Recurring Japan-U.S. trade disputes have hogged the limelight for way too long, forcing assiduous readers to master arcane terms and acronyms while feuding wonks on each side of the Pacific whack at each other with renewed vigor over the dispute of the month. In this dysfunctional relationship, as in most stormy marriages, each partner blames the other and neither is inclined to go into therapy. Outsiders can’t imagine what keeps the couple together, much less speculate on what such a rancorous pair saw in each other in the first place.
Aaron Forsberg takes us back to the 1950s, a nostalgic time when Uncle Sam was wooing Japan, ready to forget the stormy past and eager to jettison the initial punitive and reforming zeal of the U.S. Occupation (1945-52). The Cold War between the United States and the Soviet Union started heating up from 1947 and, as a consequence, U.S. policies toward Japan shifted dramatically.
With the “reverse course,” the U.S. abandoned plans to remake Japan and squeeze it dry with onerous reparations. Instead, the Occupation authorities introduced a series of policies aimed at reviving the war-devastated economy and transforming the recent enemy into America’s most important and reliable ally in the Pacific.
Japan was to be a showcase for capitalism, and was meant to serve as a bulwark of the “free world’s” defense by agreeing to accommodate U.S. military bases following the end of the Occupation. In the post-Cold War era, the fervor of the Cold Warriors might seem a bit over the top and the ideological battle lines just a trifle simplistic, but these were men at war.
In war, and sometimes in marriage, sacrifices are made for the greater good. In the wake of World War II, the specter of world communism was spreading on the heels of deprivations in war-ravaged nations, and U.S. policymakers were desperate to contain this ideological virus. As a result, they cut deals with the Japanese government that sacrificed U.S. economic interests in the name of national security.
Forsberg points out that things weren’t quite so cut-and-dried. In fact, the asymmetry in bilateral economic relations chafed from the outset, producing a backlash among U.S. businessmen adversely affected by the one-way trade and investment.
“America and the Japanese Miracle” highlights, however, the generally positive impact of U.S. policies on Japan’s stunning economic performance in the 1950s, discussing how and why it nurtured and accommodated the juggernaut that eventually became its bete noire in the 1980s.
Forsberg argues, ” In the absence of the Cold War, it is unimaginable that the United States would have worked as actively to provide economic assistance, sponsor Japan’s accession to GATT, open its domestic market to Japanese goods, or tolerate Japan’s many restrictions on trade and investment.”
It is also fair to say that the Japanese government did not look on its bilateral alliance with unalloyed joy, nor did it think it was getting a free ride. The U.S. pressured Japan to liberally reinterpret Article 9 of the Constitution so that it could rearm, made military bases the cost of ending the U.S. Occupation and forced Japan to recognize Taiwan rather than the People’s Republic of China, thus driving a wedge between the East Asian economies that deprived Japan of potentially enormous opportunities.
The Korean War was, as Prime Minister Shigeru Yoshida said, Japan’s “gift from the gods.” Billion of dollars in war procurements by the U.S. helped drag the Japanese economy out of a deep recession and institutionalized large amounts of U.S. military spending in Japan that continued once the conflict ended. The Korean War also forced Japan to choose sides and join the U.S. in opposing and economically isolating China.
In exchange for forgoing opportunities in China, Japan was offered access to the U.S. market and by 1953 it had been accorded provisional membership in the General Agreement on Trade and Tariffs, the precursor to the World Trade Organization. The benefits of membership were enormous, integrating Japan into the booming world economy on favorable terms, and would not have come without the U.S. bulldozing strong objections of other members, notably Britain.
Japanese companies took advantage of this quid pro quo, pushing the pedal to the metal on export-led growth, making remarkable gains in the U.S. market that provoked the inevitable backlash. Forsberg argues that in the 1950s the Japanese government proved adept at getting the U.S. to go easy over increasing bilateral trade frictions by using its overall economic frailty as an excuse for U.S. beneficence. In addition, there were the opportunities afforded by Washington’s Cold War paranoia.
Japanese restrictions on foreign direct investment have also been a recurring source of bilateral tensions that stretch back to the 1950s. The U.S. Occupation authorities helped create the problem by conferring considerable discretionary powers on Japanese bureaucrats and by conspiring with them to restrict foreign investments. Forsberg argues, “Even when Japanese economic recovery became a top priority of U.S. policy, SCAP maintained controls in order to prevent foreign interests from buying up Japanese companies’ undervalued assets or otherwise exploiting Japanese weakness.”
Restrictions on repatriation of profits and FDI were used to filter and channel foreign participation in the Japanese economy, helping to explain why few U.S. companies set up shop in those days. These capital controls also explain why Japanese firms, under the guidance of MITI, were able to negotiate favorable technology licensing deals with U.S. companies. Leading-edge technologies were licensed cheaply because U.S. firms had significant disincentives and obstacles to operating subsidiaries or establishing joint ventures in Japan. This technology transfer dovetailed neatly with U.S. government policy of rebuilding Japan into a showcase of capitalism.
The U.S. may have thought these capital controls were a temporary measure, but as with the reinforced powers of the bureaucracy, they remained a distinctive feature of the post-WWII Japanese economy.
This book serves as a useful reminder of how strategic imperatives and ideological blinders helped shape U.S. international economic policies and also conveys how tense bilateral trade and investment tensions were in the 1950s. The author, sometimes in enervating detail, elucidates the ugly process of policymaking and the economic consequences of national security policy. The U.S. is credited with creating an enduring order in the Pacific, but at the cost of dividing Asia and generating conditions that have undermined the U.S.-Japan alliance. He writes, “Paradoxically, friction was the inevitable consequence of strategic and economic cooperation.”