Part II
Japan tried to make concessions by promising to establish production plants for Toyota, Honda, Mazda, Nissan, and Isuzu in the US. Japanese negotiators argued that US-manufactured Japanese cars would be sold at competitive price and provide employment to many Americans who were displaced by the closure of the US car manufacturing plants in Detroit.
Since high tariff would run counter to the provisions of the then General Agreements on Tariff and Trade (GATT) and it being discriminatory, the US shifted to pressuring Japan to revalue its yen. That was most devastating because that increased the value of its products not just for purposes of decreasing US trade deficit, but for the entire Japanese exports. The domestic wage equally increased.
Japan suddenly experienced an unprecedented economic slump. Exports sharply declined. Japanese car manufacturers were compelled to open themselves to foreign partnerships. Ford Motors was able to acquire shares of Mazda and Mitsubishi, GM was able to acquire Isuzu, and Nissan that was already on the verge of bankruptcy had to hire a foreigner to take charge of the industry. The revaluation of the yen caused a steep increase in the value of exports of manufactured goods.
The advent of the Reagan administration affirmed the monetarist doctrine that the economy can be manipulated without having to go through with the costly process of industrial revivalism. Money lending became the order of the day. All laws that impede the flow of cash were dismantled. The demarcation between banking and investment had to be lifted; that the surplus which capital banks were holding as guarantee could now be used to reinvest, not to spur the revival of industries, but for speculative purposes of making more money. Since the idea would entail much risk, the banks were given a free hand to impose usurious interest rate. Our welcoming local bankers called it “universal banking system” though they mainly cornered the business of real estate speculation.
In 1993, President Bill Clinton pushed for the repeal of the landmark Glass-Steagall Act of 1933, a financial device introduced by President Franklin D. Roosevelt to contain Wall Street from gobbling up businesses. The repeal allowed the banks to wager on stocks and derivatives. The scrapping altogether of the Usury Law made the business of relending their primary source of making money. Money supply soared while imports of manufactured and agricultural products in the US, Japan and in Western Europe steadily declined. Excessive money nibbled fast the value of the currency because of inflation.
It became the golden era for China much that it haggled hard to restore sanity in the world economy by selling goods, the value of which is realistic to the average income of the people. China and Russia could not do much to stop the crazy of trading money to make more money, which means that money has become perishable.
China and Japan looked at the system of capitalism as akin to kung fu or aikido—to every offense there is an equal defense. Muscling Japan to revalue the yen disastrously resulted in the steep increase in the prices of exports and created the worst real estate bubble in Japan. However, Japan had its fallback position which was to relocate its production plants to China which US companies have been doing since 1978.
Companies such as the world famous brands like Toyota, Nissan, Mitsubishi, Hitachi, Toshiba, Komatsu, Sumitomo, Seki, Fujitsu, Cannon, Fiji, Minolta, Pioneer, Sony, garments such as Uniqlo, etc. no sooner established their respective plants in China. There were some misgivings and even political intrigues in the decision to shift to China because of historical enmity, but both proved to be pragmatic, which is to set aside their differences if that would help them to economically advance. South Korea, it seems, is following the same footsteps.
China again welcomed this new development as it would not only help accelerate their economic development from an essentially manufacturing economy to one that would give them the opportunity to make a “great leap forward” to becoming a technology-oriented economy. Second, the migration of Japanese corporations to China served as windfall to further boost employment. Third, the unexpected influx of Japanese companies allowed it to have an extended unprecedented GDP growth rate from eight to 11 percent annually. Fourth, the US was caught between the devil and the deep blue sea, for while it sternly fought to ward off imports, Japan was able to circumvent it by exporting more of its Chinese-manufactured goods to the US. Fifth, Japan managed to relieve itself of the burden of trying to justify its restored trade surplus.
The revaluation of the currency is the single greatest culprit that could destroy the economy. John Perkins described it “as the deadly weapon of modern-day economic hitman.” China is aware of this pitiful practice that it has consistently declared the revaluation of the renminbi as non-negotiable, it being indivisible to its sovereignty. As one Chinese trader observed, when China opened its economy to the world market with their low-value currency, the world took advantage of it. Now that they are grappling to control their trade deficit, they want the renminbi to increase its value to improve their sagging economy.
Nevertheless, China helped the world by selling goods at much cheaper prices and it cannot now increase the price of its products on the basis of trade imbalance by increasing the value of its currency. It was the monetarists that pumped in more money into their economy to allow the US economy to recover. But Chinese exports remained unadulterated by inflation much that it refused to revalue their renminbi. Surely, China wants an increase in the value of its exports but would oppose a decrease in its volume upon which millions of Chinese are dependent for their employment.
Today, many Americans are losing their jobs, and wages in the US have remained stagnant for the last 10 years. Maybe it is true that business has no patriotism. But what the US is now experiencing is worst because the issue no longer revolves on wage but for want of employment and this is what President Trump is talking about. Industries, like migrating birds, want to nest in areas where it is safe and where they could prosper.
rpkapunan@gmail.com
