President Trump just fired his first shot in an economic war with the People’s Republic of China, by imposing tariffs on Chinese-made solar panels. One almost feels nostalgic for the 1980s trade battles with the Japanese – who were similarly portrayed as threatening and bent on world domination.
Such fears proved overblown – as Japan’s ‘bubble’ burst and it settled into a decades-long economic funk. Might things play out similarly with the PRC? Perhaps. But China may be a tougher opponent.
How so?
Even at the height of the Japanese economic juggernaut, Japan was self restrained. Tokyo recognized the United States as its only ally – and military protector. This strategic requirement to not make the Americans too angry meant trade concessions – however grudging – would be made.
Moreover, Japan never intended to supplant US military and political dominance in Asia – or anywhere else.
The furthest Japan came to asserting itself over the United States was the head of a leading Japanese financial firm suggesting California be declared a Free Trade Zone – in return for which Japan would “solve” the trade deficit. Such was the country’s bubble-era hubris.
China, on the other hand…
The PRC seeks to displace the United States in Asia and outdo US influence globally. China regards economic power as being intertwined with military and political power – to be wielded like a club. Beijing concedes nothing easily and is far more willing to engage in tit-for-tat trade battles than Tokyo ever was.
Arguably, Japan was also more frightened of trade pressure than today’s China. While both economies were and are export-driven – and vulnerable to sanctions – in the 1980s few US companies used Japan as a manufacturing base for export back to America.
But the many US companies taking advantage of cheap labor (and the eternal hope of making a bundle in the huge China market) are a hedge against US pressure. Hit Chinese companies and you’re likely to hurt American companies.
Also, Japan’s economic threat was mostly concentrated on three major US industries – automobiles, electronics, and steel. Japan took advantage of its technological and manufacturing prowess – and sometimes unfair trade practices. A chaotic US economy, obstinate labor unions, and addled management, heightened the sense of vulnerability.
China, however, matches up competitively – now or in the future – with nearly every American-made product. Go to Wal-Mart and take a look. And it’s not just Christmas ornament manufacturers who’ve been harmed: high-end products and industries long dominated by the US are being challenged.
There’s another big difference. In response to US political pressure – some unfair – Japan bit its tongue and moved Toyota, Nissan, and Honda to America, effectively granting Detroit a reprieve.
The PRC is more likely to offer to buy a weakened GM and Ford – and when turned down, complain of discrimination and look for opportunities to exact revenge.
Worldwide influence
Although Japanese industry and government operated worldwide, the country had nowhere near the influence China has accumulated in recent years. The PRC has used its money well.
China may ‘over-lend’ on onerous terms and then put the squeeze on. And the Belt and Road may have questionable long-term prospects – but it is creating a real presence and influence in far-flung parts of the world, unlike anything Japan had going.
Tellingly, fear of Chinese economic retaliation is making many countries reluctant to side with the US in a trade war – even if America is an ally or security guarantor. In the 1980s, everyone went after Japan with abandon.
Disregard for the rules
Despite contentious US-Japan trade negotiations, Tokyo understood international rules and mostly lived up to its promises.
Meanwhile, China considers trade agreements as largely voluntary and discriminates against foreign companies, while intellectual property theft and industrial espionage seem like a moral imperative.
It’s hard to negotiate with this sort of adversary.
The US is better positioned than in the 1980s
Ironically, though, the US is better equipped to handle Chinese economic competition than it was to deal with Japan’s.
The American economy is stronger these days compared to its battered state in the late 1970s and early 1980s. And more of the US business community supports economic pressure on the PRC – having finally realized the China market is a rigged casino.
Also, nothing made in China can’t be made elsewhere. Global supply chains are always shifting. It’s perhaps inconvenient and costlier, but they were not chiseled in stone on Mt. Sinai.
China does hold a lot of US debt, as did Japan. But that’s less of an advantage than it seems – provided the US government someday soon gets its financial house in order.
Lobbying power
When a US administration starts to apply economic pressure, the target country’s lobbyists try to stop it. Chinese lobbying interests are probably awash.
During Japan’s heyday, Americans lined up to take Japanese cash – just as they do today where Chinese money is concerned.
But the PRC is increasingly seen as an existential threat to US global power in a way Japan was not. That’s a hard thing for lobbyists to overcome.
Finally, the PRC is vulnerable in unique ways. Its banking system, with its immense bad-loan burden, is shakier than Japanese banks were. And not even the Chinese Communist Party itself believes the country’s 6.5% growth figures.
Fear of Chinese economic retaliation is making many countries reluctant to side with the US in a trade war – even if America is an ally or security guarantor
There are also daunting and costly social issues of poverty, an aging society, environmental problems, lack of an honest legal system and secure property rights – and corruption that would embarrass Chiang Kai Shek’s KMT. Moreover, just about every person who can tries to move their money out of China.
The PRC also has a penchant for cutting off its nose to spite its face – out of resentment or to teach someone a lesson – over Taiwan, say, or a South China Sea oil rig.
And Chinese economic rapacity invariably provokes a negative reaction – in both first- and third-world countries. The Japanese were not shy about going after market share – but generally knew when to say ‘when.’
Ultimately, the Trump Administration is right to take on the PRC on the trade front. But this will be much harder than it was with Japan. And for that, America has itself to blame.
I think Trump must be lost mind.
the yanks have been feeding the world kool aid for the past two decades. Japan economy was destroyed when the yank gang up on japan with their henchmen in the G7.
Don’t forget, when China has 700 million middle income earners, they the internal consumption will drive growth. By then American girls will be working as maids in China
That corruption in China would make Chiang Kai Shek blush? Well, a few days ago Transparency International survey shows that Corruption in the USA is worse than in China today.
That the Chinese government does not believe in its 9.5% pa GDP growth arose from a casual deprecatory remark from Li KeQiang. The World Bank just upgraded China’s GDP growth to 6.6% just a few days ago.
Talking about upholding international laws, just take a look at the USA abrogating the Paris Climate accord, tearing up the 6-party Iran Nuclear Agreement, etc. Coming back to haunt the USA is Nixon "temporarily" closing the Bretton Wood US$35 per oz of Gold and cheated the world shipping goods to USA for ponzi petrodollar that has histyorically lost more than 98% of value and at the hockey stick moment of truth when Trump trade war breaks out.
It is good ,the war. It would give a last strike to the dreamers of freedom of market economy. The world and the globalisation have been and will be endless wars , it has always been the place for military Keynesism and old and new mechanism. Do trading but do not open door 24 hours, watch the 3 trillion or so American Treasure bonds , Yankees are talking to eat up all of them , in the event of a final war.
One thing that the author must realize is that USA is waging an economic war, not only with China, but also with a large number of other countries including Russia, Canada, Mexico, North Korea, South Korea, Japan and Vietnam. China, on the other hand, is not waging any economic war with any country, except USA, and even then, China is trying as far as possible to avoid an economic war with USA. Can USA fight all these wars simultaneously and come out a winner? We must also bear in mind that in the 1980s, when USA was curbing the economic ambitions of Japan, the GDP of USA was more than 50% of the World’s GDP. Currently, the GDP of USA represents only 24% of the World’s GDP and is declining very fast. We must also take into account the level of indebtedness of USA, and the fact that, contrary to Japan which was and still be an occupied territory of USA, China is an independent country and a strong nuclear power too. China can say no when Japan was forced to say yes.
"China regards economic power as being intertwined with military and political power – to be wielded like a club. "
Yeah this is coming from the American whose nation has used economic sanction for the past 50 years as punishment to those countries who want to assert their independence. In comparison what China did is like a slap on the wrist.
Yes ladies and gentlemen of the "JURY"———another weak article by the so so smart Mr Newsham————–homeboy wake up and look at the Middle Kingdom with a open mind———-and stop comparing China to Japan———China has taken all of Japans Global ideas and put them in Middle Kingdom warp speed———Japan for all purposes is a American controlled———-the Middle Kingdom learned its mistakes when it was humiliated by the Western Powers in the 19 century——–the United States wil figure it out in the end———this is the Chinese Century!!
seems like a propaganda article. China is in upswimg mood and USA is on downhill is acknowledged by one and all. though USA is still a powerful country and Trump will try everything in the book to ckek the rise of China, more overtlty than his predessors (peral of String theory). only time will tell how much successfull trump will be.
Great, Stephen why don’t you suggest a fly over of A10s(and whatever else that comes to that great mind of yours ) during the Olympic closing ceremonies?
The parallel is that US today will buckle as Japan did then.
China is 4 times populous the US. A much bigger market that can not be equaled.
An internally unified China vs an America at civil war.
China has more friendly neighbours, and making new ones. US is picking fights with Canada, Mexico, South America.
China 4 Trillion cash horde vs American $20+ Trillion debt that grows by the hour.
China world vision (BRI/Silk Roads) vs isolationist America walls all around.
Plus Tariffs (Arabic word) never worked. The 632 AD Sunni Kaliphate was the first to imposed them, and made Islam un-competitive leading to its debacle. America will end up like Sunnis – uneducated, unskilled, poor, violent.
And just how are we to get our house in order when we still pratice the give-a-way deals to American companies and corporations, which have looted the economy/financial sector of any tax revenue while still dumping ever more money into the military/industrial group,can’t be done..,.
Too bad for Grant Newsham. ‘Big bad China’ is already too big and powerful for the US to tame. In time to come, USA will just have to accept that it is no more No 1.
Finally a piece of writing where his total bias, total prejudice, totally one sided view and to some extend an inherent hatred of PRC and all things Chinese is not so overwhelming as is so obvious as shown in previous writings. An objective and fair view is always appreciated.
Moody, S&P and Fitch criminal US organizations.
The writer is out of touch of reality,simple as that.
The US is already bankrupt, hiding behind the PetroDollar fake rigged privilege.
"Japan was self-restrained", "Tokyo understood international rules". Come on, Newsham, just say it out plain and loud: Japan is a vassal state and knew its place.
The Japanese are also a very insular people, despite the huge reliance on trade and export. Korea would be more comparable to Japan, and in terms of outlook, the Koreans are more outward looking in pushing their culture and products. China is on another level altogether. And, really, anyone who thinks the American economy is in a great shape is drinking the Washington kool aid.
An important difference between China and the US is that both the Chinese government and households have savings while both the American government and households are deep in debt. The US will go bankrupt even before an all-out war breaks out. And the US will plunge into chaos with a well-armed but broke population. What happens next would be un-imaginable.
The big difference is China is nuclear power and not occupied country like Japan.