Self-interested economic advice for Japan from the US

I went to a seminar with an American trade negotiator today and what got to me was this incessant effort to get the Japanese to open their borders to American exports. I am not up on whatever passes for modern trade theory but even so it did seem a little self-serving. I therefore asked what was on my mind: since the point of comparative advantage is to show that both sides can benefit from free trade, who then is the loser if one of the parties doesn’t want to bother? Japan says it doesn’t want to lower its protection for its agricultural produce. OK, too bad for Japan. But what’s the difference to the US or Australia if they don’t want to buy food exports from us. Your bad luck. You’re the one missing out. We’ll go and trade around you ought to be the answer but somehow it isn’t. Given that everyone has a reasonable idea of their own self-interest, and given that self-interest is much more than just being able to buy more this year than last year, if the Japanese aren’t interested in cutting protection but the Americans (and Australians) really do want them to, just from this I can see there is something wrong with trade theory, or at least at that superficial level.

At the very minimum, the Japanese see no value in disrupting its rural sector. They manage to eat, no one is starving, they’re content with how things are, so why should we make a fuss? But of course we do because we want to sell because we think that’s good for us. From the nature of the conversation, and the persistence with which this is pursued, the Japanese would be doing us a favour in cutting tariffs and would be doing themselves harm. I’m very suspicious of arguments that are premised on this is for your own good.

While no one says it, I also think the Japanese are all too aware of – but much too polite to mention – the last time they took economic advice from the Americans. That was in 1993 just after Bill Clinton took over the White House. At the time, we were all coming out of the 1991-93 recessions. Clinton, because he wanted the Japanese to help the Americans with their own dull levels of activity, virtually demanded that the Japanese provided a stimulus to their economy. And so began the twenty year lost decade. Not that these sort of things happened to me often, but I happened to be sitting next to the Japanese Minister of Finance or something, when he was in Australia and being the economist was given the seat next to him. So I said to him that I thought it would be a mistake to try a Keynesian policy, and he said, “Don’t you care about the unemployed?” An exact quote which I have never forgotten. So off they went and did what they did but their economy has never recovered.

If you ask me, self-interested advice like that is something we can all do without.

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