How The United States Crushed Japan In The 1980s And Why It Cannot Crush China In The 2020s.
The United States government does not like what it sees as “strategic” industries failing and/or falling behind foreign competitors. It will do whatever it takes to crush such challenges, and any notions of “free trade” rapidly go out of the window. Free trade is only acceptable when it benefits US corporations and elites; when it doesn’t the US will spuriously cry “dumping”, “unfair trade practices”, or even “national security”. The fact that the foreign competitors may have been more efficient and effective, or that US management failed, is irrelevant.
In the 1980s Japan was seen as an existential threat to such “strategic” industries as the Big 3 car manufacturers (GM, Ford and Chrysler) and microchips; Chrysler had been bailed out by the US government in 1979. The US government rapidly got to work in destroying these challenges, not in the marketplace but through direct coercion and manipulation. It helped that the US had over 50,000 troops occupying Japan.
· From 1981 onwards Japan agreed to “voluntarily” limit their car exports to the US.
· The 1984 US-Japan Agreement on financial regulation included the elimination of barriers between traditional banking and securities business. Together with other changes such as the deregulation of interest rates, this helped lead to a growing financialization of the economy which supported increasing speculation.
· After the 1985 Plaza Accord on exchange rates the Japanese Yen doubled in value against the US$ in 4 years, from 254 per US$ in 1985, to 127 per US$ in 1989 (and continued to increase to 80 per US$ in 1995). The exchange rate appreciation kept retail inflation low while an accommodative monetary policy saw 30% per annum gains in equities and land. This was exacerbated by the lack of good business investment options with a rapidly increasing exchange rate and the central bank pushing up loan growth (see below).
· The 1986 Semiconductor Trade Arrangement set a floor price on Japanese semiconductors and reserved 20% of the Japanese market for US semiconductors. There were also “prohibitive” US tariffs placed on US$300 million of Japanese electronic goods. These actions greatly aided South Korea in becoming a major competitor to Japanese chip manufacturers.
Michael Oswald in “Princes of the Yen” (documentary included at the end) also proposes that the Bank of Japan (the central bank) consciously stoked the 1985-1989 bubble by increasing average yearly loan growth quotas (communicated through the “window guidance” from the BoJ to the banks) by 15% a year; forcing bankers to lend more than they actually wanted to, creating riskier and riskier loans. Property prices became so ridiculous that at one point the gardens surrounding the Imperial Palace in Tokyo was worth as much as the whole of California. The popping of this bubble by the same BoJ from 1989 onwards created a financial and economic crisis that facilitated the deconstruction of the Japanese economic planning processes and replaced them with a more US-style capitalism – removing a major plank of Japan’s economic competitiveness. Oswald sees the bubble and bust intentionally created to produce the “structural adjustment” seen as necessary by Japanese economists trained in the US and forcibly pushed for by the US government. He saw the same dynamics within the South Korean, Thai and Indonesian economies prior to the 1997 “Asian Crisis”, with structural adjustments forced through via IMF bailout packages. Similar crises were used in the 1980s to structurally adjust many South American economies, removing developmental models and opening the way for foreign capital; aided by a number of political coups (e.g. Chile in 1973, Argentina 1976). The US government and foundations provided funds for many South American economists to attend the US Chicago School, making sure that they were properly indoctrinated with neoliberal theories. Many of them became senior academics and government ministers in their home countries.
China survived the Asian Crisis because its financial system was still relatively closed, and this provided a lesson in the dangers of the deregulation of the capital account. Up to this day, China has not fully liberalized its capital account and also maintains extremely large foreign exchange reserves to forestall the need for any IMF bailouts. In addition, the core commercial banks are state owned and the central bank is not independent of the Party-State. China’s developmental model cannot be undermined by neoliberal central bankers nor the pressure of the IMF or the US Treasury. The Western-trained neoliberals were also previously defeated during the late 1980s political crisis, saving China from the ruinous “shock therapy” that Russia was subjected to by its Western advisors and Western-trained economists. After China’s accession to the WTO, US bankers had expected to be given access to the relatively backward Chinese commercial banking sector. Instead, the Party-State maintained ownership and control of the commercial banks and modernized them without foreign ownership. The recent actions taken against Jack Ma’s ANT group etc. are specifically designed to stop private capital from endangering the Chinese financial system that is core to the nation’s development model and financial independence.
The US attempted to destroy Huawei because it had developed an unassailable lead in 5G technologies, citing “security concerns” to cover its drive to destroy a company that threatened US networking and smartphone companies (e.g. Apple). Added to this were tariffs designed to force China to structurally adjust, but these have proven ineffectual with respect to the Chinese Party-State. China is a much larger economy than Japan, is not occupied by US forces, and the US is dependent upon the nation for an extensive range of goods; making it much harder for the US to pressure the Party-State into making changes. China represents an alternative political-economic model that the US seems unable to undermine or force alterations to; the Party-State has had the lessons of the Japanese and Asian Crisis experiences to show how to pre-empt and resist such challenges.