The US won a trade war against Japan. But China is a whole new ball game:

The US won a trade war against Japan. But China is a whole new ball game

The US won a trade war against Japan.  As President Donald Trump lands in Japan Saturday amid a worsening trade war with China, he could well be thinking back to a previous economic spat between Washington and an Asian economic powerhouse.

In the 1980s, Japan was the big bad. Its economy was booming — the second largest in the world — and many in the United States feared they were about to be overtaken.

Articles were published warning of the “Japanning of America” or an “economic Pearl Harbor,” as Japanese businesses bought US companies and landmarks. Lawmakers and commentators warned of a growing trade deficit between the two countries, and complained of Japanese firms stealing US intellectual property and taking advantage of unfair trade deals.

In an interview with the “Morton Downey Jr. Show” in 1989, Trump himself complained that Japan had “systematically sucked the blood out of America — sucked the blood out!”

“It’s a huge problem, and it’s a problem that’s going to get worse,” Trump said of the US-Japan trade balance. “And they’re laughing at us.”

By then, however, change was already happening. And far from overtaking the United States, Japan was about to fall far behind.

The US won a trade war against Japan. But China is a whole new ball game

Trade war

After President Ronald Reagan took office in 1981, the United States started pressuring Japan to open its market up to American companies and reduce the trade imbalance between the countries. The US won a trade war against Japan. But China is a whole new ball game

While Japan agreed to measures including a limit on the number of cars it exported to the United States, panic over Japanese trade power grew — and lawmakers on both sides demanded action.

In approving a bill calling for tough trade reprisals against Japan, Robert Packwood, then Republican head of the Senate’s finance committee, promised to give Tokyo “an eye for an eye … that is all they understand.”

During a 1985 finance committee hearing, Democratic Sen. Max Baucus said that: “Reagan predicted ‘a future in which commerce will be king, the eagle will soar, and America will be the mightiest trading nation on Earth.’ Well, commerce may be king. And eagles may be soaring. But they’re not American eagles. America’s trade performance has never been worse.”

That year, five countries — the United States, West Germany, France, the United Kingdom and Japan — signed the Plaza Accord, devaluing the US dollar against the Japanese yen (and the German Deutsche Mark). This was a boon for the United States, leading to an increase in exports and a lowering of its trade deficit with many Western European countries.

Yet the Plaza Accord wasn’t the end of US action against Japan. In 1987, Washington imposed 100% tariffs on $300 million worth of Japanese imports, effectively blocking them from the American market.

Things quickly turned sour for Tokyo. As the yen increased in value, Japanese products became more and more expensive, and countries turned away from the one-time export powerhouse. Efforts by the country’s central bank to keep the yen’s value low sparked a stock price bubble, the collapse of which helped push the country into recession and a “lost decade.”

“Japan’s export and GDP growth essentially halted in the first half of 1986,” economists Joshua Felman and Daniel Leigh wrote in a report for the International Monetary Fund. They concluded that while the Plaza Accord did not cause Japan’s economic downturn by itself, it did trigger a series of events — compounded by poor decisions in Tokyo — which led to the collapse.

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