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

1. Similarities (1) Two Countries’ World Share of GDPAbout 40%

2. Similarities (2) LOW Trade Dependency Lower Than 40%

2. Similarities (3) Peak-out in Trade Surplus (Japan)Trade balance in Japan(percentage of GDP)

%

UN

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 (4) Rapid Aging (Japan)Driving Force of Decline in Trade Surplus

2. Similarities (4) Rapid Aging (China)Driving Force of Decline in Trade Surplus

Comparisons: Pace of Aging (USA)

Comparisons: Pace of Aging (Germany)

Comparisons: Pace of Aging (France)

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?China Will Overtake US in GDP Sooner!!

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?

Thank You Very Much

for Your Attention !!