On a recent overseas flight, I found myself watching “Gung Ho,” Ron Howard’s 1986 comedy about a Japanese car company taking over a U.S. plant. It came out at the height of a Japan-is-eating-our-lunch hysteria not unlike American fears today about losing jobs to China and having to learn Mandarin.
What’s striking, though, is how Donald Trump is actively working on a sequel, 31 years later, casting Japan, China and Germany in starring roles. As the U.S. president looks to hasten domestic growth, he’s not looking under the hood of an economy being outrun by nimbler upstarts. He’s not investing more in education and training, ensuring the world’s best and brightest entrepreneurs flock to America or upgrading infrastructure hardware as he promised. Rather, Trump is blaming major trading partners for stagnant U.S. wages and deepening inequality.
But there’s something bigger going on here. What Trump’s obsession with a dollar he deems too strong, his embrace of protectionism and the reluctance of his administration to look in the mirror suggest is that The Donald thinks it’s still 1986. Trump could spare us all an unhappy ending by considering Japan’s own journey these last 31 years.
Remember Prime Minister Shinzo Abe’s pledge to have all that deflation stuff sorted by now? Not so much, nearly five years on. While Japan’s economy is growing — for five straight quarters now, the best run in 11 years — wages are stagnant, consumer spending remains weak and confidence is negligible. This so-so outcome comes despite history’s biggest monetary expansion and a public debt that’s twice the size of the economy — and growing. Abe hasn’t gotten around to increasing flexibility in labor markets, encouraging entrepreneurship, reducing bureaucracy, empowering women or boldly shaking up corporate Japan’s insular ways. Instead, Abe relied on a weaker yen to support exporters and kick off a virtuous cycle of rising wages, consumption and, eventually, inflation.
It’s a flawed strategy, largely because it aims to revive an industrial system that no longer exists. Since 1986, in case Abe missed it, Japan’s services sector exceeded exports as a growth engine. Also, a few years before Howard’s film hit the theaters, Honda pioneered a trend that’s made Japanese giants less Japanese: opening production bases in the U.S. and elsewhere. That migration of bricks, mortar and jobs accelerated in the 2000s as Nissan, Panasonic, Sony, Toyota and others fled an aging, deflationary economy. China’s rise added new urgency to the offshoring phenomenon as high Japanese labor costs made Thailand, Indonesia and Vietnam look more and more attractive. Japan Inc.’s biggest names now derive more revenues and profits from overseas than at home. Abenomics, it follows, is premised on an outdated economic model.
What does this mean for “Trumponomics”? The biggest mistake Japan made after its 1980s bubble burst — one Abenomics is still making — is treating the symptoms of its malaise, not the underlying malady. By delaying structural upgrades, Abe and his predecessors inadvertently increased Japan’s exposure to China, which could be on a path toward its own Japan-like debt reckoning. Rather than sharing tens of billions of dollars of profits from a weaker yen with workers, executives are scaling back expenditures and eyeing ways to increase staff abroad.
By threatening China, Japan, Germany, Canada and Mexico with import taxes and other forms of retaliation, Trump is all symptoms, no cures. His comment last week that Germany is “very bad” because General Motors and Ford don’t sell more cars there ignores that German automakers beat American ones on quality, not dodgy tactics. Trump also calls Japan Inc. “unfair” for doing “things to us that make it impossible to sell cars in Japan, and yet, they sell cars into us and they come in like by the hundreds of thousands on the biggest ships I’ve ever seen.”
Well, Trump’s ignorance of the lessons from Japan’s travails is among the biggest economic mistakes I’ve ever seen. On the campaign trail, he talked acerbically about raising America’s competitive game via deregulation and supply-side tax tweaks. In reality, he seems more inclined to resort to the 1980s Plaza Accord playbook.
The reference here is to a deal between the U.S., Japan and the biggest industrialized economies to weaken the dollar. It was forged at the New York hotel Trump once famously owned. A creature of familiar comforts, Trump appears to think a similar deal to boost the yen and Chinese yuan is exactly what the global financial system needs — a Plaza 2.0, if you will. Yet that would be a short-term win and a long-term negative.
Ask Janet Yellen, the Federal Reserve chair who’s learning why the Bank of Japan has been stuck at zero for nearly 20 years now. While the U.S. is growing, the economy is addicted to ultra-loose monetary policy. Take that away, and Trump’s team will have to fill the void with supply side reforms — in ways Japan’s policy maker never did.
Any steps Trump takes to raise America’s competitive game will reverberate positively back in Japan’s direction. But under his management, the U.S. seems anything but gung ho about change and set on following the Japanese script. We’ve seen this movie before, and the ending isn’t a happy one.
William Pesek is a Tokyo-based journalist and the author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” Twitter: @williampesek