TOKYO, July 6—The media are predicting that a full-blown U.S.-China trade war is unavoidable as Washington and Beijing are gearing for head-on collision, forcing the global economy to sustain irreparable damages. History shows that there still is options for both sides to reconcile and save their faces. one option called the voluntary restraint agreement that was exercised between Washington and Tokyo.
In 1981, President Ronald Reagan, whose administration saw Japan as the No. 1 trade threat to the United States, demanded that Japan curb its auto exports to the United States, warning retaliation against Japanese products with Section 301 of the 1974 Trade Act that empowers the president to take action to correct the bilateral U.S. trade imbalance with Japan.
Carrying Reagan’s demand, U.S. Trade Representative William Brock, a Republican, demanded that Japan manufacture cars sold in the U.S. market in the United States as most Japanese automakers do now and while limiting exports to the United States at 1.7 million units annually from 1.82 million units in 1980 to give ‘a breathing space’ to the Detroit 3 automakers for developing fuel-efficient compact cars.
In May 1981, Japanese Ministry of Trade and Industry bureaucrats led by Vice Minister for International Affairs Shohei Kurihara, ambitious and brilliant nationalists, emerged from closed-door meetings with USTR officials and announced what was called the ‘voluntary restraint agreement’ to keep Japanese auto exports to the United States at 1.68 million a year until 1984.
Reagan and Prime Minister Zenko Suzuki thus saved their faces and avoided stepping on WTO free trade rules. But the VRA (also called the voluntary export restraint) proved highly unpopular among American consumers as they were forced to pay steep premiums to buy Japanese compacts that were almost nowhere to be found in U.S. dealership car lots.
So in 1984, the VRA quota was increased to 1.85 million, and to as many as 2.3 million in 1985 to satisfy American consumer demand for small cars, before it was abolished in 1993. Since then, Japanese car exports to the United States has been static at around 1.5-1.6 million and are likely to decrease as more Japanese auto ‘transplants’ would start operating.
Tough highly unpopular and definitely not a panacea, the VRA can be applied to the U.S.-China trade parameters as one tool to eventually balance the tilted U.S. trade deficit with China.
–Toshio Aritake
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