It is perhaps unwary of a writer in this nuclear age to classify anything, even a country, as a key feature of a power position. But if there is any longer such a thing as an area of paramount importance to us in the Pacific, it is Japan. The reasons why this is so make an impressive list.
First: location. Japan is a string of islands about two thousand miles long stretched across the main ocean approaches to East Asia. On our side, these islands do much to neutralize the ability of the mainland enemy to project its power anywhere and give us the ability to exert power on it. On the enemy’s side, the Japanese islands would act as a gigantic shield, protecting the mainland from our Pacific power and enabling the enemy to use its power overseas. Our whole strategic posture in the Far East is based—as it should be—on a chain of islands from Australia north. Loss of Japan would neutralize the whole island system.
Second: strength. Japan is to East Asia what Britain is to Western Europe. With 88 million people and a modern industry Japan contains the greatest concentration of industrial power between the Western United States and Russian industry in Eastern Europe and Central Asia.
Not only is the East Asiatic mainland for the most part without an industrial complex, hence without power in itself, but also, unlike the Western European mainland, East Asia is without the network of modern transportation and communication facilities necessary to move and utilize power.
In Britain, therefore, we have a major, industralized island base athwart the approaches to Western Europe but subordinate in power itself to the adjacent mainland. In Japan we have the same industrialized base on Asia’s doorstep, and in addition the best, most concentrated and most usable power potential in the East, facing an Asiatic littoral thousands of miles from the sources of its power.
We possess, one must believe, in the United States and in the Americas the ability to create enough power to counter anything that can be developed behind the Iron Curtain, regardless of Soviet progress in H-bombs, aircraft, and naval strength. As long as both Britain and Japan remain firmly on the side of the free world, this American power is mobile and capable of projection, and Soviet power can be contained within its heartland boundaries. The loss of the strength and strategic position of either Britain or Japan to the free world would immediately reverse this posture and make us a beleaguered fortress.
Third: ideology. In spite of Red China’s ability to shoot its way into a de facto great power status, and in spite of the assumption by India’s Prime Minister Nehru of a position as moral spokesman for Asia, the Japanese have enjoyed more than a half century of leadership in oriental political thinking.
Most of Europe’s post World War II troubles in the Far East were brought to a head by the success of Japanese arms against the West and the compelling appeal of such Japanese propaganda as the “Asia for Asiatics” theme and the “East Asia Co- Prosperity Sphere.” These appeals reached Asiatic consciousness and even translated themselves into Asiatic national feeling in spite of their promotion by Japanese imperialism. It is not insignificant that Indonesians credit the Japanese occupiers with giving them their first participation in Indonesian Government, or that European colonialism failed completely to restore itself in the Orient after 1945.
On the economic and social side, it is easy for Americans and Western Europeans to classify all of the Orient as an area of poverty and lack of opportunity. From an oriental point of view, however, there is a vast difference among countries, and Japan’s living standard is far higher than that of any other country in the Far East. Her population is literate, health conditions are good, and her material technology is well developed and comparable to that of the West. Japanese technicians have participated in the post war establishment of the textile industry in India, Burma, and Pakistan, and in the development of iron ore mines in Malaya and the Philippines, and of the fishing industry of Ceylon, and of many others. Japanese machinery, rolling stock, and ships are being extensively used in the industrialization of most of the oriental countries, and engineers from many of those countries are being trained in Japan at present. Japanese agricultural techniques, exported all over the orient, are the main hope for increasing rice and other food production in overpopulated and hungry Asia outside .the Iron Curtain.
Not only does Japan represent technical and material leadership in the Far East, but also to the rest of the Orient Japan’s social and economic organization has in the past provided a degree of opportunity for the Japanese people not readily available in most of the other areas, hence an objective to them. Finally, the prewar decade or so of sword-clanking militarism in Japan obscured for the world the fact that Japan, before the Manchurian adventure, had attained a high degree of working political democracy, the only such example in Oriental history.
It seems obvious that the war of ideology between the free world and that of totalitarianism demands a set of ideas and social objectives to counter the blandishments of Communism. If this is true anywhere, it is many times more true in the Oriental half of the world. To a billion or so people who have always lived close to misery and who have been brainwashed to the point of attributing their misery to Western colonialism, Communism will continue unbeatable until some better example is set before them.
We have succeeded to date in capturing relatively few Oriental minds with our Western presentation of alternatives to Communism. Our operation in Korea, though resolute and of salutory military effect, ended on a note of weakness in the eyes of Orientals. If we are to achieve any real success in the direction of freedom in the Orient, we must do it through example, and leadership. Japan provides us not only with a logical choice as a field for our endeavors but with the only one we have. For that reason, if for no other, Japan becomes a key to the future of the free world in the Far East.
Japan Is Anti-Soviet
All of the foregoing delineates the importance of Japan to our strategic position, indeed to our having any position at all in the Far East. What, however, does Japan think about it? It is not enough to say that Japan is also of the free world, that our military forces are just as important to Japanese freedom as is her strategic position to ours, and that, therefore, Japan should think as we do about it. This may be true enough, but if we stop there, we will leave it at best a matter of our somehow using protection to buy Japan as a passive partner who stays nominally on our side and merely allows us the use of her geography and power potential.
What then of the Japanese position? Fortunately, we can start with a large negative for the Soviet side. We had nothing to do with it and can only thank the Soviet for its own short sightedness.
First, Russia entered World War II against Japan in its closing days in spite of a non-aggression pact with Japan, and for the sake of strategic territorial gains and the desirability of getting a say in the disposition of defeated Japan. To the Japanese this constituted a stab in the back. And to the Japanese, the Soviet occupation of the Kuriles, Shikotan, and the Habomai islands is completely illegal.
Second, the Soviet kept hundreds of thousands of Japanese war prisoners for many years after the end of the war. Thousands of them are still unaccounted for, and other thousands died in Siberia.
Third, the Soviet refused to participate in the peace treaty signed at San Francisco in 1951, and today maintains no legal relationship with Japan. The Soviet has used Japan and potential Japanese militarism as a bogey in its Oriental propaganda.
The above, combined with a history of Russo-Japanese antagonism and conflict extending back fifty years to the Russo- Japanese War, would seem enough to keep Japan from willingly moving into the Soviet orbit. Other things being equal, it probably would be.
To the Orient, however, the Iron Curtain is represented now by Red China even more than by the Soviet. The enormous impact of Red China upon the world and especially upon the Far East is only beginning to be felt. It is impossible at this stage fully and correctly to appraise it. Red Chinese military development has shaken the Far East balance of power to its foundations. It is forcing us to persuade the Japanese to rearm in self-defense—against the threat of a country which in all of modern history has been helpless against foreign encroachment.
Although it could also have the opposite effect, as will be discussed later, the emergence of Red China as a world power could, if carefully exploited by us, have a salutary effect on keeping Japan free and in stimulating Japan into reasserting herself in Far East affairs. The present preoccupation of Japan with Red China trade will be dealt with. Politically, however, Japan is too proud a nation and still too indoctrinated with its sense of mission in the Far East to remain passive forever while Red China more and more dominates Asia.
Japan must, it is to be hoped, eventually challenge Red China for leadership and influence in at least East Asia. And since Japan cannot hope to displace China as the leading Asiatic Communist power, it seems reasonable that the Japanese challenge come under the free world label. It is conceivable that Japan could attempt to lead a third force group in the Far East, but that position seems to have been spoken for by India and furthermore is not a role made to order for a historically militant Japan.
Japan, finally, should be tied by strategy and economics to the West and to whatever power or powers have paramount interests in the Pacific Ocean. No matter how important the mainland of Asia may seem at any time, the importance of the Pacific must be greater to her, since she can exist without Asia but cannot long exist without Pacific Ocean relationships. Japan proved that herself in World War II. Unfortunately, she may not yet realize it, and present economics do not make it apparent.
American Good Will in Japan
These negative reasons for the Japanese staying out of the Soviet camp are strengthened by the reservoir of good will we gained from six years of decent treatment during the occupation of Japan. We also inherited a great accumulation of irritation inevitable in any military occupation. The Japanese sometimes seem to exhibit more of the irritation than the good will toward the United States, but the good will is there and is deep seated.
Politically the United States must live down its emphasis during the occupation on renunciation of war and military effort by Japan and must disown many of the reforms imposed on Japanese society which were equally foolish. Politically also we are now dealing with a Japan, many of whose leaders, including the present Prime Minister, are men purged by the occupation. We can only hope that they put the national good before their personal resentment against the United States for its ill-advised purge policy. We are being forced to eat our own words so quickly after uttering them that it provides easy ammunition for those opposing rearmament of Japan and generally opposing American policies in the Far East.
The writer feels, however, that America has a long established fund of good will in Japan which was never obliterated even during the bitter Pacific War. While the bulk of Japanese classical culture was imported centuries ago from China, it is equally a fact that much of the modern culture in Japan has come from America. From baseball to movies, and more importantly from labor unions to present political institutions, the westernization of Japan is unmistakably American in practice if not in form. Japan was opened to the West by an American naval squadron and the event is still celebrated annually in Japan a century after.
This does not mean that anti-American feeling cannot develop in Japan. It does mean, however, that our relations with Japan can withstand a good deal of such feeling.
In one sense, both the Japanese and we did our job too well after the war. In losing the war the Japanese military leaders so thoroughly discredited both themselves and militarism that there is in Japan a deep seated reluctance to rearming even for their own protection. As described above, the United States inspired an official renunciation of war and militarism in the Japanese constitution. We are now finding it most difficult to reverse that operation. Both of the conservative political parties favor re-armament and an amendment to the constitution recognizing it. They now lack by a few votes the two thirds majority in the Diet necessary. The two socialist parties are against this revision of the constitution, and the people of Japan are not much in favor of it.
As of early 1955, the land self-defense force amounts to 110,000 men. Present plans call for expansion to 180,000 by fiscal 1960- 61. Naval strength is presently 90,000 tons, with the largest vessels being leased American destroyers. Planned expansion would bring it to 120,000 tons. Planned air strength would be 1,500 aircraft including late jet fighters and transport aircraft. Present air strength is largely trainers and propeller- driven aircraft, useful for patrolling and reconnaissance but without combat effectiveness.
The present annual defense budget including partial support of American forces in Japan is about 130 billion yen, or $360 million, planned to reach 200 billion yen by 1960.
The above armed forces are a long way from what would be considered an adequate military establishment for a country of 88 million people. At best they are enough only for garrisoning the northern island of Hokkaido and for routine coastal patrolling. Japan’s attempt to build a reserve force has been a complete failure. In the six months since the effort was initiated, only a small membership has been recruited, mostly from the unemployed.
Passive Isolation of Japan
While budget troubles in the precariously hard-up Japan of today will make it very difficult to build the sort of defensive military organization necessary, it seems to this writer that the continued reluctance of the Japanese people is too universal to be attributed merely to lack of funds or distaste for the military inspired by the past war. It is a reflection of that inert and passive attitude toward the world and its own position in it which has characterized Japan until very recently. It can only be overcome by a foreign policy for Japan which makes sense to Japanese and which can give them a positive feeling of direction and position. From our point of view, this foreign policy must also be so steeped in freedom as not only to establish Japan outside the Soviet orbit but also to make Japan a leading voice in the Orient for the free half of the world. The present period, therefore, constitutes an opportunity for us to try to guide the Japanese into a firm position on our side. It is also a large scale hazard because the present passive state cannot go on. Like a pendulum, Japan must swing away from us if we fail to swing her toward us.
While Japan has been a sovereign nation now for more than two years, she does not as yet have a firm foreign policy. This is not entirely the fault of the Japanese. For some six years of military occupation, Japan had neither a voice in foreign affairs nor any machinery for formulating and furthering Japanese international interests, nor in the last analysis did Japan have any direct means of finding out what was going on in the rest of the world and how it concerned Japan.
During that time cataclysmic events were taking place. The Soviet embarked upon a power drive toward world domination and the United States placed itself across the Soviet path, with the present cold war as a result. In the Far East, the vacuum created by Japan’s defeat was filled immediately by American and to lesser extent by British Commonwealth mobile power, but has to an alarming degree since been usurped by Communist land power, chiefly in the taking over of China but also in Communist success in Southeast Asia. The vacuum created by withdrawal of the British from India and the Dutch from Indonesia is still quite dangerously a vacuum.
Japan, therefore, emerged from our military occupation to an entirely new Far East, a set of surroundings made even more difficult for her by the fact that several Far East countries failed to participate in the peace treaty and several others continue to wrangle over the question of reparations. Japan today cannot be said to have normal relations with any country of the Far East with the possible exceptions of India, Pakistan, Thailand, and Burma. It is only very recently—since the time when her failure to solve the problems of relations with such oriental countries as Indonesia, the Philippines, and Korea has began to hurt commercially and since Soviet Russia has instigated moves toward reopening diplomatic relations —that Japan has begun to exhibit an interest in her international position.
Japan Needs Foreign Policy
In foreign affairs Japan has quite naturally remained very closely connected with the United States. We continue by treaty to maintain military forces in Japan, we have helped the Japanese economy with large scale military procurement in Japan, and in many ways we have intertwined our activities in the Far East with Japan. The Japanese Government, too, until the end of 1954 has been the same government which for several years under the occupation acted as a sort of executive agency for SCAP, the Allied authority in Japan, and primarily American.
This interconnection of Japan with our activities in the Far East is good. The community of interest between us is great, and it is both to Japan’s advantage and to ours to strengthen these relations in every way possible. It is not healthful for Japan, however, to drift in international affairs with no foreign policy of her own. A community of interest between the two countries is good for both, but a dependence of Japan upon the United States for a foreign policy and particularly a Far East policy is not good.
In the first place, it leads to the passiveness in international relations which is the major handicap to Japan taking a leading role in Far East affairs at present. The Japanese people cannot be expected to resolutely make the sacrifices necessary to build an adequate defense force if that force is looked upon merely as something dictated by American strategy. Nor can Japan make her voice felt in Far East affairs until the rest of the Far East knows that she is speaking for Japan.
Until Japan assumes more responsible leadership in the Far East, it is not likely either that she will succeed in solving the problems of unsettled relations with her Far East neighbors. The matter of war reparations to the Philippines and Indonesia is an enormously difficult problem, but it will never be solved until the Japanese think through the whole matter of their future position in the Far East and adopt a reparations policy as part of that over-all picture of Japan’s relations with these countries. So, too, the problem of South Korea, where Syng-man Rhee is as formidable in his intransigence toward Japan as he is in his willingness to fight Communists.
Present Political Lineup
The Japanese political picture underwent a substantial change of faces in late 1954 and early 1955. 'Pile government of Shigeru Yoshida resigned in favor of a new Democratic party (actually quite conservative in nature) and the national election of February 27th confirmed the change. The Democratic party is now the government party headed by Ichiro Hatoyama. The Liberal party formerly headed by Mr. Yoshida can be expected ultimately to support the Democrats in policy matters since their political philosophies are pretty much identical. Together they have nearly but not quite two thirds of the Diet seats. Except for the two Communist Diet members, the balance of the Diet is controlled by the two Socialist parties.
The new government is less likely to tie Japan as tightly to the United States as did Mr. Yoshida, but seems to be more representative of Japan, and is not at all anti- American. It looks toward resumption of relations with the Soviet and Red China and has put a good deal of perhaps ill-founded hope into Red China trade. It has also indicated faster rearmament for Japan and promised the development of an independent Japanese foreign policy. Mr. Hatoyama himself lacks the diplomatic experience of his predecessor, Mr. Yoshida. He is, however, a good deal better able to get Japanese support for himself and his policies because he has made himself and his policies more Japanese than did Mr. Yoshida.
A major virtue of the present government is the fact that it may be able to pull together a truly conservative party in Japan through amalgamation with or absorption of the Liberals. A pulling together of conservative forces could give Japan a strong and stable government for a long period.
The two Socialist parties operate best as opposition parties and seem unlikely to reach power in the foreseeable future. In spite of the two Communist Diet members, the Communist party is not strong. It is tough and could provide trouble if ordered to by Soviet policy, as witness Communist riots in years past. There is every evidence, however, that the Japanese police can easily handle any internal Communist threat.
Since modern political policies are governed so increasingly by economic demands, we must look at Japanese economics in order to estimate the course of Japanese politics, both domestic and international. For if Japan is to feel that overwhelming stake in the free world which is necessary to make her assume a leading position of partnership with us in the Far East, that stake will have to be as much economic as political.
None of the forces which tend to pull Japan toward the Iron Curtain are political. As was briefly discussed earlier in this article, Japan has no history of cordiality with Russia and is far too proud to accept a position subordinate to Red China in the Asiatic Communist hierarchy of power. The economic lure, however, is quite considerable, even though the trade Japan expects from the Reds would in all probability turn out to be mostly mirage. Furthermore, the existing lack of Japanese foreign policy is due as much to the economic frustration of Japan at present as it is to any other reason.
Economic Picture Is Frustrating
The Japanese economy in the spring of 1955 is extremely ragged. In very round numbers it may be called an economy capable of giving a reasonably good life to a population of something like sixty million, but called upon to support the 85 to 88 million Japanese now crowded into the home islands. The population goes up steadily at a rate of more than one million a year without a corresponding increase in economic productivity.
Japan has about fifteen million cultivatable acres of farm land, intensively worked in rice, other cereals, and vegetables. The Japanese have raised production per acre probably to the maximum attainable. Rice output, for example, is about twice that per acre of the United States and may be three times that of India. So many people work at this production, however, that rice output per man is extremely low. In rough terms, total food production in Japan fails to supply the country’s needs by about 20%. Some help may be obtained from land development in Hokkaido and elsewhere, but for all practical purposes Japan’s food deficiency will remain large and will increase as her population grows. The much publicized land reform under the occupation was undoubtedly a popular political and social measure, but its status is transitory at best and its economic effect on production has been negative, if anything, by virtue of fragmentation of land holding.
Japan’s food deficit must be met by imported food which must be paid for by exports. Before the Pacific War, Japan made up its rice deficiency from Korea and Formosa, and from the latter obtained also its needs in sugar and other tropical foods. These were empire areas, within the yen economy, and that yen economy was self- sufficient in food. These areas are now foreign countries, and imports add to the Japanese balance of payments problem, even when they can be obtained, which is not always.
Most of their protein is obtained from fish of which the Japanese have the highest per capita consumption and probably the highest per capita fish catch in the world. Here again the postwar situation is one of squeeze. A population more than fifteen million more numerous than prewar must be fed from greatly restricted fishing areas. The Soviet holds the Kuriles Islands and forbids Japanese entry to most of the northern fishing areas. The South Koreans likewise have established the Rhee Line, sixty miles off their coast, and seize all Japanese fishing vessels entering that area. The Australians have forbidden pearl fishing by Japanese on their continental shelf, and both Nationalist Chinese and Red Chinese have seized and confiscated Japanese vessels. A popular Japanese saying is to the effect that Japan’s leading export is fishing boats captured by her neighbors. Disregarding the additional hazards of tuna fishing in the Bikini H-bomb testing area, the Japanese are at best faced with much poorer fishing opportunities to feed many more people.
Industrial Resources Limited
The Japanese population pressure long ago forced the country into industry and world trade for economic survival. Here again, however, they have no resources but their own intelligence, organization, and willingness to work. The Japanese islands are barren of most of the raw materials needed by industry. In the all important field of fuel, Japan is scantily supplied. They have a very ordinary grade coal, which is not suitable for steel making and costs so much to mine that coal in Japan retails at close to thirty dollars a ton. Coking coal for the steel industry must be imported at about the same final cost. About 90% of the petroleum requirements must be purchased abroad.
The Japanese textile industry, one of the largest in the world, depends completely upon imported cotton and wool. About one third of the wood pulp for rayon also must be imported. In minerals, Japan has enough of a poor grade iron ore for maybe one sixth of her steel needs; she has no bauxite for aluminum; and only barely enough copper, lead, and zinc.
An industrialized country without rich raw material resources must depend upon trade goods for production. Japan must import raw materials on favorable terms of trade, must process them in efficient low cost industry, and must be able to sell enough of the product abroad and on terms favorable enough to pay for the consumed raw materials and fuel and to pay for the imported food and other deficiencies which her growing population has created.
Taking these items in order, we would look first at the imports of raw materials. Coking coal and iron ore came before World War II from North China and from Southeast Asia and other Asiatic areas. China is now cut off and Southeast Asia is hardly a reliable source of supply. Many minerals came from Korea and are now either behind the Iron Curtain of North Korea or are simply not available. Industrial salt, basis of the Japanese chemical industry, came from North China and now must be imported at high cost from half-way around the world.
The terms of trade on this distorted import supply for Japan are equally bad. Far too much of the coal, wheat, pulp, petroleum, and other bulk commodities now have to be imported from such dollar areas as the United States and Canada. Japan’s trade was unbalanced in 1954 by $590 million per year in excess of purchases from the United States over sales to us. In the first half of 1954 Japan became the leading buyer of dollar rice from America, a position she can hardly afford.
A corollary to the availability of industrial materials would be the efficiency of the industry which processes them. With some notable exceptions, this efficiency was lost with the Pacific War, from which Japan in an industrial sense has hardly begun to recover. Japanese industry is on an average at least ten years and probably closer to twenty years behind the United States. The war destruction, and other net capital decrease both during and after the war, has made much of Japanese industry obsolete, yet capable of replacement only at abnormally high cost. Industrial bond money in Japan, for example, carries an interest rate of 10 to 12% a year for blue chip industries, compared to not much more than a third of that cost in the United States. Even at that exorbitant rate, money is extremely hard to obtain for industry. The net risk profit rate must, therefore, be at least 15% which tends to channel risk money into speculative enterprise rather than sound industry and forces even sound industry into attempts at speculative profit making.
As a consequence, Japanese industrial production costs, hampered by high priced capital and obsolescence of equipment and by very high cost fuel and utilities, have gone up fantastically. The pre-World War II Japanese bicycles which sold in South America for five dollars have now become twenty-five dollar luxuries. Even Japanese textiles, long a specialty which Japan could produce at a cost untouchable by other countries, now tend to be priced out of markets by other oriental producers and even by Europe.
Labor, organized by the occupation, is still relatively cheap in Japan by American or European standards, but has become a social force of greater and more inflexible cost to industry. Japanese management, though alert commercially, has not learned to get the most out of either labor, or plant, or high priced fuel.
Foreign Trade Difficulties
The third and last element of Japan’s industrial position is that of favorable sales of industrial products abroad. This is obviously the key feature of her trading economy. It is at the same time the weakest link in the commercial-industrial chain and the one which can be made to offer the only hope of large scale improvement in the over-all economy.
Like Britain, Japan built her trading economy upon an industrial headstart over the rest of the Orient. And as in the case of Britain, the other areas, formerly undeveloped sources of raw materials and markets for consumer manufacturers, have begun to catch up. India, twenty years ago a large market for textiles, is now a major producer and likely to supply much of the Oriental export market. All of the so-called undeveloped countries are bending every effort to establish industry, particularly the light manufacturing industry which has always been the source of Japanese export strength.
This is nothing more than historical progress, and Japan will have to learn to cope with it as Britain has, by reaching additional markets for machinery, rolling stock, ships, chemicals, and other more advanced products. The process is difficult, however, at best and for Japan at present is made enormously more difficult by the politics of the world.
Mainland China, for example, with its 500 million people is the major market of the Orient. As a matter of normal, peaceful development, Japan could be kept busy for a long while supplying merely the needs for establishing industry, transportation, and modern living in that country. So also the rich areas of Southeast Asia badly need Japanese help and products in developing their resources. Indonesia is a third example.
Unfortunately for Japan, however, China is Red and committed to a wholly different method of development. In 1954 Japan’s exports to the China mainland were 1.2% of total exports and imports 1.9% of total imports, contrasted to a 1930-39 average in which China trade accounted for 21.6% and 12.4% respectively of Japan’s exports and imports. The Japanese tend to dream golden dreams of what might come from trade with Red China, but experience to date is not heartening. The trade agreements made with both Red China and the Soviet have been marked by sharp dealing on a political basis, broken contracts, and failures to deliver by the Reds. In the past several years a total of several hundred million dollars in such trade has been negotiated in one way or another, whereas the actual transfer of goods has amounted to not more than a small fraction of that figure. Of the 1953 official trade agreement with Red China, only 15% was consummated. Japan’s trade with Formosa, currently more than $150 million a year, is several times the likely trade with the Communists.
While Southeast Asia has been a postwar mainstay to Japan, the fighting in Indochina and guerrilla activity in Malaya and Burma have held trade more or less to subsistence levels and prevented any real development of the Southeast Asia economies. The debacle in Indochina promises to remove rich Vietnam and possibly the rest of Indochina from the free world’s economy entirely. Other Southeast Asia countries can hardly proceed with peaceful development once that occurs and Communism is in their midst.
Indonesia with some sixty million people and substantially no manufacturing industry is a logically large Japanese market. To date, however, wrangling over reparations and political adventuring in Indonesia have brought trade to a standstill, the large balance owed to Japan probably being written off by Indonesia. Current unsettled reparations hamper and threaten to sever trade also with the Philippines. The South Korean Government has in effect embargoed purchases from Japan and also owes a large balance to Japan.
Japan has not been appreciably more fortunate in trade with the rest of the world. The United States continues to sponsor the Japanese position, but in fact has not liberalized to any extent the entry of Japanese goods. The so-called Flammable Fabrics Act indeed has served to reduce imports of Japanese silk scarves; and other competitive interests, tuna fish and plywood for example, are attempting quota limitations on Japanese goods. President Eisenhower’s Trade Bill was, indeed, passed by the present Congress, but it seems to have evoked formidable opposition by large segments of American industry. In 1954 Japan bought goods worth $867 million from the United States and was able to sell only $277 million in the American market. Canada and Australia present the same unbalanced trade picture with Japan and show little evidence of willingness to allow entry to more Japanese products.
To date Japan has not been accorded the benefits of full participation in the only real post war attempt to further trade on an organized international basis. Japan’s admittance as a permanent member of GATT, the General Agreement on Trade and Tariffs, has been held up chiefly due to British opposition. Japan, therefore, can be and is discriminated against in the application of tariffs and quotas.
The Balance of Payments Problem
As a major trading nation, and one with a weak and inconvertible currency, Japan suffers greatly in the post war throttling of trade by reason of world wide currency controls. With no freely convertible currency except the dollar, and a few others of little trade consequence, there has been no possibility since World War II of multilateral clearing of trade accounts. Under forced bilateralism, the trade between each two trading countries or, at best, group of countries has had to be balanced. This automatically limits the overall trade possible. Under multilateral clearing one country buys what it needs from another country and sells what it can, making up any unbalance by trade and clearing with other countries. The balancing between each two countries under bilateral trade naturally is done at the lower figure. Japan is doubly unfortunate since she normally buys more than she sells in the dollar areas, hence cannot accumulate dollars to settle other accounts at higher levels.
All of the above has meant a Japanese trade account heavily unbalanced, principally by dollar area purchases. In 1953 the visible foreign trade deficit reached the alarming total of $945 million. In spite of American Security Force spending, including offshore procurement, which amounted to $809 million, the final balance of payments at the end of the Japanese fiscal year, March 31, 1954, was in the red by $313 million.
The rigidly applied tight money policy of the government has limited imports so drastically in 1954 and to date in 1955 that many industries are living on inventory for raw materials. The most strenuous efforts also have been made to boost exports. As a consequence the commodity trade deficit for 1954 was pulled down to $429 million, and Security Force spending will bring about a surplus in international payments of about $300 million at the end of this fiscal year, March 31, 1955.
The foreign exchange holdings of Japan likewise have gone up sharply from a total of $875 million in January, 1954, to $1,065 million in January, 1955. This total, however, includes $205 million in open account debts to Japan, most of which are owed by Indonesia and Korea and are not likely to prove collectible. These restricted credits to Indonesia and Korea increased by $55 million and $16 million respectively in 1954, indicating the lengths to which Japan went to export. Japan also has liabilities in its payment position totalling $110 million for American cotton credits, sterling usance, and dollar usance.
Japan can hardly better her 1954 payments record by her own efforts. Exports were promoted through every known commercial device of linkage, subsidy, and so on. Imports were held down severely, and since about 98% of imports are raw materials and food, they can be restricted further only by arbitrary reduction of the basic standard of living. In spite of this effort, the Japanese balance of payments came out plus only by virtue of continued spending by the American military.
Although necessary to balance her international accounts, the Japanese Government’s tight money policy had the bad effect of severely reducing over-all business activity in Japan without cutting substantially the cost of production. Volume of sales decreased 10% in the April to September, 1954, period. The allowance by business for depreciation dropped, and total appropriations for dividends, reserves, and surplus exceeded profits. . . . All of this constitutes contraction of an economy which must support a population expanding by nearly 2% a year. It cannot go on.
Japan Will Be Pushed into Action
We have, therefore, an economic Japan squeezed between the demands of a far too large and far too rapidly growing population on the one hand, and a much restricted commercial and industrial environment on the other. Her living standard is still much higher than that of other Oriental countries, but urban consumption in Japan is calculated to be only 80% or thereabouts of what it was pre-war. Japan is restricted artificially by international politics in her attempts to trade advantageously.
The entire economic situation is one of frustration. As it stands it does not appear to the Japanese to give them enough return or enough hope from the future to justify an enthusiastic defense of freedom and democracy in the Far East. While it is nobody’s fault specifically, it is a condition which is hazardous to our objectives in the Far East, therefore, one for which we must attempt to find a solution.
Politically, the Japanese have adopted no positive policy of their own and have no clearly thought-out Japanese objectives in international affairs. Frustrated economically, barred from participation in many of the international organizations and without coherent relations with most of her Oriental neighbors, Japan drifts passively in a world which does not tolerate political aimlessness. Aimless and passive Japan remains still on our side through strategic, economic, and other ties, and probably is not in much immediate danger of slipping away completely from the free world. As a consequence of her lack of positive approach, however, Japan’s voice means little in Far East affairs, and the weight she brings to the side of the free world is only a fraction of her capabilities.
This political stagnation, moreover, when combined with economic frustration can be explosive. The Japanese are much too vigorous and much too ingenious not to try some way out. The recent change in government in Japan is a simple reflection of that restlessness, and the new government is fully aware of it. Japan will move in one direction or another and will do so shortly. If we can make Japan see that it is to her best interest to move strongly and independently along the lines we are following in the Far East, then we have a good chance of stopping Communism and throwing it back in that half of the world.
If, on the other hand, Japan can see no help for her present frustration in close association with the aims of the United States, then we stand a good chance of complete debacle in the Far East. For the Japanese political and economic impasse cannot be solved by any sort of straddling the two sides of the cold war. There is not enough in either political prestige or economic gain for Japan in merely reopening diplomatic and commercial relations with Red China and the Soviet. Any attempt by Japan to enjoy the best of the two worlds is doomed, before it begins, to failure and a continued frustration.
If, therefore, Japan moves at all toward Red Asia, the movement is eventually bound to tempt political collaboration of one sort or another. This is especially true if the Chinese Reds manage to conquer by subversion or otherwise the balance of Southeast Asia, which would present Japan with something close to commercial collapse. The cards are all stacked in favor of Red China in any political collaboration with Japan; maybe the Japanese can see it. We, however, can risk allowing it to happen only at a most deadly peril to ourselves.
What then can we do? What American policies can be changed to bring Japan more forcefully into our free world, and specifically what can we do to help Japan discover an independent policy and viewpoint in the Far East which will be good both for Japan and for the free world of which Japan is a part? Finally, what can we do to better the Japanese economy and to give it the opportunity which is necessary if Japan is to play its part in the free world?
It is difficult to point out any serious mistakes in policy in our relations with Japan over the last ten years. We ended a bitter war with them, and have advanced to cordiality and respect since. True, we went too far in stripping Japan of defenses and in remaking her social institutions on our model. These mistakes are being corrected, however, and the Japanese remain friendly and basically a hard working, decent people of great potential.
Partnership with Japan Is an Answer
Our trouble to date lies hot in what Japan is doing or in what we have done. It lies instead in the fact that the cold war and the strategic movement of power in the Far East has progressed too rapidly. We are now only ten years away from the end of the Pacific War with Japan and roughly three years from our military occupation of Japan. But we do not have time to let what in another age would be called normal relations with Japan develop. Japan is going to move one way or another and break out of her present passive and frustrated state. As a matter of imperative strategic necessity we must see that Japan stays firmly in the free world and makes a maximum contribution to it.
To bring that about will require nothing less than a working partnership between the United States and Japan in the Far East and a set of economic incentives which will make that partnership good business for Japan. Nothing less will retain our strategic military posture in the Pacific, in my opinion, nor will anything less give us a real chance of leading the Oriental mind away from Communism. This working partnership with Japan in the Far East would not be entirely a matter of give on our part. The Japanese are Orientals and well versed in the ways of the orient. Our judgment in things Oriental has not to date been impressively good. A Japanese contribution could well improve it.
The writer cannot prescribe how to go about forming this partnership, nor can its immediate effect upon our other international relationships be foreseen. This is the task for our policy-makers and diplomats, and it is mostly the task of quickly, instead of slowly, doing the emotional job of making the idea receptive—to ourselves, to our allies, and to the Japanese. It means admitting to ourselves pretty much that the Pacific War was regrettable. It means reminding ourselves that even in the age of the atom, or perhaps particularly so, geopolitics inevitably allies us with island powers—and Japan with Britain is the most important group of islands in the world.
In the economic field the choice is simple. It hurts a little; therefore we back away from it . . . Japan’s problem is that of not enough export trade to earn a living, and the only place that export trade can be found is in the American market. It is just as simple as that.
We try to think hopefully of development of Southeast Asia and other parts of Asia as providing enough outlets for Japanese exports to give Japan the expanding economy she needs. This is a mirage—just as much so as the Japanese hopes for Red China trade. Unless we wish to spend many billions of dollars on grant aid which will be largely wasted, there is little which can be expected from early Asiatic development.
The hard economics of Japan’s trade imbalance lies in the fact that it derives mainly from buying many times more than she sells in the dollar countries, principally the United States. The only direction in which to expand is in those dollar area sales.
Expanded Japanese sales in the United States would hurt certain American industries directly competitive to Japanese products. They are already crying—too loudly, but not without reason. The question as far as some of these industries are concerned is one of survival, and they are right in objecting. Individual American businesses should not be called upon to sacrifice themselves.
But on a national scale, the question is also one of survival in reverse. We must have a free and economically healthy Japan on our side, or we may not survive as a nation. We must, therefore, find ways to allow Japan to export more to us. In a market of hundreds of billions of dollars a year, the problem of increasing Japanese sales on a selective basis can be done without sacrificing American business. Maybe selective import quotas are the answer in order to avoid con centration of low price Japanese goods in certain fields. Perhaps graduated tariff scales based on volume in any commodity could limit competition against any one American industry.
Whatever the mechanics, we had better get busy and find the formula. The cost to us as a nation is absurdly small. The required expansion of Japan’s sales to the United States would be far less than the grant aid we have given to many countries of less than Japan’s size and a fraction of Japan’s importance. In doing this for Japan, we will give away none of the taxpayers’ money. We will merely buy from Japan as much as Japan buys from us. In the process we can make a firm and economically vigorous friend of Japan—a bargain at any price. At this price, it is the bargain of this tortuous century, and one logical answer to a perplexing problem.
The opinions or assertions in this article are the private ones of the author and are not to be construed as official or as reflecting the views of the Navy Department or the U. S. Naval Institute.