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How this year's trade war is a different ballgame
Hans Greimel | 2018/7/17

TOKYO -- An ascendant Asian nation with a powerful domestic auto industry that brims with international ambition. A ballooning trade surplus with the U.S. And a populist American president threatening punishing tariffs in a desperate attempt to level the field.

The scenario seems ripped from the pages of today's headlines. But the country in question is Japan, not China. And the president is Bill Clinton, not Donald Trump.

That showdown harkens back to the early 1990s, when the U.S. was embroiled in another trade war with the bogeymen of the era, Japan and its seemingly invincible carmakers.

Superficial similarities abound with the latest campaign launched by Trump against China. But striking differences suggest Trump's gambit might have some better leverage.

In the tiff with Tokyo, Washington held fewer cards. Japan's market was already largely open. U.S. brands had zero production capacity in the country. The product coming out of Detroit wasn't particularly competitive in cost or quality. The cars were barely tweaked, if at all, to the tastes of Japanese consumers, making them an even tougher sell.

Meanwhile, the Japanese were entrenched in the U.S. and turning what was then the world's biggest auto market into their cash cow.

Clinton's trade war was an extension of largely failed attempts by administrations before him. He stepped it up a notch by making the unprecedented threat to levy a 100 percent tariff against 13 imported Japanese luxury car models.

The ultimatum worked. To a limited degree.

Japanese automakers agreed to increase output at assembly plants in the U.S. Japan agreed to import more U.S. auto parts. Japan would deregulate auto inspections and repair, ostensibly opening the market to more American-made cars. The breakthrough stoked optimism that the conditions were finally right for Detroit to make inroads into the world's No. 2 auto market.

After the deal, General Motors' sales in Japan surged to a high of 47,000 vehicles in 1996.

But the victory was short-lived. These days, Chevrolet and Cadillac, the only GM brands still marketed here, sell fewer than 1,400 vehicles a year. Chrysler sold 213 in 2017. Jeep fares better, moving around 10,000. But prospects are so slim Ford has pulled out altogether.

America's efforts amounted to too little, too late.

Japan eliminated its tariffs on imported cars in the late 1970s. But that didn't help Americans sell vehicles here. They lacked the retail network and connections. The cars weren't suited to Japanese needs. The quality was atrocious, as underscored by the fact America's own buyers seemed to prefer Japanese cars.

The Japanese kept a low profile, acquiescing to U.S. pressure when necessary and quietly boosted exports every year. When exports became politically problematic, they simply began building cars stateside. By then, at any rate, they already had a loyal and growing following.

Beijing brawl
Pan west to China, now by far the world's biggest car market, and today's brawl with Beijing is set against a different background.

Not a single homegrown Chinese auto brand has yet to land stateside.

One takeaway from Japan is that America's 2.5 percent tariff on passenger cars wasn't high enough. Japan exported its way to success despite the barrier. Boosting the duty to double digits, however, might just forestall a wave of Chinese imports before it begins.

China has retaliated by raising its tariffs on imported U.S. light vehicles to 40 percent, from 15 percent. Yet U.S. automakers are in some ways more insulated from such blowback than they were during the Japan trade wars.

For starters, GM and Ford combined already sell millions of vehicles a year in China, as opposed to thousands in Japan. Most of those vehicles are built in China, ducking the duties.

Detroit brands have sophisticated and well-entrenched retail networks in China. And they have massive r&d centers in the country to ensure that their products meet local needs.

The quality and engineering of the American-branded products are arguably its best ever. Chinese customers aren't turning up their noses, as the Japanese did and still do.

In Japan, they were always struggling to break their way in. In China, American brands are already on the inside and thriving.

New leverage
Now the U.S. has the chance to keep Chinese hopefuls at bay, just as Tokyo long did with American brands eyeing Japanese consumers. That could be a key leverage point.

Beijing hasn't been shy in voicing its overseas ambitions. Chinese President Xi Jinping's Made in China 2025 campaign prioritizes global domination in several key next-generation automotive fields. And a slew of Chinese automakers, from upstart electric vehicle makers to established state-owned players, are brandishing plans to crack the U.S. market as early as next year.

GAC Motor, angling to become the first Chinese automaker to export to the U.S., has already said it may have to ice those plans after Trump's threat to slam imports with tariffs.

A big risk is how China could hit back beyond cars and tariffs. Indeed, China's countermeasures affecting $34 billion in American goods target everything from auto parts to soybeans. Beijing might also hold businesses hostage through regulatory shenanigans.

And China has some non-tariff tricks that could directly hammer American carmakers. Ticked-off mandarins could marshal the state-controlled media to whip up an anti-American backlash inside China against Buick, Cadillac, Ford and Jeep.

China has wielded that political weapon, with devastating effect, against Japanese automakers in 2012 and South Koreans in 2016. Hyundai and Kia sales haven't fully recovered.

So history is repeating itself as Washington locks horns with a new automotive heavyweight.

Yet important dynamics are also dramatically different.

When Clinton decided to finally play hardball in the 1990s, the Japanese had long been winning the game. With China, the game is still in its early innings. Trump is swinging for the fences. Only time will tell whether he will strike out as well.

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