Sino-US trade dispute: Japan understands how China feels

By Masanari Koike Source:Global Times Published: 2018/6/5 19:23:39

It is understandable that the leader fears being dominated by a newcomer, who may have different dreams. China-US trade talks have reflected US fear of China's growing global presence. What's also comprehensible are China's concerns about being left behind by industralized countries and getting caught in the middle-income trap. While chasing highly industrialized countries who introduce new national strategies one after another, China is unable to disregard the "middle-income trap" by running out of their comparative advantages.  With such mixed perspectives, Japan expects cooperation with China to achieve mutual and global development through fair and friendly competition. For the goal, Japan has some experiences to share with friends

China's tough trade talks with the US remind Japan of the time when it faced prolonged pressure from the US to adjust trade imbalance. The US tried to apply tough measures such as the semiconductor imports quota and the Structural Impediments Initiative which amends Japan's cloistered society itself.  Just like this time with China, the US exploited domestic trade laws and took advantage of its guardianship of Japan's security. Japan eventually relented, applying voluntary export restraints, lower customs duties, revision of domestic rules on government procurements and certification criterion, expansion of import and reduction in domestic production capacity.

Bittersweet lessons made Japan transparent and less vulnerable to trade talks in which the country aggressively leads to develop institutional frameworks multilaterally. Major export industries have also moved to avert a trade war by increasing foreign investments in purchasing countries. Komatsu Ltd, Honda and Kawasaki Heavy Industries, whose recent local production rates are all over 70 percent in the US, have become steady despite the current threat of the US administration to raise customs and probable shift in exchange rate. More importantly, continued efforts to increase domestic employment of importers could gain local acceptance.

The US' growing concerns over Japan of the day were also from Japan's industrial-government complex which was recognized as contributing to the country's post-war reconstruction, called the "economic miracle." The Japanese government, especially Ministry of International Trade and Industry played a major role to catch up with the leading developed group. They were a well-known but sometimes notorious user of industrial policies, whose evaluations are still controversial. The successful experiences have made course-change difficult. Unfortunately, the polices in Japan are not so successfully respected as effective in the 21st century global competitions.

As examples go, Elpida Memory, integrated by domestic leading companies' semiconductor businesses with massive government funds, filed for bankruptcy after 12 years of its founding. The liquid crystal panel giant, Japan Display Inc., also integrated by leading domestic manufacturers' related businesses, in which a public-private fund was involved, lately announced a net loss for the fourth consecutive year.

Government-controlled industrial policies might be reasonably effective for infant industry protection or for softening the social impact by shrinking old industries. They aim to avoid "market failure." But they also cause "government failure" at the same time, enhancing rent demand and blocking necessary structural reforms of weakened industries. In addition, Japan's sectionalism has caused other difficulties to offer a new direction of cross-sectoral new industries.

Frequently mentioned as an example of business success, globally competitive Japanese automobile industry doesn't always owe its success to the government.  Honda, initially a motorcycle manufacturer, succeeded in taking on the government's opposition against increasing domestic competition. Toyota also grew without complying to the government's merger request with another sick manufacturer.  The industry was developed by these independent, courageous and unyielding private firms.

Government-oriented industrial investment has hindered fostering dynamic private investors. In 2012, Prime Minister Shinzo Abe started another anti-deflationary economic strategy known as Abenomics. It featured three aspects: monetary policy, fiscal policy and growth strategy. So far, the effects from the first two can be seen but the impact of the third one hasn't been yet felt. 

One of the major constituents of the third aspect is traditional industrial policy with the upsurge of public-private funds, nominally stimulating stagnant private investment. The funds are already told to turn into a "government's second wallet" that could use tax money through opaque operations and with inadequate information disclosure.  Under reduced international pressure, Japan stands at a crossroads in global competition.

The trade talks brought both threats and opportunities to Japan. Some were blocked, others utilized and the rest were allowed to pass. China is expected to develop more through this opportunity. 

The author is visiting fellow at Tsinghua University and former member of National Parliament of Japan.

blog comments powered by Disqus