In few places has Donald Trump’s rise caused more unease than in Tokyo. Indeed it is probably safe to say that, underneath an ostensibly imperturbable exterior, top Japanese officials are running far more scared than even Trump realizes.
They have a lot to be scared about. Much of what the Washington establishment thinks it knows about Japan is false, with the result that successive U.S. presidential administrations have never been able to bargain intelligently with Tokyo.
Here I will focus on Japan’s trading system, and I will address other potential flashpoints in future commentaries. Pace the mainstream American media, Japan remains as mercantilist as ever. As Trump has repeatedly pointed out, Japan poses as great a challenge for U.S. trade policymakers as China. In fact the Japanese economic system could no more operate without high trade barriers than a Las Vegas nightclub could survive without muscular bouncers.
Tokyo’s forebodings about a revival of 1980s-style trade friction have been greatly exacerbated lately with the demise of Marco Rubio’s “savior” campaign. Not the least of those who aspired to be “saved” by Rubio were Japanese trade officials and their Washington lobbyists. Given that Rubio was bankrolled mainly by Norman Braman, a big Florida-based importer of high-end foreign cars, Rubio seemed a safe bet to perpetuate the “trade-doesn’t-matter” consensus of recent presidential administrations.
Assuming he is elected and keeps his promises, Trump would be the first president since Ronald Reagan to challenge Japanese mercantilism. He looks likely moreover to adopt a much tougher line than Reagan. Reagan not only felt constrained by the Cold War but naively accepted his vaunted “friend” Japanese Prime Minister Yasuhiro Nakasone’s assurances that, given a little time, Japan would fall into line. After all, almost the entire Japanese elite was supposedly already on board (at least that was the happy story promulgated in the Wall Street Journal’s editorial pages). Japan’s problem was ostensibly that a few remaining “backwoodsmen” were for a little while longer blocking progress but once they were jostled aside, a younger, more enlightened breed of Japanese official would enthusiastically embrace American-style free trade.
Consider cars. Cars are worthy of special mention in part because they are by far the most important advanced manufactured item traded internationally (their electronics alone are as sophisticated as anything in an Apple iPhone). The car industry is also of special note because its trade patterns are easy to track.
That the Japanese car market is protected is the first thing you notice on setting foot in Japan. Except for a few token German cars that are visible mainly in central Tokyo, the cars on Japanese roads are Japanese. Drivers don’t have much choice. Foreign marques are systematically marginalized.
Korean cars provide a striking example: at last count their market share was less than 0.02 percent. Yet it is hardly as if the Koreans can’t make good cars: Hyundai competes to win against the Japanese in virtually every other market. In Japan, however, Hyundai sold an average of a mere 1,700 cars a year in the early years of the twenty-first century – a performance so miserable that in 2009 the company just gave up and shuttered its Japanese car marketing division.
Japan’s apologists have suggested that Hyundai’s problem was merely ethnic bias. In reality, such a bias explains nothing. Certainly in other respects Japanese consumers hardly seem allergic to things Korean. Japan’s most popular foreign cuisine, for instance, is Korean, and Korean culture is widely respected as a progenitor of Japanese culture (in much the same way that the British acknowledge a cultural debt to ancient Rome). Meanwhile there is the fact that ethnic Koreans constitute by far Japan’s largest minority. Even if anti-Korean bias is supposed to explain something, it can hardly explain why ethnic Koreans don’t buy Korean cars. Nor does it explain why ethnic Korean entrepreneurs (of whom there is a plentiful supply in Japan) don’t set up dealerships for Hyundai and the others. There is, too, the fact that in other products – including even auto components – Japanese and Korean companies do a thriving two-way business. The conclusion is inescapable that Japan pursues a deliberate policy of keeping Korean car imports close to zero.
As for the larger picture, for most of the last fifty years total imports of foreign-brand cars – from all nations – have consistently been kept to a mere 4 percent of the Japanese market. This has applied whether the yen is high or low, and whether the Japanese economy has been booming or stagnating.
Of course, if you believe Japan’s excuses (as conveyed via, for instance, the Economist and the Wall Street Journal), the problem is that the Detroit companies don’t make cars with the steering wheel on the correct side for Japan’s drive-on-the-left roads. This is obvious nonsense. Not only has Detroit long made some of its models in the Japanese configuration (the Jeep, for instance) but the Detroit companies’ European subsidiaries make whole ranges of competitive cars configured for Japan.
Cars apart, several other aspects of Japan’s trade policy might also interest a future President Trump. Take, for instance, Japan’s trade with China. Officially the two nations are supposed to be daggers drawn. Yet if an intelligent Martian were to analyze international trade flows (and if he insisted on looking at hard facts rather than trusting to the Anglophone press – we are talking a really smart Martian here), he would conclude that the only mutually satisfying economic partnership among the U.S.-Japan-China ménage is between Japan and China.
Whereas Japan’s imports from the United States last year totaled a mere $64.4 billion, its imports from China came to a whopping $155.1 billion. If Japan were run on free market lines, such outcomes might be mere happenstance. But given the extent to which Japan regulates its trade, it is clear that Chinese-made goods enjoy affirmative-action status. This has indeed been apparent from the beginning of the Chinese miracle. Even in the 1980s and 1990s when China was competing mainly with nations like Brazil, Mexico, Indonesia, and India, Japan strongly favored China over the others.
What’s in it for Japan? Exports. Almost alone among advanced nations, Japan enjoys a broadly balanced trade relationship with China. In a macroeconomic version of you-scratch-my-back-and-I’ll-scratch-yours, top officials on each side set policies to favor purchases from the other.
Exact calculations are impossible because much trade goes through Hong Kong but it is clear that in the four decades since Deng Xiaoping set a new course, China has imported roughly as much from Japan as it has exported to Japan. In recent years as China has emerged as an export superpower, the bilateral balance seems to have increasingly favored China but even so as of 2015 China imported more than $30 billion more from Japan than from the United States. What is remarkable is that America’s workforce is almost 2.5 times Japan’s. It is not as if geographic propinquity has had much to do with it. Virtually everything China imports from Japan counts as ultra-high-value goods that can be delivered via overnight air anywhere in the world. Thus the fact that Japan is in China’s time-zone is of negligible importance in terms of delivery costs and schedules. Meanwhile China’s meager purchases from the United States consist in significant measure of coal and other low-grade commodities that take weeks to deliver by sea.
What is clear is that China’s purchases are now a mainstay of Japan’s perennially robust current account. As of 2015, Japan ran a current account surplus of $124.3 billion. Compare that with America’s current account deficit of $460.6 billion. What makes Japan’s 2015 performance all the more impressive is that it represented more than double the surplus earned in 1990. Not bad given that as a result of a population reduction program initiated under the Eugenic Protection Act of 1948, Japan’s workforce has actually fallen by more than 20 percent since 1990.
The larger message in the Japan trade story is that there is an awful lot of first geopolitical significance that somehow has gone completely unnoticed. Actually the media’s coverage of trade generally in recent years has gone from the merely bad to the totally abysmal. For nearly a generation now the media have ceased all coverage of America’s utterly alarming annual trade deficits. By extension, of course, the implications in terms of Washington’s increasing indebtedness to such creditor nations as Japan and China have gone completely unnoticed.
It goes without saying that Japan’s current account surpluses have long since been systematically swept under the rug. Japan trade in all its manifestations has ceased to be a story. Even when Hyundai announced in 2009 that it was withdrawing from the Japanese market, not a single newspaper in the United States or the United Kingdom carried the news.
Perhaps the most reprehensible aspect of the press’s coverage has been the way Trump’s recent Japan trade initiative has been treated. Instead of recognizing it as a development of historic importance, the media have venomously tried to present it as a mad-cap anachronism. A stand-out in this regard has been the New York Times. Under the heading, “Donald Trump Laces Into Japan With a Trade Tirade From the ’80s,” the Times’s Tokyo correspondent Jonathan Soble and Hong Kong-based economics reporter Keith Bradsher devoted most of their space to what were obviously carefully crafted sound-bites from several Japanese establishment surrogates. Conspicuously absent was any reference to the facts and figures of Japanese protectionism. There was no mention, for instance, of how poorly foreign carmakers still do in the Japanese market, or the fact that a disgusted Hyundai threw in the towel in 2009. Nor was there any mention of Japan’s continuing, almost miraculously strong current account surpluses at a time when U.S. current account deficits have persisted so long that they put America’s very economic independence at risk. Yet despite its obvious omissions, Soble and Bradsher’s analysis was widely endorsed by their colleagues at Muckrack.com.
Where does all this leave Trump? The answer is surely in a position of remarkable strength. Precisely because the media have been so keen to bury the facts of the Japan trade story, his message is all the more impactful.
Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key To Future Prosperity (Boston: Houghton Mifflin, 1999). He lived 27 years in Tokyo.