Will China Follow Japan’s “Lead”?

Jock O’Connell

On my first trip to China, I arrived on foot.

It was early November of 1980. In those days, the train from Kowloon stopped just short of the border at Lo Wu, obliging passengers to walk across the railroad trestle into Shenzhen, then a not especially bustling market town of some 60,000 residents. About an hour later, a train pulled by a steam locomotive drew up at the station to take us to Guangzhou or Canton, as it was more commonly known in the West at the time.

My companion was a California Assemblyman named Mike Gage. We were traveling to China at the urging of Governor Edmund G. Brown, Jr. The U.S. and China had established formal diplomatic relations only a year earlier, and China had opened a consular office in San Francisco. Brown was keen on cultivating a wide range of contacts with the goal of expanding commercial, scientific, and cultural exchanges between California and China.

The Shenzhen Special Economic Zone, Deng Xiaoping’s audacious and politically perilous experiment in developmental economics that would ultimately transform China, had been established just three months earlier. So what we were visiting was still very much Mao Zedong’s China. Clothing was uniformly drab. Department stores had numbers rather than names. The only cars on the street were official vehicles, and the tallest building in Shanghai was the 24-story Park Hotel.

At the time, though, I, along with most Americans, had been focusing much, much more on Japan than on China. Japan, after all, was then the ascendant economic power in the Pacific. More and more American drivers were abandoning Detroit in favor of Japanese imports made by Toyota and Honda. We were listening to music and watching home videos on entertainment devices made by Sony. We were recording the events of our lives with Canon, Olympus, and Nikon cameras, often using Fuji instead of Kodak film. We were even developing a taste for raw fish.

As Japan’s economy grew and America’s seemed to flounder in an era of high inflation and rising energy costs, numerous pundits were predicting that, given the countries’ respective growth rates, Japan would overtake the United States as the world’s largest economy, probably sometime in the 1990s.

This was deeply unsettling to American business and government leaders, not the least to members of President Reagan’s cabinet like Secretary of Defense Caspar Weinberger, Commerce Secretary Malcolm Baldridge, Secretary of State George Shultz, Treasury Secretary Donald Regan, and Vice President George H. W. Bush, all of whom had seen military service in the Pacific during World War Two.

Then the unimaginable happened.

Japan went into a multi-generational funk. 

By the late 1980s, the economic model that had propelled Japan’s postwar ascent began to falter and then no longer seemed to work. This naturally shocked the Japanese who had grown accustomed to high rates of economic growth. But it swept aside the arguments of those on this side of the Pacific who had been pushing U.S. policymakers to emulate Japan’s industrial policy and management practices.

This brings us to China’s current predicament.

There is a growing body of authoritative opinion that does not see China’s long-term prospects in positive terms but rather sees ominous similarities between today’s China and Japan in the 1980s. The rapid expansion of China’s GDP over the past four decades has been guided by political imperatives that have too often rewarded growth for growth’s sake, most commonly by funneling massive investments into select industries, gigantic infrastructure projects, and property development schemes that often proved economically unproductive. Clusters of unoccupied apartment towers, Potemkin Villages with Chinese characters if you will, became the most conspicuous manifestation of years of wasteful investment.

Exceedingly few observers expect an abrupt collapse of the Chinese financial system or even a sustained recession. But growth is definitely slowing just as businesses worldwide are moving to disengage from, or at least lessen, their dependence on China. Demographically, China and Japan both feature declining populations with growing percentages of elderly and smaller absolute numbers of workers.

So it’s worth asking, how would U.S. ports fare if China’s role in the global trading system diminishes? Examining how they fared as Japan’s role receded should help provide some guidance to West Coast transportation planners and port authorities as they contemplate long-term investments of resources in support of maritime trade over the next few decades. At the very least, looking to what has happened to Japanese trade via USWC seaports should impress upon everyone just how difficult it is to anticipate the future.

In 1980, Japan accounted for 23.3% of America’s containerized trade, according to the U.S. Maritime Administration. China, whose share of U.S. container trade last year was 24.8%, did not appear on MARAD’s list of our top forty trading partners back then. Taiwan (8.4%), Hong Kong (7.8%), South Korea and Singapore (both with 2.4% shares) were our other East Asian trading partners.

The great majority of America’s containerized trade with Japan was conducted through West Coast ports. By 1980, the neighboring Ports of Los Angeles and Long Beach (740,000 TEUs) were on the verge of overtaking the Port of New York/New Jersey (750,000 TEUs) as the principal gateway for the nation’s box trade. Seattle/ Tacoma (348,000 TEUs) and Oakland (343,000 TEUs) also assumed large roles in America’s fast-growing container trade.

Since the 1980s, Japan’s prominence as a U.S. trading partner has sharply diminished, as Exhibit C shows.

Not surprisingly, this was reflected in Japan’s share of the transpacific container trade as Exhibits D and E reveal.

None of this is meant to imply that China’s maritime trade with the U.S. will follow Japan’s pattern. Still, these exhibits should serve as a reminder that, just as “Japan as #1” is no longer a rallying cry in Tokyo, expert expectations now and then go awry. There are very few guarantees in the world of trade, and trends that appear inexorable in the moment do not always play out as predicted.

Even globalization is at risk of faltering.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.