Lessons from the America-Japan Trade War of the 1980s

By Dr John Hemmings and James Amedeo

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The current wisdom is that there are no winners in trade wars. This message is inherent in nearly all coverage on the United States President Trump administration’s tariffs campaign on China, the European Union, and Japan. However, is this really true? History tells us that sometimes, there are winners in trade wars—all it takes is for one side to blink first.

In the 1980s and 1990s, the White House was faced with a powerful Asian economic power that manipulated its currency, subsidised its companies, and erected stiff non-tariff barriers to imports. Washington’s response was to put 100% tariffs on electronics, force voluntary restrictions on the aggressor’s auto, steel, and machine industries, and adopt laws that restricted the country’s steel, lumber, and sugar industries. But this wasn’t a nascent People’s Republic of China (PRC), it was the U.S. treaty-ally, Japan.

For approximately a decade, Japan and the United States engaged in a small-scale trade war. The United States achieved a tactical victory in the war with the 1985 Plaza Accord when the U.S. argued that it and Japan should abandon the fixed exchange rates that had prevailed after the Second World War. The result was that U.S. imports dropped in price as the dollar fell and Japan entered the bubble economy, which was ultimately to lead to the Lost Decade.

Read more at National Interest.

HJS



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