China Escalates Spat With Japan Over Big Tariffs

A simmering trade spat between East Asia’s two economic giants escalated Friday as China imposed 100% tariffs on about 60 types of imported Japanese motor vehicles, air conditioners and mobile telephones.

The measures mark the latest development in a dispute between the two nations that began in April when Tokyo slapped tariffs of up to 266% on imported Chinese agricultural products.

Japanese officials Friday reacted quickly to China’s decision to go ahead with the punitive steps.

“It is not justifiable,” Trade Minister Takeo Hiranuma said in a statement issued in Tokyo. “While strongly protesting to China, the Japanese government calls for a withdrawal [of the decision] and seeks to conduct talks immediately.”

Earlier this week, Japanese Prime Minister Junichiro Koizumi also tried to ease tensions, calling for “a dialogue in a constructive direction.”

Japanese officials argue that their initial action was needed to protect farmers from a sudden surge of cheap Chinese onions and mushrooms and also straw, which is used to make the tatami mats found in most Japanese homes.

The officials also claim that their tariffs were justified under existing global trade rules set by the World Trade Organization because the imports threatened Japanese farmers’ livelihoods.

Asia-based economists tracking the dispute say the measures taken so far are unlikely to have much direct impact on a two-way Sino-Japanese trade volume that this year is expected to top $100 billion. The Chinese farm products affected by Japanese tariffs amount to about 1% of total trade, while only a small fraction of the air conditioners, mobile phones and autos produced in Japan go to the Chinese market.

Last year, China imported 35,000 cars, trucks and sport utility vehicles from Japan and took only 20,000 of the 7.5 million air conditioners produced in Japan.

However, the size of the two nations and the volume of the trade they share combine to generate unease about the potential for damage to the entire East Asian region should the dispute boil over into a full-scale trade war.

“The disconcerting element is that it’s spreading,” said Tim Condon, ING Baring’s chief economist for Asia. “Hopefully, cooler heads will prevail.”

But regional analysts point to several factors that could make it hard for leaders in both countries to stay cool.

For Beijing, agriculture is arguably the most politically volatile sector as the country struggles to deal with the severe social dislocation caused by ambitious market reforms now in their third decade. Although the $100 million in Japan-bound farm products is only a tiny fraction of the $249 billion that China exported to the world last year, it is in a sector where unemployment and political discontent run at dangerously high levels.

For Japan, mired in economic gloom and about to embark on its own ambitious reforms that seem certain to cause even more pain in the short run, being seen as appeasing China at the expense of its own farmers would be politically risky.

There is also little mutual goodwill between the two to fall back on.

Unlike Europe, where age-old adversaries have managed to confront and largely bury their divisive pasts, most Asian countries have taken only the first tentative steps in that direction. Recent history remains especially prickly between China and Japan.

A 1998 state visit to Japan by Chinese President Jiang Zemin collapsed into disarray over differences about the conduct of Japan’s occupation forces in China during World War II.

Many in Japan also tend to look down on Chinese. Late last year, an anti-crime campaign launched by Tokyo police included posters urging citizens to be alert to anyone they heard speaking Chinese. The posters, issued amid concerns about Chinese-run crime syndicates in the city, were later withdrawn.

Geoffrey Barker, chief international economist at the Hong Kong and Shanghai Bank in Hong Kong, believes that Beijing’s stiff response stems at least in part from worries that Koizumi’s government may want to leave the yen as a relatively weak currency--a tactic that would make Japan’s exports cheaper to foreign buyers and therefore more competitive against Chinese goods.

Conversely, the Japanese are worried about China’s growing trade juggernaut, one that has been uniquely successful in penetrating Japan’s domestic market with low-cost, good-quality consumer goods. Last year, Beijing ran a $21.4-billion trade surplus with Japan.

Some see this as a glimpse of future problems elsewhere in the region as cheaper Chinese exports penetrate more deeply into the economies of the region.

Despite all this, there are compelling reasons for both nations to end the dispute before it gets out of hand.

Some analysts predict that Japanese consumer lobbies will pressure their government if they see trade tensions threatening better-priced Chinese imports on a significant scale. “My sense is that the consumer lobby will outweigh the farmers,” said Condon, of ING Baring.

Beijing also stands to lose if the dispute is not resolved quickly, analysts note.

With Western estimates suggesting that China requires a minimum of 5% annual growth in its economy just to create new jobs for those thrown out of work as a result of reforms, Beijing can ill afford to risk major damage to its biggest trading link in the region.

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Researcher Makiko Inoue in The Times’ Tokyo Bureau and special correspondent Anthony Kuhn in Beijing contributed to this report.