Creating People of Plenty

The United States and Japan's Economic Alternatives, 1950-1960

Sayuri Shimizu

• Publisher: The Kent State University Press
• Year: 2001
• ISBN:
  9781612778198
• Topic: Historia
• Subtopic: Historia japonesa

"There is no doubt that the Eisenhower administration accomplished one of its paramount Cold War strategic objectives: to rebuild Japan's economy and reinstate the nation as a stabilizing, pro-capitalist member in the new world order that had come out of the morass of the Great Depression and the rubble of World War II."—from the Introduction This innovative study investigates how Japan grew from an economically limited country to the threshold of industrial power. The author describes Japanese economic development in the 1950s as one of the major achievements of the Eisenhower administration. In her admirably-clear account of this chapter in U.S.-Japanese relations, Sayuri Shimizu incorporates Japanese as well as American sources. In the process she explains how and why the United States became so intractably involved in Southeast Asia. Not least, she tells an ironic and instructive story of how the United States helped build an economy that later it so bitterly resented.

1Japan’s Reintegration into the Western Economy, 1952–1955

When the United States appointed itself the chief advocate of Japan’s reentry into the system of world trade after World War II, it confronted two major counter-forces to its endeavors, one from within its borders and the other from beyond. With memories of Japan’s unbridled trade practices in the 1930s still fresh, suspicion and hostility toward Japan continued to run high. America’s Cold War allies in Western Europe found the Truman administration’s championing of Japan’s reinstatement in the world trading community unpalatable on multiple levels. First, because they did not share the postwar American optimism about the unlimited growth potential of global trade, Western Europeans tended to view Japan’s presence in the world market and their own commercial fortunes in a grimly zero-sum light. They expected Japan’s export trade, if successfully restored, to threaten those key industrial sectors where the Asian nation’s lower wage and living standards accorded it a distinct competitive advantage. The United States’s espousal in the abstract, if not wholeheartedly in practice, of anticolonialism also put the new global hegemony at odds with its allies in Western Europe. In the aftermath of World War II, the dismantling of remaining colonial empires constituted a key item on the American agenda for global restructuring. Nowhere did U.S. anticolonialism appear more determined and nonnegotiable than in the resculpting of the international economic landscape. To West Europeans, the American efforts on behalf of vanquished and flattened Japan, first as the domineering director of the Allied occupation and then as alliance partner, to eliminate barriers to its foreign trade represented yet another face of America’s hegemonic restructuring scheme. Japan was perceived to be one of the pawns in Washington’s game of pulverizing exclusionary systems of trade and investment that characterized the post-Depression international economy and reorganizing them into one all-encompassing structure molded in America’s own image.

In January 1952, defending the San Francisco Peace Treaty before Congress, its chief U.S. negotiator John Foster Dulles outlined the problem of anti-Japanese protectionism pervasive in the world and its ramifications for the nation about to regain its national sovereignty. The Republican consultant for the State Department suggested that an atavistic impulse shared by the United States and other members of the Bretton Woods System stood in the way of the Truman administration’s efforts to breathe life back into the Japanese economy and reduce its dependence on U.S. largesse. In his and other experts’ assessment, Great Britain, the fulcrum of U.S. Cold War policy in Europe, posed a particularly difficult challenge. With the peace with Japan about to go into force, Britain seemed to be attempting to stunt the growth of Japan’s foreign commerce at both micro and macroeconomic levels. In the former category of offense, Dulles charged London with manipulating the bilateral sterling currency arrangement it had imposed on the reluctant Yoshida government the previous summer to stifle Japanese exports into parts of the world economy controlled by the British currency. Britain’s anti-Japan action was but one symptom of its colonialist foreign policy, which the United States must oppose, to divide up the world between the sterling and other currency areas and artificially limit Japan’s commercial activities in one of the segmented zones.¹

At home, American officials encountered similar hostility from those who opposed their sponsorship of an open, nondiscriminatory international commercial system that integrated Japan. Japan’s state-directed dumping in the 1930s, with cotton textiles as the most memorable example, had yet to be forgotten or forgiven by manufacturers in postwar America. By the beginning of the 1950s, Japanese exports of labor-intensive goods such as canned fish, toys, and hand-knit woolen gloves were alarming producers of American equivalents and rekindling their old fear of the depraved Japanese labor standards against which they felt forced to compete. Protectionist forces in Congress united in their effort to resist the executive’s grand strategy of expanding areas of unrestricted exchange in world trade, and their political clout was amply demonstrated in 1951 in the battle over the renewal of the Reciprocal Trade Agreements Act (RTA). The act, originally passed in 1934, invested the president with limited authority to negotiate tariff rates with foreign governments, a congressional prerogative in the American constitutional tradition. This historic power-sharing legislation had enabled the Democratic administrations of Franklin D. Roosevelt and Truman to make strategic downward revisions of the Hawley-Smoot tariff rates to gain reciprocal concessions from overseas trade partners, but this time-specific authority had to be renewed by the scrutinizing Congress each time the RTA extension expired.²

In the running battle between the executive and legislative branches of the U.S. government over the nation’s commercial policy, the year 1951 marked a major setback for liberal traders. In the Eighty-third Congress, opponents of tariff cuts held the upper hand amid a recession that hit small- and medium-sized enterprises particularly hard. In a major victory, protectionists succeeded in reinserting in the 1951 RTA extension act the “peril point” provision, which required the U.S. Tariff Commission to determine the minimum tariff rates that could be set without posing serious threats to a domestic industry. The 1951 law also mandated the inclusion of an escape clause in all trade agreements the president would sign under the enabling act.³ Against this resilient undercurrent of protectionism and the still-raw animosity from the recent war, liberal trade advocates faced an uphill battle in convincing the American people and their political representatives that rebuilding the Japanese economy and helping it find a niche in the postwar world trading system was in America’s self-interest and a strategic necessity in its anti-Communist crusade overseas.⁴

The Truman administration had to wage this two-front war against protectionism with very few policy options. Besides wartime destruction of its economic infrastructure, postwar Japan’s economic problems were compounded by the loss of trade with its neighbors in Asia. The Chinese mainland was now under Communist control, and Korea and Taiwan had broken off from Japan’s colonial rule. The future political configuration of South and Southeast Asia was still uncertain, and the area’s economies were wallowing in chaos and dislocation. Coupled with these birth pangs of a postcolonial Asia, Britain’s regional economic agenda added to Washington’s difficulties. The declining colonial power hoped to divert Japanese exports away from its sphere of economic influence in South and Southeast Asia with whatever means were at its disposal. Partially out of this imperative, the British even contended that the PRC should be allowed to be Japan’s main trade partner in Asia. London was not squeamish about propagating that notion among the Japanese and pressuring the Truman administration to relax constraints imposed by the Supreme Commander for the Allied Powers (SCAP) on Sino-Japanese trade. Persuading the British to forgo these disruptive endeavors would not be easy, Dulles warned Congress in early 1952, because most of the Anglo-American differences over Japan stemmed from Britain’s distinct economic interests.⁵

Enumerating to Congress the structural problems of the international economy in transition was a clever way in which the Truman administration, through an influential Republican, sought to build its case for promoting U.S.-Japanese trade. Dulles performed that mission with a flair. To prevent a political explosion in Japan, which might result from worldwide protectionism and the loss of Asian regional trade, it was necessary to look to the one other market capable of absorbing Japan’s surplus industrial production: the United States—the world’s largest and most prosperous nation. With the understanding that American business must be protected from sudden floods of imports, the new Asian ally should be given access to the U.S. consumer markets, which could provide “the Japanese with the dollars that they desperately need to buy raw materials here.” Dulles did not hesitate in raising America’s favorite specter: Communism, which breeds on hunger, poverty, and despair. “If world trade becomes so divided into restraining compartments that raw materials do not flow, that manufactured goods do not flow, that you have widespread unemployment and undernourishment in Japan, the Japanese will go Communist.” But there was really “no reason why a free enterprise society should not produce for the Japanese a very much better standard of living than they could possibly get under Communism.” Capitalism could give the reformed former enemy a life of work, nourishment, and hope.⁶

Dulles’s brief for a Democratic free traders’ agenda in 1952 presaged two main tenets of the Eisenhower administration’s approach to postoccupation Japan’s economic relations with the Western industrial world. First, the United States would oppose attempts by its allies to block Japan’s participation in the non-Communist world economy. At the same time, the administration regarded it as America’s responsibility to accept a fair portion of Japanese goods. When Dulles juxtaposed these principles, he clearly assumed that the two policies had to be implemented as parts of a single strategy. What he did not seem as yet to appreciate fully was the extent to which the success or failure of the U.S. government’s fight against the Western industrial world’s anti-Japanese commercial policies depended on the efficacy of its struggle against protectionism at home. In pursuing this binary strategy, American officials found it necessary to draw on the refrain of a weak and vulnerable Japan in U.S. domestic politics.⁷

Reinstitutionalizing Japan’s Place in World Trade, 1952–1955

When Japan gained its independence, one of its first orders of business was to restore foreign trade relations that had been severed or disrupted as a result of the war. Many obstacles, reminiscent of the forces that had driven Japan to the ill-conceived war ten years before, stood in the way of the Yoshida government’s task of finding a stable commercial niche in the U.S.-dominated postwar world. The nation’s acute dollar shortage, an aspect of the worldwide phenomenon known as the dollar gap, limited its ability to do business with dollar areas, most critically the United States. The web of discrimination woven by members of the British Commonwealth in the 1930s against Japanese goods did not automatically disappear with the advent of the Bretton Woods System, and the Ottawa Imperial Preference System’s anti-Japan feature continued to define the world economy operated in the pounds sterling. The clash of interests between the two main players in the Western industrial world, Britain and the United States, clouded the prospects for Japanese membership in GATT. Slow progress in reparations negotiations with nations in Southeast Asia hindered the cultivation of intraregional commerce. The deepening polarization of the world across the ideological line severely impeded Japanese trade with Communist states. The world remained an uninviting place for Japan.⁸

Although Article 7 of the Japanese peace treaty stipulated that the Allied countries notify Japan of whether they intended to continue prewar treaty obligations within one year after the peace settlement went into effect, only seven out of thirty-nine countries had reinstated their prewar commercial and navigation treaties with Japan by the stipulated deadline. Many refrained from action, arguing that new commercial accords needed to reflect the postwar world’s economic realities, which had yet to crystallize. In this atmosphere of watchful noncommitment, the Treaty of Commerce, Friendship, and Navigation (CFN), which the Yoshida government signed with the Eisenhower administration in April 1953, was an important milestone in the Japanese commercial comeback. Besides the paramount importance of American trade, Yoshida’s cabinet and trade and economic administrators in the reconstituted national bureaucracy correctly understood the significance of the U.S.-Japan CFN treaty as a model for comparable intergovernmental arrangements with other countries.⁹

The origin of this formative treaty goes back to the Truman years. In July 1951, as the contours of the peace settlement were taking shape, the State Department opened dialogue with Tokyo about a CFN treaty, none having been in force between the two countries since 1940. Preliminary negotiations by working-level officials began in the Japanese capital in late February 1952. Although highly technical in nature, the proposals each side brought to the negotiating table foreshadowed many of the problems the United States and Japan would encounter in their future trade. They also reflected the different priorities the two nations pursued in the postwar world and the disparate ideologies the two capitalist nations applied to the relationship between the state and market. Americans insisted on reciprocal provision of unconditional national treatment and most favored nation (MFN) status as the bedrock principle of world trade in a new era. In contrast, Japanese officials tried to guard their administrative jurisdiction over foreign and domestic commerce and to shield their domains from the invasive influences of America’s global financial and commercial superiority. Japan’s industrial planners, especially those headquartered in the newly constituted Ministry of International Trade and Industry (MITI), aggressively sought the exemption of Japan’s public utilities industries from the proposed CFN treaty’s national treatment provision. The exclusion of mineral mining from MFN treatment was another main concern for the Japanese. Reflecting the institutional interests of the Finance Ministry, which was also jockeying for control within the reconfiguring national administrative structure, the Japanese negotiating team also argued that the nation should be allowed to retain centralized state control over foreign exchange allocations until the full restoration of world currency convertibility. The Japanese negotiators also insisted that trade restrictions aimed specifically at the conservation of scarce foreign exchange—meaning the U.S. dollar—should not be prohibited under the proposed CFN treaty.¹⁰

By the year’s end, the negotiations were deadlocked over several key points. One logjam concerned foreign capital investment in Japan, one of the undesirable remnants of the occupation-era administrative expediencies which Americans now hoped to undo. In May 1950, the SCAP had banned all purchases by foreign nationals of stock in Japanese private corporations under the Foreign Investment Law (FIL). The law’s two subsequent minor revisions opened the way for the acquisition of outstanding Japanese stock by foreigners and lifted certain restrictions on capital reinvestment and repatriation of proceeds from stock sales. In 1952, the United States was willing to tolerate state restrictions on foreign direct investment only to the extent that such administrative tools permitted the Finance Ministry to regulate capital repatriation for the limited purpose of not depleting Japan’s foreign exchange reserves. From the outset of the CFN negotiations, the Japanese contended that American investors could easily acquire controlling interests in their undercapitalized enterprises. On the basis of this catchall theory of Japanese vulnerability, and the implied jab at America’s ability for neocolonial domination, finance bureaucrats refused to relinquish the broad discretionary power vested in them under the FIL. They also resisted the American request for a reciprocal right to unrestricted capital reinvestment. The dichotomy of a weak Japan and a powerful America was a just as common refrain in politics in Tokyo.¹¹

Behind this bureaucratic intransigence was the powerful Keidanren, the bastion of conservative business interests organized in 1946 as the Japanese government and the SCAP’S functional partners in the private sector. In March 1952, Keidanren’s CFN treaty task force commissioned by the Foreign Ministry counseled the government not to forgo the Finance Ministry’s existing authority on foreign capital investment for at least three years. The prime minister’s personal instinct against such a move, shared by some members of his cabinet, was unable to override the winning consensus within the Tokyo establishment. Investment experts in the Truman administration, on their part, concluded that given modest anticipated returns, it was highly unlikely that a large number of U.S. investors would be attracted to Japan as a site for their capitalist ventures in the near future. The Finance Ministry-Keidanren coalition’s argument about Japan’s scarce monetary reserves also won over Cold War strategists in the U.S. State Department.¹²

The treatment of import-export associations in Japan was another area of contention in which the philosophical divide between the United States and Japan was highlighted. Both sides brought to the negotiations their own administrative traditions concerning industrial cartels and the notions of what constituted fair competition and free enterprise. As the main overseer of postwar Japan’s industrial development, MITI claimed that activities of exporters’ associations, as long as expressly aimed at “orderly marketing,” did not constitute the type of cartelization banned under the U.S. antitrust law. The U.S. negotiating team found such entities legitimate only so far as they limited their activities to “police functions,” meaning prevention of dumping; they must not perform “control functions”—devisin...