The biggest internal and external problems with the Japanese economy have remained remarkably consistent over the last 30+ years. Japan continues to operate on a very closed economic model whose comparative success is contingent upon the popularity of Japanese exports worldwide. This has remained the case even after Japan’s economy crashed at the beginning of the 1990s.
1985’s Plaza Accord resulted in one of the biggest currency manipulation scandals in human history. As a result, the Japanese exporter suffered, the US consumer suffered, the US saver suffered and ultimately the Japanese economy collapsed after artificially low interests rates fed an unsustainable asset bubble that took with it all of Japan’s economic vitality. Even so, the Plaza Accord still was not able to reverse Japan’s trading surplus with the US even though this was the primary intention of the agreement.
The lessons of the Plaza Accord have not been lost on China which is why China continues to implement a conservative, balanced and at times even cautious monetary policy. But while China will never engage in a mass currency manipulation scheme in the way Japan did in the 1980s, Washington would still like to decrease Japan’s trade surplus by convincing Japan to open up its notoriously fortress like markets to more imports.
In this sense, America wants Japan to do what China is already doing. Last year’s first annual China International Import Expo was symbolic of a new era in which China is preparing to receive an historic amount of imports from around the world. This has included American companies too but at present, the hostile state of the trade war is preventing some US producers from enjoying the advantages of others in the Chinese market, including many European companies that stand to benefit greatly from expanded access to China.
China has also streamlined, modernised and simplified its foreign direct investment (FDI) regulations which will allow for the smooth inflow of foreign capital on an efficient and effective basis. As part of these reforms, it is now easier than ever for foreigners to register new businesses in China. China has likewise further opened up its financial markets in order to boost this valued sector.
This spirit of openness is one that nearby Japan has typically been reticent to accept even though Japan’s mid-20th century economic revival occurred long before the initial stages of China’s Reform and Opening Up which began in late 1978.
Now, Donald Trump is in Japan attempting to work on the kind of trading agreement that China has been long willing to sign with the US. Why is it then that Trump speaks in optimistic tones about a broader two-way agreement with Japan while he is doing everything he can to cloud the waters surrounding a China-US deal?
The self-evident answer is that while the US saw Japan as an economic threat in the 1980s, Japan’s long term of stagnation means that the US now views Japan merely as a reliable partner that can be forced to engage in economic opening up not on its own terms but increasingly on Washington’s terms.
By contrast, China’s Reform and Opening Up continues to be an evolving process in which sovereign decision making is the foundation of continued economic progress. There is no reason that the US should see this as a “threat” because China’s model is one that encourages and in fact thrives upon international cooperation on a win-win basis. Hostile competition is anathema to China’s model of ever growing openness.
The example of the US wanting Japan to open its markets in the way China is voluntarily doing to its markets is illustrative of the fact that those seeking hostile China-US economic relations are acting not from a position of rationality but one of hysteria that is blind to plain truths. If the US truly wants two-way economic openness within the framework of a rules based system, China has already met the US more than halfway in this respect All that remains is to iron out remaining details in a spirit of cooperation and honesty.
If the US wants openness with Japan, it should likewise size the opportunity to build win-win relations with an ever more open China.