For almost 50 years, since General MacArthur set foot in Japan, the U.S.-Japanese relationship has been that of victor and vanquished -- with the Japanese people and its ruling class grateful for our benign occupation and the fruitful political and commercial alliance that grew out of it. Prime Minister Morihiro Hosokawa's refusal last week to accede to our government's silly trade demands has cut this cord of subservience once and for all. We should be delighted with Japan's political maturation, but instead the Clinton Administration is expressing petulance, threatening to visit dark deeds on the Japanese for refusing to act in the manner to which we had become accustomed. The President will huff and puff, but Tokyo -- like a battered wife who has worked up the courage to go through with the separation -- has made it quite clear it is prepared to engage in a trade war with the United States if that's what we want. The "New Japan...is not afraid to let the [trade] talks [with the U.S.] break down," said Kazuo Oguru, the Director General of the Foreign Ministry's Economic Bureau prior to Hosokawa's arrival in Washington last week.
A group of politicians and senior civil servants in Japan, identified as "Neo-Asianists," prepared their government to pre-discount any U.S. trade sanctions prior to Hosokawa's visit to Washington. In addition to Hosokawa and his principal ministers, this group includes former Foreign Minister Kazo Nakayama (LDP), who leads a 100-member Diet faction promoting an East Asian Economic Caucus that excludes western powers such as the U.S., Australia and New Zealand. The most startling recent development, though, was the announcement that China's Vice Premier Zhu Rongji -- who we believe is emerging as the most powerful man in Beijing -- will visit Japan for seven days beginning February 23. What's going on? China is going to solve the problem by taking the battered bride off our hands.
What few people understand, and fewer still in either the Bush or Clinton administrations, is that Japan must run a trade surplus in order to survive -- the argument I made in "Thinking About Japan," (October 19, 1988). Its wealthy population is aging more rapidly than ours and those of other nations in the West, which is why it must save and invest a higher proportion of its current production. It has no natural resources and too little land -- half the population of the U.S. crammed into an area equivalent in size to California. This means it must export investment, to be drawn down in the first decade of the next century, to finance its retirement bubble. And that has meant export to the United States -- because the mercantilists of Europe have shut out Japan, and Asia has been too poor. Now, the klondike capitalism of China's 1.2 billion is ripening as a final market for exports, and Japan's dependence on the U.S. is coming to an end. Its exports to China increased 63% in 1993, making China Japan's second largest export market; Japanese investments to China in 1993 grew by 230%.
There is the real problem of Japan's recession, which was created by the incompetents in the Bush Administration and lingers because of the incompetence of the Clinton people. The trade threats of the Nick Brady Treasury led to the collapse of the Tokyo stock market, as the ruling class cowered behind policy changes designed to accommodate. In the same way, Clinton trade sanctions against Japan would have the effect of increasing Japan's trade surplus, by further weakening its economy. The soaring yen, which anticipates a trade war, weakens the Japanese economy further, which is why it is accompanied by a falling Nikkei. U.S. pressures to have Japan reduce its trade surplus always have the opposite effect! By threatening protectionism through the '70s and '80s, we forced Japan to make direct investments here, building plants inside our tariff walls. This, of course, requires massive capital outflows from Japan, which translates into a trade surplus. Our President clearly does not understand any of this -- because his advisors do not. They reflect the views of our Smoot-Hawley corporate class, led by Chrysler Corporation and Motorola.
My expectation is that the Asian market looms so large for our business community as a whole that it will talk the Clinton Administration into pulling its punches. If it does, Hosokawa's popularity will climb further, paving the way for political and economic reforms later in the year that will boom the Tokyo stock market and, inadvertently, shrink Japan's trade surplus with us. We are in any case delighted to say sayonara to the old Japan and welcome the new. The victor/vanquished relationship had run its course.