Stephen S. Roach says China has replaced Japan as America’s villain of the 21st century. Back in the 1980s, Japan was a surging Asian economy that became a threat to American dominance in world trade, and the US retaliated by crying foul and demanding concessions. Reagan’s crusader against Japan was a young deputy US trade representative named Robert Lighthizer. In 2017 the same man was sworn in as the 18th US trade representative. A longtime China-basher, Lighthizer is waging Trump’s ongoing trade war with Beijing.

The author says the problem is that the Americans are not “looking squarely in the mirror.” In reality the US has itself to blame for its burgeoning trade deficit – a chronic shortage of US domestic savings. This dramatic shortfall spawned large current-account and trade deficits, setting the stage for battles under Reagan and today under Trump. Both engineered huge tax cuts which gave rise to fiscal deficits, which in turn led to huge trade deficits. National debts soared under George W. Bush, due to his unprecedented mismanagement and two wars.

Japan – like China today – was portrayed as America’s greatest economic threat. Allegations of intellectual property theft, concerns about currency manipulation, state-sponsored industrial policy, a hollowing out of US manufacturing, and an outsize bilateral trade deficit – were part of Americans’ vilification. In the end, Japan blinked in its standoff with the US and paid a “steep” price for it – a protracted slump in economy for over two decades.

Although Lighthizer is using some of the same trade tools against China he once used against Japan, the situation is different today. Economically, China is much stronger than Japan was in the 1980s. It overtook Japan in 2010 to become the world’s second-largest economy and has continued to narrow the gap with the US. China, comparing the trade war it is facing with what happened to Japan, is eager to learn from the painful lesson the Japanese did.

Politically Japan has been a close ally of the US since World War II, and relied heavily on Washington for security. The two countries have similar political and economic systems. Most of all Japan shares Washington’s goal of curtailing China’s growing influence in the Asia-Pacific region. When it found itself at odds with Washington in the past, Japan was obliged to respond to the US pressure and give in to its trading partner’s complaints.

China can afford to stand up to the US. Apart from its huge foreign exchange reserves, it also holds over $1 trillion in US debt thanks to massive US borrowing. While astronomical trade deficits are a cause of tension between Beijing and Washington, the two clash over their economic models – free market vs state capitalism – and authority over the current global order etc. Yet it is the race for tech supremacy that could end in a zero-sum game.

For decades America had dominated manufacturing, and a competitive edge in R&D. A rising China is out-competing everyone, and racking up huge trade surpluses. The US had accused Beijing of deliberately keeping its exchange rate low, and urged China to let its currency float, without state interventions. American businesses complain about China subsidising state champions in technology and industrial sectors, and its limiting of market access to foreign companies and investors, which have fuelled discontent among its trading partners.

Trump and his economic advisers fail to understand that international trade is based on the principle of comparative advantage: countries export goods in which they have a relative advantage and import goods in which they have a relative disadvantage. America now has a relative disadvantage in manufacturing, while China has a relative advantage. In order to reduce trade deficits, the US needs to invest in human resources so that its export industries become more competitive. Building up currency reserves is another defence against deficits.