Free exchange

The plaza discord

As the trade war heats up, China looks to Japan’s past for lessons

HISTORY IS NEVER far from China’s mind in its trade dispute with America. A few months ago, when negotiations looked on track, staunch nationalists warned of echoes with the “unequal treaties” that foreign powers had forced upon China in the 19th century. In recent weeks the breakdown in talks has led state propagandists to draw comparisons with the Korean war of the 1950s, a bloody struggle between China and America. But the analogy that haunts Chinese economists does not involve China itself. They fear a replay of the Plaza accord of 1985, when Japan, under American pressure, tried to resolve trade tensions by pushing the yen higher. That calmed the tensions but, most Chinese economists think, at an intolerable price: stagnant Japanese growth for two-plus decades.

The parallels are imperfect. Dependent on America for security, Japan was constrained in its pushback. The Plaza accord also involved Britain, France and West Germany. Jeffrey Frankel of Harvard University has called it “a high-water mark of international policy co-ordination”, which is not President Donald Trump’s trademark. The substance was different, too. The five countries announced that they wanted the dollar to depreciate and intervened in currency markets to make it happen. Within a year the yen soared by nearly 50% against the dollar. By contrast, currencies are just one part of today’s tussle between China and America. Over the past decade China worked to address complaints that the yuan was too low. So there are no calls for appreciation, only demands that China does not weaken it to help its exporters.

Looked at more generally, though, there are similarities. The Plaza accord is best understood not as a one-off event but as a critical stage in a multi-year dispute, which ranged…