Japan is by far the largest and most developed of the 11 nations with which the US is negotiating the much-vaunted, highly shrouded Trans Pacific Partnership (TPP). Without Japan, the other TPP partners combined account for only 10 percent or so of global GDP.
Prime Minister Abe was elected in 2012 promising to restore vitality to Japan’s export sector, the traditional backbone of its misshapen economy. Rather than stimulate domestic consumption – the market we are bargaining for in the TPP – he opted to promote production for export, intensifying competition with producers of American autos and other goods.
Since his election, the yen has depreciated from 78 to the dollar to 122, an astounding drop of almost 60 percent. As a result, Japanese exports have become hugely less expensive in dollar terms and foreign sales to Japan much more expensive.
Most of the Asian nations practice mercantilism. They learned from China, since entering the world trading system, they can rip off American consumers and get away with it. However, Japan is a major trading partner with the U.S and their mercantilist practices are a major international trade distortion.
In the 1980s Americans learned the Japanese phrase ichiban – number one. Japan employed mercantilist practices during this era to build a large trade surplus. President Reagan told the Japanese leaders that if they continue he would place a 40% tariff on all Japanese products to rebalance trade between our two nations. To make his point, Reagan placed a 40% tariff on motorcycles (which were being dumped into the U.S. market) and warned that cars would be next. Japan got the message and trade was rebalanced.
If allowed to stand unchallenged, Japan’s latest mercantilist success may prompt the addition of another phrase to our trade policy vocabulary: tada nori or free rider. Mercantilism is the bane of free trade. Free riders are the bane of free trade agreements. Japan’s recent strategy drives home that point in harsh reality.
Mercantilism is an entrenched economic doctrine. Its ends are constant: persistent imbalances in trade and payments flows. By contrast, its means are flexible. Japan has been very resourceful in keeping persistent trade flows in their favor to America’s great disadvantage.
Instead of fighting Japan’s mercantilism by identifying how they do it and begging them to stop, the U.S. should accept that some nations will always try to tip trade flows in their favor and we should just insist on balanced trade or take unilateral action as Reagan did with Japan in the 1980’s. We should insist on reciprocity, as Reagan did.
Some nations that are emerging economies should be allowed to temporarily “tip the scales” in their direction as long as they are moving towards free markets and a more open society.
However, once a nation’s economy is large enough to sustain it, they must play by the rules and achieve balanced trade flows if they want continued access to the world’s largest consumer market.
If we allow TPP to codify Japan’s mercantilist practices via the TPP, it will be even more difficult to eventually correct this market distortion. And consider this: Germany will be next as we negotiate the Transatlantic Trade and Investment Partnership (TTIP) with the European Union nations. Germany is another very large trading partner and also practices mercantilism to rip off American jobs.
As Donald Trump often says, American negotiators are terrible and negotiate from weakness while other nation’s negotiators are very good and are ripping us off.
A significant portion of the material contained herein is used with the permission of Mr. Charles Blum, President of IAS Group in Washington, D.C. His entire posting can be viewed at www.iasworldtrade.com.
Frank Shannon served in the U.S. Army, was an engineering/operations manager for AT&T for 27 years, was the owner of a small manufacturing business for 23 years, served as Colorado Chair of the Coalition for a Prosperous America and moved to Mesquite in 2013.