A US trade war with China – tougher than the Japanese edition

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.

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.

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