December 25, 2018

Well, He's Not Wrong

In a recent interview with the Financial Times, Secretary of Commerce Wilbur Ross stated the U.S. must re-examine trade relations that were "totally appropriate in 1950" when the world was a different place. Well, he's not wrong.

In an interview with the Financial Times, Secretary of Commerce Wilbur Ross states “After world war two it was a deliberate US policy to help rebuild Europe and Asia with direct aid like the Marshall Plan and trade concessions, but the mistake we made was not time-limiting them,” Mr Ross said. “We are stuck now with concessions that were totally appropriate in 1950.”

Well, the thing is that he isn't wrong.

Ignoring the Marshall Plan's obvious foreign policy aim to avoid the same problems after World War 1, a prime example that supports Secretary Ross' assertion is the postwar development of Japan after World War 2.

After World War 2, like majority of nations that participated, Japan was economically devastated. During the war, Japan's economy was already fragile because it was dependent on commodities from its colonial possessions. All the while, Japan kept expanding its military campaigns throughout greater East Asia that required even more resources. When the U.S. entered into the war, Japan was facing a situation where it was fighting on numerous fronts. It exhausted large amounts of population, resources, and industrial assets. In the end, 42% of Japan's urban industrial areas were destroyed and up to half of its largest cities destroyed.[1]

However, with the end of World War 2, the U.S. quickly dissolved the military government under Tojo. Japan and U.S. signed the Treaty of Peace at San Francisco. However, with the looming threat of the Soviet Union and Communist China, U.S. started to look at its presence in Asia far more seriously. After the treaty signing in San Francisco, U.S. was soon to realize that it needed to secure a better security architecture in the Asia-Pacific region. With this in mind, the U.S. entered into an agreement with Japan in 1957 that would redefine the security relationship.

The Eisenhower Administration used major institutions (U.S. Ex-Im Bank, World Bank) to provide Japan with low interest loans that allowed much more capital to increase expenditures. The U.S. facilitated Japan's entry into the GATT (General Agreement on Trade & Tariffs) that boosted its trade throughout the global markets. The U.S. reduced the high Japanese defense expenditure that subsidized U.S. military presence. Lastly, the U.S. dismissed domestic business pressures in reducing tariffs from Japan.[2]

In implementing these changes, Japan realized a major growth spurt that would soon be labeled the "Japanese economic miracle." However, it was really a redefinition of security relationship between the U.S. and Japan that led to Japanese economic miracle. This is not to say that the Korean War also increased the economic development of major Japanese corporations. Many Japanese corporations were producers of military clothing, equipment, and food for the U.S. troops and its allies during the Korean War. Japan's growth rate increased over 150% from 1958 to 1960.

The whole aim of this new strategy was to win not only Japan, but other Asia-Pacific nations over to the U.S. sphere of influence. Under the U.S. sphere of influence, Japanese economic development provided as a great example of what would happen if countries engaged with the U.S. There would be a capitalistic boom, access to greater markets, aid in technological development, and etc. The U.S. was fighting against the Soviet Union in a bitter contest of economic and political ideologies. It implemented these economic policies in order to maintain the U.S. global security architecture.

However, years have changed with the collapse of the Soviet Union, now a new major power in the midst competing with the U.S., China. The current security architecture has changed for the U.S. and the world. Moreover, the current economic and political realities is much dynamic and distinctive from 1950.

So, when the Secretary of Commerce Wilbur Ross states that the current economic relations are based from the 1950. The sentiment is not wrong. There is definitely a need to revisit numerous economic and political institutions that were put in placed during the Cold War. These major institutions are no longer reflective of the current realities of global power politics. However, I believe that most commentators would agree that the current U.S. administration probably does not have a clear strategy in mind.

Perhaps that is what is judging most people's judgment. But like I said, Wilbur Ross is technically not wrong.

1. Totamn, Conrad. "A History Of Japan" 2013. 610. 2. Michael Beckley, Yusaku Horiuchi and Jennifer M. Miller. Journal of East Asian Studies 18 (2018), 1–21

About the author |

KJ writes about economics, finance, and is a political junkie.

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