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A boat sails near a shipping container area at Yokohama Bay, south of Tokyo on Oct. 22, 2012. Japan’s exports tumbled by 10.3 per cent in the year to September. (ISSEI KATO/REUTERS)
A boat sails near a shipping container area at Yokohama Bay, south of Tokyo on Oct. 22, 2012. Japan’s exports tumbled by 10.3 per cent in the year to September. (ISSEI KATO/REUTERS)

Japan’s lesson for U.S.: Manage your China file carefully Add to ...

Anyone listening to Republican presidential challenger Mitt Romney’s views on China must assume he is ready to declare Beijing a currency manipulator on his first day in office and start the process of imposing punitive trade sanctions.

Now, no one with any knowledge of Chinese-U.S. trade and financial dealings thinks Mr. Romney will do any such thing. (As it is, he has promised to do so much on Day 1 that he would need the full 24 hours). You simply don’t tell your largest creditor and most important supplier of low-cost electronics and other assembly-line goods to behave or get lost.

And if Mr. Romney thinks there would be no repercussions for American business, he need only look at Japan’s current predicament. Japan’s merchandise trade deficit widened in September to ¥559-billion ($6.9-billion), a record for the month. For the first half of its fiscal year, the trade gap was 90 per cent higher than a year earlier and the worst such period since the government began issuing such data more than 30 years ago. Continued weakness in recession-wracked Europe and slowing demand in China, as well as an overly strong currency, have certainly played a key role in the damage to Japan’s growth engine.

But its territorial spat with Beijing over a few tiny, uninhabited rocks in the East China Sea is definitely heightening old animosities dating back to the brutal Japanese occupation in the 1930s and 1940s. Chinese consumers are shunning Japanese cars and other high-profile products. Auto shipments to China fell 14 per cent from the previous month. Toyota sales alone fell 49 per cent from a year ago. Nissan and Mazda were down 35 per cent. Over all, Japan’s exports to China, its biggest market, nosedived 14.1 per cent from the previous year and the value of those shipments slipped 1.3 per cent from the previous month, seasonally adjusted. That’s a telling shift, because September is typically a strong month.

Meanwhile, Japanese plants in China have been hit with labour and supply disruptions, and Japanese managers have been subject to harassment, threats and occasional violence. All of this could affect supply chains throughout east Asia.

The reason China cares so deeply about the tiny island chain Beijing calls Diaoyu and the Japanese refer to as Senkaku has everything to do with undersea oil reserves. And if Bejing’s brain trust is willing to stir up jingoistic fury over a decades-old dispute to further its geopolitical ends, imagine what could happen if they put Washington in their sights.

Follow on Twitter: @bmilnerglobe

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