Ian Welsh on "countries which cannot produce what the rest of the world needs, nor produce what they need"

"Countries which cannot produce what the rest of the world needs, nor produce what they need, are always in great danger from other nations which can cut them off.  They give up power over their own fate."

-- Ian Welsh, in the post "Japan refuses
to eliminate agricultural tariffs, and spikes the TPP"

by Ken

The Trans Pacific Partnership (TPP) has been giving off nasty vibes the whole time it has been aborning, not least because of the pathological secrecy in which it has been shrouded. This has been more than a little suspicious given the track record of regional trade pacts that have come into being over the last couple of decades, often flying the happy-sounding flag of "free trade," which have had a way of working hard for entrenched elite interests, requiring outsize givebacks from the world's "have not"s and "have less"es.

In a new post, Ian Welsh takes off on a specific stumbling block the TPP has encountered: Japan's refusal to eliminate agricultural tariffs. And Ian ventures that "Japan is entirely correct in this." Why?

Japan’s agriculture is not efficient: it costs more to grow food in Japan than it does in many other nations.  If Japan removed its tariffs, its agricultural sector would either be eliminated or forced to consolidate and specialize in crops it has a comparative advantage in.  Whatever these are (perhaps silk), they wouldn’t be staple food crops.  Japan would thus lose what ability it has to feed itself and would have to buy even more food on world markets than it does today.

"Regular readers," Ian writes, "will recognize this pattern from the article on why the third world is even more impoverished today than it was 40 years ago, and it seems worth noting that the linked post was called "Why Africa Can’t Handle Ebola: the Destruction of the 3rd World." In it Ian traced the African nations' inability to cope with a health crisis like ebola back to this same kind of process of forced dependency.

He's quick to add that "Japan is by no means a third world country, and money would be loaned to it to buy said food."

[B]ut Japan is not a healthy economy either.  The Japanese recently lowered the value of the Yen significantly, and  their exports didn’t increase.

Contrary to economic dogma that sort of thing happens fairly often: people simply are already buying as much of what Japan makes as they want.

Japan is not what it was 30 years ago, or even 10.  It runs an export deficit and a current account deficit. Even when the economy was healthy, having to buy much of its energy was painful, having to buy its food would be even more so.

And here things start to get really interesting. "More importantly," Ian says, borrowing to pay for its food supply "would make Japan vulnerable to anyone who controlled foreign currency loans they need to buy the food, and to the major food producers."

Japan can print money, to be sure, and has, but there comes a point where you can’t, where people won’t take it.  Japan isn’t there yet, but they risk being there someday soon.  And bear in mind that as global warming bites, food will become more and more scarce. Right now we have a huge food surplus, that will not remain the case.

Countries which cannot produce what the rest of the world needs, nor produce what they need, are always in great danger from other nations which can cut them off. They give up power over their own fate, and others will take advantage of it to force them to do as they wish, including opening up their markets to allow the commanding heights of the economy to be purchased.

This is beginning to sound a little closer to home, no?

Japan has been badly run for decades, and made the same mistake the US did when its bubble collapsed: they did not wipe the debts off the books, but instead extended and pretended. That led to the long “bright depression”, but it is now leading them into a much worse period.

They are, however, doing something right in refusing to remove their tariffs. To be sure, they are doing so for domestic political reasons (the small rural farmers are politically powerful), but that doesn’t mean it isn’t still the correct thing to do.

And Ian concludes:

Since the TPP is, overall, a terrible trade agreement (they virtually all are) let us hope the Japanese stick to their guns and that it does scupper the agreement. It’ll be best for them, and for us.

I find it extremely useful to have these patterns in the new wave of trade agreements spotlighted. There are economic interests that would be served by pressuring Japan into this kind of economic dependency. But riding shotgun for those interests isn't any more in the interest of most Americans than it is of most Japanese.

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