We Must Stand Up to Japan (Oops, I Meant China)

By Michael Schuman

I was reading the transcript of a recent Hillary Clinton campaign speech when I got that weird feeling of dej`a vu. Clinton was in Pittsburgh, going on and on about trade with China. She promised to "stand up to China and other non-market countries," which, she claimed, "subsidize their exports and put our manufacturers at a disadvantage." The U.S. needs "to immediately and aggressively crack down on China's unfair trade practices," including "currency manipulation," which she deemed "outrageous." Her goal, she said, was "leveling the playing field for our manufacturers with smart fair trade."

Pittsburgh, once the Steel City, has moved on, but not Senator Clinton. I felt I had heard all of this stuff before. Not just on CNN last week. Such derogatory comments about China's trade practices are now common in America's political and media discourse. No, I had heard these statements a long, long time ago. When I was a college student, in the late 1980s.

In the 1980s the U.S. had another paranoid, apoplectic fit about a rising Asian power. Twenty years ago, the bad guy wasn't China but an ascendant Japan, which was out to destroy the U.S. with its unfairly well built sedans, VCRs and microchips. The ballooning trade deficit with Japan was the hot-button political issue of the day, just as the yawning deficit with China is today. Japan was using "unfair" trade practices to disadvantage U.S. industry, many Americans believed. The Japanese were "manipulating" their currency, the yen, to make their exports extra cheap in the U.S. market, in the same way China is accused of currently doing with the yuan. Americans freaked when Japanese companies bought supposedly priceless U.S. assets like Rockefeller Center and Columbia Pictures; today, Americans freak out when Chinese firms even attempt to purchase anything on U.S. soil. American manufacturers cried out for protection against the evil Japanese onslaught orchestrated by the sinister Ministry of International Trade and Industry (MITI). Otherwise, the U.S. economy would be doomed.

To get an idea of just how similar the attacks on Japan were in the 1980s to those launched at China today, take a read of these comments by Lee Iacocca, made when he was chief at Chrysler (before the Germans bought it, then dumped it). He wrote in his autobiography that "our economic struggle with the Japanese is critical to our future" but that "the field where this game is being played is not level." He complained that "their currency manipulation is enough to bring you to your knees." The solution, he determined, was to "replace free trade with fair trade." "We have to take action," he insisted. "If Japan -- or any other nation -- protects its markets, we should be doing the same."

Looking back at the U.S. reaction to Japan in the 1980s can help us gain some perspective on America's economic relationship with Asia today.

First of all, the causes of the trade disputes then and now are very much alike. In both cases, Americans blamed other countries for problems they created themselves. In the late 1980s, Akio Morita, Sony's flamboyant co-founder, was one of the most outspoken about Japan's economic conflicts with America. He argued that all of the bickering about currency rates and corporate practices were somewhat irrelevant. The U.S. trade deficit, he wrote at the time, was "a result of commercial transactions based on preferences." Translation: Americans simply wanted to buy lots of things from Japan. The problem was that "American politicians fail to understand this simple fact."

His comments made little headway in the U.S. but the reality was he was spot on. Japanese weren't running amok in the U.S. forcing consumers to buy Honda Accords. Americans chose to buy Hondas and Toyotas because they were better cars than many of the clunkers churned out by the Big Three. A few drivers refused to buy Japanese cars out of national loyalty, but apparently not enough Americans had such a strong devotion to Uncle Sam to significantly alter the trade balance with Japan.

The same is happening today with China, although mostly at the other end of the price and technology scale. Despite all of the babble about the supposed "junk" exported by China, I don't think too many Americans are sifting through the shelves at their local Wal-Mart and tossing aside products labeled "Made in China." The fact is that Chinese-made clothes, shoes, toys and appliances are cheap and for the most part of good enough quality for Americans to choose to buy them.

Americans are very protectionist until they get to the mall.

The other lesson to be learned is not to exaggerate the consequences of these trade disputes. Back in the 1980s, Americans mistook Japan's edge in trade as a sign of their own economic ruin. Today, the whole idea that Japan was supposed to shove the U.S. economy into oblivion seems quite silly. What most Americans didn't understand is that U.S. economic success didn't depend on making TV sets; it was based on the technological innovation at which Americans excel. Beginning in the early 1990s, the U.S. experienced one of its most sustained economic booms ever in part due to American superiority in the information technology at the heart of the New Economy. Meanwhile Japan's ascent faltered as U.S. carmakers narrowed the quality gap, and other nations, such as South Korea, began competing head to head with Japan in consumer electronics, autos and other products. No one is too worried about Japan taking over the world today.

Now I'm not saying the same will happen with China. Past performance doesn't help us predict the future. But if the U.S. economy didn't tumble 20 years ago because the Japanese sold a lot of cars and consumer electronics, it is highly likely that America's future won't be ruined by the consumer products exported by China today.

Perhaps Hillary Clinton and the other candidates should read some Lee Iacocca.

Common Currency is a column on global economics by Michael Schuman that appears weekly on TIME.com.