Another important point, as we have seen, was the high propensity of the Japanese to save. Even after they had achieved high levels of affluence, they continued to set aside for future needs more of their wealth than almost any other people in the world. The familiarity of the country with natural calamities, such as earthquakes and typhoons, and the relative weakness of the national social security system had conditioned them to take this precaution. The money saved by individuals, which was close to 20 percent of income, was channeled by the banks into productive ventures, making possible huge investments in the growth industries. In comparison, the rate of saving in the United States had sunk to little more than a tenth as much, slowing economic growth and making necessary heavy borrowing from abroad. All in all, Japan had a very efficient economic system.
In industrial productivity the Japanese had become virtually unsurpassed, and as a result world trade patterns were naturally altered. The magnitude of this change was increased by another closely related structural change taking place in the United States rather than Japan. This was America’s tremendous budgetary debt and accompanying deficit in worldwide trade. Both soared in the eighties. The two problems of Japanese surpluses and American debt fed on each other. American indebtedness raised interest rates in the United States, which attracted Japanese surpluses. These loans from Japan then increased Japanese profits and also made it possible for the United States to go further into debt in a decade of spendthrift living on credit. Both nations had developed economic addictions that grew in the eighties to enormous proportions and were not easy to cure. Japan became by far the largest creditor nation in the world, with net foreign assets of some $200 billion, and the United States the largest debtor nation. Interest payments for their respective credits and debts grew rapidly each year, making the problem progressively harder to turn around.
The situation threatened the whole system of relatively free trade that had brought unprecedented prosperity to much of the world since the war. American resentment against Japan could conceivably lead to such harsh restrictionist reprisals that Japanese prosperity would collapse, and the United States, denied cheaper Japanese goods and the funds needed to finance its debts, would then in turn be greatly impoverished. The inevitable resulting depression in Japan and the United States would almost certainly cause a worldwide depression and the political and military disturbances that normally accompany such economic disasters. Even without so dramatic a scenario, the great trade imbalances centering around the United States and Japan, the world’s two largest industrial powers, might prove so upsetting that the whole trading system of the industrialized OECD nations might falter. Though by no means as catastrophic as a nuclear holocaust, such an economic collapse seemed a much more likely possibility.
The general outlines of the problem were clear to economists and other specialists, but they were less apparent to the average American or Japanese, whose vote was the ultimate determiner of national policies. Japan’s rapid economic rise and penetration of the American market spread deep resentments in the United States and sometimes almost a sense of panic. The steel worker in Pittsburgh or auto worker in Detroit was often incensed at what he felt was the stealing of his job by Japan. There were also lingering traces of old wartime attitudes toward Japan and considerable evidence of the cultural and racial prejudices that had been prevalent only four or five decades earlier. To be deprived of employment by Japanese somehow seemed worse than if the competitors were more familiar Europeans, and Japanese cars and other goods were considered a menace to the United States in a way similar European products were not. The Japanese purchase of American real estate seemed particularly alarming, though similar purchases by Europeans had attracted little attention. It should be noted, however, that part of the reason for this was that Japanese purchases had come more suddenly and had been geographically more concentrated in a few highly visible areas.
Similar economic fears and cultural and racial prejudices were even stronger among Europeans than Americans. From the beginning Europeans had maintained sharp restrictions on imports from Japan and had shown much less interest in the country, which to them seemed indeed the “Far East,” lying, as it did, out beyond the Middle East, India, Southeast Asia, and China on the one side and the American continents and two huge oceans on the other. Now that the economic strength of Japan had become enormous, Europeans were determined not to let a nascent American restrictionism shunt Japanese goods from the United States to their shores.
On the whole, American attitudes toward Japan were not as hostile as one might have expected. Most Americans eagerly bought what they considered to be superior, more reliable Japanese goods. The individual states contended eagerly for Japanese investments. Popular interest in Japan and its culture, which had been rising rapidly during the seventies, became a veritable boom in the eighties. In government circles, however, there was considerable anger over the imbalance in trade and the meagerness of Japan’s contribution to defense. In some parts of the country there were also pockets of deep resentment against the flood of Japanese imports. The Japanese public was appalled in the late eighties at what it felt was a wave of “Japan bashing” and was horrified by a much-repeated television scene of a group of angry Congressmen smashing a Japanese television set with sledgehammers on the steps of the Capitol. The adoption in August 1988 of an “omnibus trade bill” that had strong restrictionist features made the Japanese government and public extremely apprehensive.
The trade problems between Japan and the United States looked very much different from the two sides. Despite their current prosperity, the Japanese felt a sense of economic vulnerability that was difficult for others to comprehend. They saw themselves as a huge mass of people forced to live entirely by their own hard work and skills on a few small islands devoid of major natural resources. Their population passed the 120 million mark in 1986 and was expected to creep up to a little more than 130 million before stabilizing at a somewhat lower level. Meanwhile the so-called NICs, or “newly industrializing countries,” were taking over the industries Japan itself had once utilized to make its way into the American market. Particularly menacing were the “four little tigers” of South Korea, Taiwan, Hong Kong, and Singapore, which were following close in Japan’s footsteps. Behind these four were the vast masses of China, India, Southeast Asia, and Latin America, which were beginning to industrialize on a significant scale. These newly industrialized countries would leave little room in the traditional manufacturing fields for Japan, which increasingly would have to compete with the advanced countries of the West for the rather narrow markets in the areas of high technology and the so-called knowledge industries. Since Japan was in per capita terms far poorer in natural resources than most of the countries of the West, to say nothing of the huge and richly endowed United States, Canada, and Australia, it felt itself confined to a very narrow ecological niche. Japanese believed they deserved special consideration and an ample cushion against economic disaster.
Such attitudes were strengthened by a modern history of having had to scramble hard to survive economically after the Meiji Restoration and again after World War II. The oil shocks of 1973 and 1979 and the soybean embargo of 1973 were recent reminders of Japan’s vulnerability. It became popular to speak of the “hollowing out” of Japanese industry, meaning the loss of basic industrial production to the newly industrializing countries and the limitation of the advanced industries by competition with the other technological leaders, leaving Japan with a huge economic framework but very little industrial body.
Americans, on the other hand, felt that they had perhaps been too indulgent to Japan in the early postwar years and that it was high time for a rich and economically powerful country like Japan to carry more of the burdens of world peace. The Vietnam war had shaken Americans and made them realize that the euphoric days were past when the United States had stood alone among the major nations of the world, unscathed by the disaster of World Wa
r II. As the other countries had restored their economies, the United States had inevitably declined in relative terms from half of the world’s GNP to less than a quarter, and it now found itself badly overextended in its worldwide commitments. It naturally felt that more of the load should be shouldered by others, particularly the Japanese, who appeared to be doing the least in terms of their wealth and strength, building instead huge trade surpluses by unclear but probably “unfair” trade practices. During the seventies and eighties, the United States became much more insistent that Japan play a larger military role and contribute more to the world’s economy by reducing its trade surpluses and increasing greatly its aid to the less developed lands.
The Japanese and American governments were both fully aware of the dangers of the situation if irritation on either side were allowed to get out of hand and seriously disrupt the huge and rapidly growing economic relationship between them. Both sides made efforts to solve the problem, but without much success. Japan did accede to Western demands for liberalizing its trade policies but only at such a slow pace that frictions outran the increase of exports to Japan. The Japanese even launched official import buying drives, but the purchasing inspired by these efforts was more for high-quality European luxuries, such as perfumes and French wines, than basic industrial products from America, and in any case, the sums involved were inconsequential in terms of the trade balance. Commissions and groups of “wise men” repeatedly studied the problem, and prominent politicians and officials conferred frequently with each other but produced little but sage words. Specific trade negotiations were constantly held but all too often ended up in an angry exchange of words rather than an increased flow of goods. Particularly long and heated negotiations over opening the Japanese market further to American oranges and beef finally forced the Japanese in June 1988 to make concessions, but the net effect on the balance of trade was slight, and Australians rather than Americans appeared to be the chief beneficiaries of the new provisions regarding beef.
A more important way to limit Japanese trade surpluses turned out to be self-restrictions on exports carried out by the Japanese government in order to lessen American government pressures and keep American public attitudes below the boiling point. The Japanese government justified such restrictions to its people by using the happy euphemism of “orderly marketing.” “Voluntary restrictions” of this type were first applied at American insistence as early as 1958 in textiles. The results were far from pleasing to Japan or helpful to the United States, since American textile imports simply shifted from Japan to other East Asian countries, and the Japanese then had to negotiate from a lower relative base when a multilateral agreement was later worked out. Other fields, such as steel and electronic goods, began to demand similar Japanese self-restrictions, and the Japanese felt forced to comply from time to time when pressures seemed to be reaching the danger point.
Despite various concessions, Japanese surpluses continued to grow and American resentments worsened. A particularly serious situation arose in 1969, when Nixon tried to implement his promises to certain North Carolina textile manufacturers, made in the 1968 presidential campaign, that he would get them relief from Japanese imports. He understood that Sato agreed to do this for him, and it was widely though erroneously believed that this agreement was a quid pro quo for America’s returning of Okinawa to Japan. But there had been a linguistic misunderstanding between Nixon and Sato. The prime minister lacked the political power to force an unpopular textile agreement down the throats of a recalcitrant Diet and business world. Only after prolonged and acrimonious further negotiations was Japan finally forced in October 1971 to accept the American demands. In the meantime, Nixon had suddenly announced in August of that year a temporary 10 percent surcharge on imports and the suspension of the dollar’s convertibility into gold. Both steps were aimed at bolstering the overall American trade position, but they were targeted specifically against Japan. Coming just after America’s surprise rapprochement with China, they became known as the second Nixon shock.
It was a pity that so much effort was devoted to relatively minor fields of trade, such as oranges and beef, or to dying industries, like textiles, which were sure to be a shrinking element of the economy of both countries. Efforts to equalize trade in the more dynamic parts of the economy would have had more immediate and lasting effect. But the technique of “voluntary controls” was applied quite effectively in some fields, notably cars for export to the United States and other Western countries and videotape recorders for Europe. Japan, for example, agreed to a limit for exports to the United States of 1.68 million cars and trucks for 1982. A reasonable annual increase was usually permitted, and in 1985, when it was agreed that Japan would set its own self-restraints without interference from the United States, the figure was put at 2.3 million units. One result of this system, however, was that the Japanese concentrated on exporting the more expensive types of cars, with the result that the total value of Japanese automotive exports increased considerably.
Another way of attempting to bring trade into better balance was by readjusting the monetary system. In December 1971 the United States abandoned the old Bretton Woods arrangement of fixed exchange rates, which had been adopted during World War II, and shifted to a system of flexible exchange rates in which undervalued currencies would rise and overvalued ones could fall to their real value. This, it was hoped, would help the United States expand its trade, because the dollar had become greatly overvalued. In the first revaluation of the yen since it was pegged at 360 to the dollar in 1949, the dollar was allowed to fall in 1971 by 16.88 percent to about 300 yen and then to fall again, largely in February 1973, to around 230. From that point through 1985 it remained relatively stable, but starting in January 1986 it began another downward slide, reaching 121 in November 1988 before coming back to around 142 in early June 1989.
The dollar’s spectacular loss of about two-thirds of its value between 1971 and 1989 seemed likely to increase American exports a great deal in the long run, but it was slow to show much effect. Many of the world’s currencies remained tied to the dollar or moved generally in unison with it, and the Japanese economy was so efficient that it was able to accommodate these great changes in monetary value without much difficulty. The cost of life in Japan, however, did show some spectacular consequences. Prices in Japan became extremely high in comparison with those in other countries, and the Japanese became the richest people in the world in monetary terms, taking the place of the affluent American tourists and buying real estate and luxuries at exorbitant prices all over the world.
Americans were slow at first in accepting the idea that there were things they could learn from the Japanese economy. As late as 1979, when Ezra Vogel’s provocatively titled book, Japan as Number One: Lessons for America, was published, it was looked on more as a curiosity than as a serious proposal for improving American business strategy. But in the course of the eighties Americans began to see the point. Large numbers of younger American businessmen and -women began to study the Japanese language, and wide attention was paid to Japanese business organization and styles of operation, for use not just in selling in Japan but for adoption by American business at home. Thousands of American workers in Japanese plants in the United States were subjected to Japanese factory organization, and many were sent for periods to Japan itself by their Japanese employers in order to study and work in a Japanese setting. Though American workers did not take to such things as company songs, they did appreciate the egalitarian atmosphere of a Japanese factory and responded well to Japan’s teamwork and quality control. Many American companies found it possible to do business in Japan, sometimes with spectacular success as in the case of McDonald’s and Kentucky Fried Chicken. American business penetration of Japan is still in its early phases and has been largely in the field of the services rather than in the primary industries, so it is too early to judge what overall effect it will have, but there was no doubt by the late eig
hties that large changes were under way. The combination of dollar devaluation and improved American business techniques had by 1988 made an appreciable dent in remedying the trade gap between America and Japan.
As Japanese and American economic relations expanded explosively during the eighties, new causes for friction between the two countries naturally increased, joining all the old resentments and long-simmering controversies between the two countries over foreign policy, defense, and a myriad other matters. So-called crises sprang up on every side, and gloomy pundits kept announcing that Japanese-American relations had never been worse since the war. But most Americans accepted with maturity the sudden exchange of roles between creditor and debtor and teacher and learner. They wisely ignored even the somewhat gleeful claims of some shallow Japanese intellectuals that the Pax Americana was being replaced by a Pax Japonica—a concept that drew far more attention in Japan than in the United States. They viewed the new relationship with Japan in a matter-of-fact way, developing relatively little irritation and a greatly increased interest in Japan. To use a trivial illustration for a significant point, sushi became practically a national dish along with apple pie and pizza, and an American variation utilizing avocadoes and called a “California roll” became popular in Japan as well as the United States. Japanese–American relations were clearly becoming closer and warmer.
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