Theresa R

Theresa R. Jach

History 6395

Dr. Buzzanco

In The Pacific Alliance: United States Foreign Economic Policy and Japanese Trade Recovery, 1947-1955, William S. Borden explains that United States economic policy toward Japan, especially their export trade, needs to be viewed as part of a world capitalist system dominated by America.[1] Japan’s recovery became key to the United States’ plans for East Asia. Rather than the traditional view of Japanese-American animosity and rivalry, Borden shows how interdependent the two countries’ economies were. Not only did the United States need to preserve their own export markets, they needed to insure Japanese recovery. This often became a tricky balancing act, since Japan did not have the money needed to buy American surplus products. There was a conflict between U.S. policy makers over whether or not to utilize Keynesian economics.

The United States quickly realized that they needed to assist reindustrialization. Japan was to make-up part of a tri-polar system. The United States and Great Britain led the other two spheres of influence. This tri-polar or sphere-of-influence system implied a neo-colonial status on the developing world.[2] Implied in the tri-polar system, was the U.S. ‘responsibility’ to protect all three spheres from communism. If Japan was to become a viable market for U.S. goods, then their economy needed to be strong within their sphere.

Borden explains the failure of the 1947-48 Japanese recovery plan because of the “dollar gap.” Multilateral trade did not work, because of the dollar shortage in the Asian markets the United States needed to purchase their goods. Until the U.S. erased the dollar shortage in Japan, the envisioned multilateral trade system could not work. The United States needed to address an annual trade surplus of $10 billion. The Dodge Plan, says Borden, would have wreaked havoc on the Japanese recovery, except for the Korean War. The Dodge Plan called for a balance of trade to end the dollar gap, cuts in government and industrial payrolls, and increase trade with Europe and North America, since China and Manchuria were off limits as communist controlled areas. A comparison of the ‘dollar gap’ of other countries would help the reader determine the degree and significance of Japan’s ‘dollar gap.’

The Korean War amounted to a ‘Marshall Plan’ for Japan.[3] Military spending revisited the Japanese economy and saved the struggling Toyota plant. On the verge of closing, Toyota’s business increased 40 percent with military vehicle orders from the Korean War.[4] Between 1950-1954, the United States spent close to $3 billion in Japan for the War and war related supplies. Military related orders from the United States led to the biggest economic boom in Japanese history. Until the Korean War, United States’ efforts to stimulate Japan’s economic recovery failed. Japan depended too heavily on the United States’ raw materials, and they found few markets for their exports. The Korean War changed that imbalance.

The United States encouraged Japanese trade with Southeast Asia, not China. This seemed like a revival of the Co-prosperity Sphere. Some experts felt this could increase anti-Japan sentiments in the region.[5] The desire to create a multilateral trade system undermined the desire of Asian nations to have “independent and viable economies.”[6] In 1951, Southeast Asian nationalism seemed a problem to only a few experts in Washington.[7] The Southeast Asian countries could not be independent while under Japanese economic domination. Since the United States dominated Latin America, British dominated Africa, and communist China was off limits, only Southeast Asia offered a viable trade outlet for Japan.[8]

Helping Japan reassert itself into Southeast Asia also meant opposing European colonialism in the area. Europe was anxious to return to the area and exploit their former colonies.[9] Even before the Japanese surrender, the United States confronted the decline of European colonialism in Southeast Asia. U.S. State Department representative, Max Bishop, feared that if Europe did not come around to the idea of multilateral cooperation in Southeast Asia, Japan would fall under Soviet influence.[10] To complicate matters, renewed colonial trade for Europe would mean the United States could cut Marshall Plan aid to Europe. The United States needed to balance Europe’s need for colonies with Japan’s need for trade partners.

United States’ foreign policy consisted of a series of Keynesian-based policies. These policies had the main purpose of preventing another Great Depression. The threat of communism was merely a convenient way for policy makers like Secretary of State Acheson to get Congress to approve the taxes needed to sustain the Keynesian spending.[11] American self-interest lay at the heart of Japanese recovery. A democratic Japan with a strong economy seemed a sure hedge against global economic crisis.

By integrating Japan into regional trade with Southeast Asia, the United States hoped to be able to end economic aid to Japan, and to create a strong non-communist region for trade.[12] The U.S. predicted Southeast Asia would become a major trading partner with Japan, thus encouraging recovery. This did not happen until after recovery was accomplished. Recovery and regional reintegration did not take place until after the Korean War turned around the Japanese economy. In exchange for U.S. economic aid, Japan agreed to limit trade with communist countries and accept American hegemony. Borden stresses the interdependence and cooperation between the United States and Japan in a search for world economic stability.

[1] William S. Borden, The Pacific Alliance: United States Foreign Economic Policy and Japanese Trade Recovery, 1947-1955, The University of Wisconsin Press, Madison: 1984.