt based on low interest rates, but has done little to increase imports from America.

This led to the third and final act of the trade war. The US government accused Japan of manipulating its currency, keeping the yen exchange rate against the US dollar, giving Japanese exporters an unfair advantage. Japan was forced to appreciate its currency at the Plaza Agreement in September 1985. This was the agreement developed by the United States as the main manipulator of the currency, Japan, France, the United States. West Germany and the United Kingdom are complicit in varying degrees of reluctance to jointly depreciate the US dollar against the yen and the German mark. As far as currency manipulation is concerned, Plaza Accord has worked. Between 1985 and 1988, the yen rose 88% against the US dollar, according to data from the US Federal Reserve.

Nevertheless, the trade deficit of the United States with Japan has not disappeared. But by that time, it had also become irrelevant. Years of ultra-loose monetary policy have led to massive asset bubbles in Japan, particularly in the stock and real estate markets; and this economic bubble burst in 1989. The collapse and ensuing recession were compounded by the networks of Japanese companies that made it difficult to clear the market for a fresh start. Two decades of economic stagnation followed. Even if the US trade deficit with Japan persisted, the United States could not do much with a prostrate Japan plagued by recession.

Beijing can only see that the US trade deficit with Japan has not disappeared, even though the Japanese government has yielded to all the demands of the United States.

From Beijing's point of view, the lessons learned from the Japan-US trade war are clear: do not give in to American pressures like Japan and do not become dependent on America as an export market like Japan. And today's China is in a much stronger position to put these teachings into practice. While Japan's GDP was only 40 percent of the US GDP in the mid-1980s, China's GDP was nearly 70 percent of America's GDP last year, according to the IMF. Japan's total import has never been sufficient to allow it to exert a real international influence, while China is now the main market for a growing number of countries, including Japan, Australia, Japan, Brazil, Russia, South Africa and South Korea.

In the trade war with the United States, China will not become another Japan.