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US-China Trade Conflict: Dejavu or New One
Lessons From US-Japan Trade Conflict in 1980s and 1990s
Tamotsu Nakamura
&
Yoichi Matsubayashi
Plan of Talk
2
1.US-Japan Trade Conflict in Retrospect
2.Similarities Between 1980s/90s and 2018
3.Differences Between 1980s/90s and 2018
4.Lessons From US-Japan Trade Conflict in 1980s
5.Summary
External (Trade) Imbalances:1985
Surplus Countries
① Japan
②Germany
Deficit Countries
① US
②Saudi Arabia
billion dollar
3-140 -120 -100 -80 -60 -40 -20 0 20 40 60
Japan
Germany
Taiwan Province of China
United Arab Emirates
Switzerland
Mexico
Kuwait
Netherlands
Qatar
Venezuela
Indonesia
Egypt
Denmark
Greece
India
Italy
Canada
Australia
Saudi Arabia
US
1. US-Japan Trade Conflict in Retrospect US Trade Partners Having Surplus
(1985)BEA
Billion dollar0 5 10 15 20 25 30 35 40 45 50
Japan
Canada
Taiwan
Germany
Hong Kong
Mexico
Italy
Brazil
Korea
1. US-Japan Trade Conflict in Retrospect (80s & 90s)
-2
-1
0
1
2
3
4
5
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Voluntary Export Restrictions onJapanese Cars Exported to US
Super 301 of Trade Actto Semiconductor Industry
Plaza Agreement Japan‐U.S. StructuralImpediments Initiative(SII) US-Japan
ComprehensiveEconomic Council
Acceptance of Strong dollar byRubin (US secretary of Treasury)
External (Trade) Imbalances:2016
Surplus Countries
① Germany
② China
③ Advanced countries
(Japan・Korea・Netherland etc)
Deficit Countries
① US
②UK
billion dollarIMF
6-600 -500 -400 -300 -200 -100 0 100 200 300 400
Germany
China
Japan
Korea
Taiwan
Netherland
Switzerland
Singapore
Italy
Russia
Indonesia
Algeria
Mexico
Turkey
Saudi Arabia
Australia
Canada
UK
US
US Trade Partners Having Surplus(2017)
BEA
Billion dollar0 50 100 150 200 250 300 350 400
China
Mexico
Japan
Germany
Italy
India
Canada
Korea
Taiwan
France
2. Similarities (3) Peak-out in Trade Surplus (China)Trade balance in China (percentage of
GDP)
%
UN-6
-4
-2
0
2
4
6
8
1980 1985 1990 1995 2000 2005 2010 2015
Comparisons: Behavior of Trade Surplus (USA)
UN
-6
-5
-4
-3
-2
-1
0
1980 1985 1990 1995 2000 2005 2010 2015
Comparisons: Behavior of Trade Surplus (Germany)
UN
-6
-4
-2
0
2
4
6
8
10
1980 1985 1990 1995 2000 2005 2010 2015
Comparisons: Behavior of Trade Surplus (France)
UN
-3
-2
-1
0
1
2
3
4
1980 1985 1990 1995 2000 2005 2010 2015
2. Similarities Should be Emphasized
1. Two Countries’ Share in World GDP 40%
2. Three Countries Less Dependent on Trade
3. Peak in Trade Surplus During Conflict Periods
For Japan and China
4. Start of Rapid Aging for Japan and China
3. Differences (1) Real or Nominal Threat? Allies (Partners) or Antagonists (Opponents) ?
“Japan is a Partner to USA”Most Japanese Believe,But Converse is ・・・・・???
Why US Republicans Soft to Japan in Trade?Because of China?? China is Superpower
Both in Economy & Military.
Russia is Not. Neither is Japan.
3. Differences (1) Real or Nominal Threat?Under Same Rules or Different Rules
Is Competition “Fair”?
In Particular, “Innovations” or “Intellectual Property Rights”
US and Japan Compete Under “Same” Rules
How About China and US?
3. Differences (1) Real or Nominal Threat?China Already Overtook US? Innovations
▪松林さん
WIPO
0
200000
400000
600000
800000
1000000
1200000
1400000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of Patents
China US Japan
3. Differences (1) Real or Nominal Threat?Under Same Rules or Different Rules
Which is More Important?
Trade Deficits* US President Looking at this Deal?
or Innovation Race
* Vital Role in Long-Run and Military Strength
3. Differences (2) Policy Instruments in US-Japan Conflict
-2
-1
0
1
2
3
4
5
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Voluntary Export Restrictions on
Japanese Cars Exported to US
Super 301 of Trade Actto Semiconductor Industry
Plaza Accord Japan‐U.S. Structural
Impediments Initiative(SII) US-JapanComprehensiveEconomic Council
Acceptance of Strong dollar byRubin (US secretary of Treasury)
3. Differences (2) Policy Instruments (Coordinations or Battles)
In 1980s and 1990s
Plaza Accord
Exchange Rate Adjustments
Macro Policy Coordination
Structural Impediments Initiative
In 2010sTariffs, Sanctions, Safeguards
&Series of Retaliations??
3. Differences (3) Long and Complicated Supply Chains
In 1980s and 1990s
Not Many Industrialized Economies
⇒ Short and Simple Supply Chains
→ Consequences are “Predictable”
In 2010sLong and Complicated Supply Chains⇒ Consequences are Unpredictable→ Cut Your Own Body with Your Own Sword!!
3. Differences Should be Emphasized
1. Japan Was NOT Real Threat to US
China Can Be!!
2. Coordination V.S. Fights or Battles
3. Supply ChainsShort and Simple ⇒ PredictableLong and Complicated
⇒ Consequences are Unpredictable
4. Lessons (1) Macro or Micro?
Trade Deficits CANNOT Be Solved
By Trade Policies (Battles)
1. Domestic Problem Watch Out !! Even US Aging RapidlyTrade Deficits in US Increasing Further
US on Journey in Searching New Trade Enemies Germany, Japan ⇒ China ⇒ Which is Next?
2.Macroeconomic Coordinations &Structural Reforms May Help But Cannot Solove!!
US’s Never-Ending Journey in Searching “Enemies”
UN
-6
-5
-4
-3
-2
-1
0
1980 1985 1990 1995 2000 2005 2010 2015
Japan Has to Start Searching and Finding “Enemies” ???
Japan Has and Continue to Have Trade “Deficits”
%
UN
4. Lessons (2) Uncetainties and Irreversibilities
Uncertainties DO Matter Only When Irreversibilities Exist
In 1980s and 1990s,Uncertainties in Trade & Exchange Rates ⇒ Overseas Shift of Production in Japan
(Hollowing-Out)
Because of IrreversiblitySlow Recovery from Recession (Lost
Decades)
4. Lessons (2) Uncetainties and Irreversibilities
In Case of US-Japan Trade Conflict,Japanese Moved to Asia For Production
In Case of US-China Conflict,Many Advanced Economies Invest in China Not Only for Production But for Market
PurposeUncertainties → FDI to China for Production ↓
(China Economic Growth ↓)
However, China is Still Attractive as Market!!
4. Lessons (3) “Size” Does Matter
In 1980s and 1990s,East Asia was Enough to Accommodate Japan
In 2020s and Later Asia will NOT be Enough to Accommodate China and India!!
Watch Out !!
Not Only “One Belt, One Road Initiative”
But Also “China’s Penetration to Africa” (Close to Europa)
4. Lessons (3) “Size” Does Matter
Do You Remember What HappenedOn 5th of October in 1971?
Unfortunately, I Forgot it!
PRC Became a Member Not Only of United Nations
But Also of Security Council! Who Supported PRC(People Republic of China)? African Nations !!
“Irreversible” Relationship Between Africa & China
4. Lessons (3) “Size” Does Matter China’s Penetration to Africa
billion dollar
UN0
10
20
30
40
50
60
70
80
90
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Africa’s Imports From
China Germany France US
4. Lessons (3) “Size” Does MatterChina’s Penetration to Africa
0
0.1
0.2
0.3
0.4
0.5
0.6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Africa's Import from China/Africa's Import from EU15
4. Lessons Should be Emphasized
1. Trade Deficits is Domestic Problem
CANNOT Be Solved By Trade Policies
(Battles)2. Uncetainties together with
Irreversibilities
Compound the Problems
3. Watch Out What Happening Behind the
Conflict!!
China is Much Larger than Japan
5. Summary
On September 26th, US and Japan Agreed to Enter
For Negotiating TAG (=Trade Agreement on Goods)
(Joint Statement of the United States and Japan)
US1. Bilateral
Negotiation2. Tariff Reduction
on Agriculture
JapanTo Avoid 1. US-JAPAN FTA2. Tariff Hike on
Cars
Win-Win?(TAG=Trump AbeGood?)
5. Summary
Japanese Side Emphasizes
For Market Access, Japan’s Previous Economic
Partnership Agreements Constitute Maximum Level
EU-Japan Economic Partnership Agreement
(EPA)
is an Important Negotiation AssetHopefully, Use It a Bargaining Chip
in Negotiation with ・・・・!!
5. Summary
42
1980・90s 2010s
Main Surplus
Country Japan
(Japan)
China
(Germany)
Main Deficit
CountryUS US
Trade Friction
Period
About 15 years ?(Forever ?)
U.S
Administrations
Reagan(Rep)Bush(Rep)
Clinton(Dem)
Trump(Rep)
5. Summary
43
1980・90s 2010s
PolicyMacroeconomicPolicies
Exchange Rate Adjustment(?)
Macroeconomic Policy Coordination(?)
?
Trade policy Individual Negotiation→ Comprehensive
Negotiation
Backgrounds of End of Trade Friction
Surplus Country
Japan's Economic
Growth Slowdown
China's Economic
Growth Slowdown?
DeficitCountry
US Economic Growth
Recovery
US Economic Growth
Slowdown?