Successful International Trade Negotiations Require Tough Negotiators
Japan was the largest importer of U.S. agricultural products just about every year after WWII until the years after 1993 when Canada, Mexico, and China eventually moved Japan down to the number 4 importer of U.S. agricultural products.
From the beginning of history, primarily due to a lack of crop land and easy access to the ocean, Japan was mostly a vegetarian state eating rice, fish, and vegetables. For a time after 1954, Japan was able to import beef without strict controls, but a 10% tariff was imposed.
By 1957, there was a surge of beef imports because people liked beef!
The government became worried about speculation in beef imports. Thus, from 1958 until 1963 the government imposed a quota system based on value and the Fund Allocation system, which allocated scarce foreign exchange for imports. Importers tended to import low quality beef to maximize the tonnage quota.
In 1964, as a requirement of joining the International Monetary Fund, Japan stopped using the Fund Allocation system to restrict imports. Beef imports became subject to an import quota system. The in-quota import tariff for beef was raised to 25% and the quotas began to be based on tonnage instead of value. That is when American corn-fed finished beef was exported to Japan. By the 1970’s, the Japanese people could not get enough of it and were willing to pay any price to get it.
Rice producers in Japan saw the massive amounts of corn and soybean meal being imported from America and became alarmed that America’s low-cost rice would soon be imported as well.
With the memory of hunger during the latter stages of WWII still fresh in the minds of most adult Japanese people, a political movement developed to greatly restrict imports of additional food products to keep farm production prices high enough that Japanese farmers could stay in business. Since a pound of beef could replace 8 to 12 pounds of rice in the diet, beef was on the "do not import" list. American citrus fruit was also in great demand in Japan, but it was also on the "do not import" list.
It was a matter of principle; if Japan allowed citrus to be imported, it would weaken the political resolve to resist importing American beef, pork, rice, etc.
Self-proclaimed Peanut Farmer Jimmy Carter was elected President in 1976. His administration was committed to opening the Japanese market to U.S. beef and citrus. His negotiators worked long hours for four years to get Japan to import beef and citrus. After 20 months, they got Japan to agree to start importing both commodities by a certain date three or four months out. But when the certain date arrived, Japan reneged. Negotiations would start again and repeat.
President Carter lost his re-election bid in 1980 to Ronald Reagan, who was the Donald Trump of his time. He made a former Nebraska farm boy, Clayton Yeutter, assistant foreign trade negotiator and then his top trade negotiator. It was made clear to the Japanese that any negotiations in bad faith or reneging on an agreement would not be tolerated.
It took a while, but a beef and citrus deal was hammered-out. The Japanese, thinking Regan was like all other politicians, reneged on the deal.
In the meantime, computer technology was sweeping across the world’s developed economies and Japan had the foresight to learn how to build memory chips. They were the world’s leading (and essentially the only) mass manufacturer of computer chips.
U.S. computer companies were buying 40% of all the chips Japan could produce as fast as possible. The U.S. was only manufacturing about 1% of the chips the U.S. computer industry was using 1986.
When Reagan learned Japan had reneged on the trade deal, he immediately made it illegal for any Japanese computer chips to be imported into the U.S.A.
There was as much screaming, howling, and the gnashing of teeth in the U.S. as there was in Japan. It sounded as if the world would come to an end in a matter of months without Japan’s computer chips.
Roger remembers exactly 30 days later, a small Canadian company announced they had begun manufacturing computer memory chips!
By 1990, 37% of the computer chips made in the world were made in the USA.
Oh, and how about U.S. beef exports to Japan? Look at the graph:
Grain Storage on and off farm in the United States 2022 and 2023:
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