Pearls and Irritations

The US-Japan trade war of the 1980s has many similarities to the current US-China trade war despite their occurrence 30 years apart.  The trigger for the conflicts is the same, i.e. a rival challenging the US hegemony in economic power.

History has recorded that Japan had to eat humble pie and suffer severe loss of face.  The US-China trade war is triggered by the same US attitude. China’s response will be based on the Japanese experience and will be looking to open new markets and expand its factories into SE Asia. The other unintended consequence would push China and Japan into each other’s arms, and the potential for mutually beneficial China-Japan bilateral relations will be born out of necessity.

The US-Japan trade war and “Japan bashing” occurred 30 years ago.  It involved Toshiba and US commercial interests during the time when US global influence was peaking and whatever the US did, it seemed to be justified somehow.  At that time US could not be wrong!

Thirty years later we now witness “China bashing”; this time Toshiba has been replaced by Huawei, the Chinese telecommunications giant.

Looking at the Japanese experience, the current US action against Huawei has many similarities but the global background has shifted.  The world’s opinion of the US has changed somewhat, with bad publicity emerging after the 14 wars fought around the globe since WW2.  The availability of mass communications, e.g. by international satellite TV from different countries and social media, has given the world a different set of opinions to that of the US media.

To illustrate my point about propaganda, I quote American President Abraham Lincoln who said: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time”.

According to Kenya Talk headline “Before the US started harassing Huawei, there was Toshiba of Japan and Alstom of France in the same boat”: 

“The U.S. attacked Toshiba not because it sold equipment to the Soviet Union, but because it affected U.S. interests. The United States believes that the Japanese semiconductor industry represented by Toshiba Group seriously threatens the economic interests of the United States, while the Japanese high-end manufacturing plan threatens the United States and challenges the technological hegemony of the United States.”

“Toshiba yesterday, Huawei today” is an appropriate description of the current US-China trade war when one substitute Toshiba for Huawei and semi-conductor for 5G network.

The US-imposed penalties on the Toshiba included: Japanese Police were ordered to arrest Erhe Lin (Toshiba President) and Hiroshima Tanamura (President, Machine Tools) and they were both sentenced to ten years imprisonment; the Toshiba factory in the US was closed; the US put 100% tariffs on Toshiba products; or Toshiba products to US were barred for five years. A fine of 1 trillion yen was imposed on Toshiba (today’s equivalent $16 billion).  Additional penalties include unconditional surrender of Japanese technology to American companies; 100 million yen apology advertisement in all US major newspapers; resignation of Toshiba Chairman and CEO; prohibition from exporting any products to 14 countries for a period of one year; and Japan spending US$9 million in lobbying the US Congress. In 1985, Japan was forced to sign the Plaza Accord which depreciated the US dollar against the yen and German mark.  The United States was indeed the master of Japan and Japan had no choice but to eat the humble pie.

France also paid a penalty.  Alstom of France had their executive jailed for giving out bribes in Asia.  Why would the US interdict a foreign company for giving bribes in a country not under US jurisdiction?   Well, because they can! (Note the arrest of Huawei CFO Meng.)  Alstom was forced to share their technology with US competitors (through a GE acquisition), giving the US firms an undue advantage.

Despite Trump’s inconsistencies in his political views, his view on trade with Japan, particularly Japanese protectionism, has remained virtually intact.  Appearing on The Morton Downey Jr Show in 1989, Trump said of Japan, America’s largest overseas trading partner at the time: “They have systematically sucked the blood out of America. They have got away with murder … We have to tax the hell out of them.”

All that pressure on Japan forced her to adopt a “look East” policy and Japan then focussed her attention on Asia.  According to Canadian Professor Tiberghien, Japan began to export elsewhere and build factories in Thailand and China.  Subsequently Japanese exports to East Asian countries rose from 32.7 per cent in 1990 to 56.9 per cent in 2011.

This was followed by outsourcing of “low tech” processes to Hong Kong, Singapore, South Korea and Taiwan.  The replacement of UK & US cars by Japanese cars in SE Asia is a testimony to her success.  Mercedes & VW remained competitive because of German technology.  We used to make of fun of the Nissan Datsun (1950s) and made rude remarks about their poor quality.  Today, we equate the Toyota Lexus with the Mercedes Benz.

As a kid, I remember that my toy labels changed from Made in Japan to Made in Hong Kong and then Made in China.

What can Japan teach China about the American art of (trade) war? There are lots of lessons China can learn from the Japanese experience, especially on how to unshackle their US economic chains and other strategies. China has also got to endure the pain Japan had to go through. The Huawei incident has hardened China’s resolve to be independent and seek her own destiny in the competitive global telecommunications industry.  The trade war has forced China to be patient, resilient and to endure hardship in order just to survive (see BBC interview Huawei Founder Ren).

Why is Trump’s trade war a blessing in disguise for Chinese leaders? The US attitude in pushing the dark clouds of trade war does have a silver lining.  That is, their actions will accelerate the cementing of China-Japan bilateral relations on joint infrastructure building in Asia, and in social, political and cultural ties.

One important difference between China and Japan is that China is an independent nuclear power and if the US-China trade war turns ugly, both countries can fall into the Thucydides Trap, a reference to a situation when a rising power causes fear in an established power which escalates toward war.

Dr Anthony Pun, OAM,  is the current National President of the Chinese Community Council of Australia.

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