Today’s trade tensions between the US and China bear similarities to the sometimes contentious talks between Washington and Tokyo 30 years before, but can also find a workable solution, noted trade expert Charles Dallara said in a recent seminar in Tokyo.

But Dallara, former head of the Institute of International Finance, also warned that the rise of populism in many nations poses a broader threat to the international trade regime.

Speaking at the Foreign Correspondent's Club of Japan, Dallara recalled the US-Japan trade talks of the 1980s and 90s, comparing them with the current situation between the US and China.

Having been a member of the US negotiating team during the frequent (and occasionally tense) trade negotiations with Japan, Dallara said that “my recent visit to Beijing does bring back some sense of déjà vu” at the ongoing trade discussions between the US and China today. Despite significant differences between the two situations, he stated his belief that similar cooperative results can be achieved with China.

The danger, Dallara warned, is the rise of populism, which could lead to countries choosing protectionism over international cooperation. "Today we have populism growing like kudzu,” he said, likening the political movement’s spread through the US, Europe and Latin America to the creeping vine engulfing wide swaths of the US.

“It is infectious. And it creates a world of false illusions. Of notions that we have outgrown the postwar institutions, that we must each fight for our own place in the world because there is no win-win cooperative framework. It creates the illusion that nationalism is patriotism. It creates the illusion that protecting my industries will help my people," he said.

He said that the trade negotiations between the US and Japan in the 1980s and ‘90s were ultimately successful because the two sides did not seek quick, easy solutions. "It takes time to build understanding,” he explained. “It takes even more time to build trust. The US and Japan spent the better part of a decade, from the early 80s to the early 90s, in very difficult, intense negotiations. But what happened in the course of that, is that you realize that you need to listen as well as project your own views, and you need to understand the perspective of your counterparty, and eventually what seems like an adversary becomes part adversary and part collaborator, part partner."

Today's trade disputes between China and the US may be just the opening skirmish of a much larger investment and tech war, Dallara said. He described the similarities to the situation with Japan three decades earlier, noting how the US has grown fatigued by China's trade barriers, and that there is now a bipartisan consensus in the US that China has taken advantage of the global system at the expense of American workers.

Nevertheless, he argued, tariffs and protectionist policies are not the answer. "I believe those problems can be worked out, but it will take some time... We are going to have to find some short-term understandings in the form of a truce, which hopefully will suspend further tariff increases, although there is no assurance that that will happen. But there is, I think, a reasonable possibility that such a truce can be agreed to in order to allow for more intense negotiations on the very complicated and difficult issues of technology."

Considering the risks of a long-term trade and technology war, Dallara notes, "I was reminded... of a quote by Confucius: 'If you seek revenge, you had better prepare two graves.' I would paraphrase that and say that if you seek protectionism, you had better be prepared for everyone to lose."

Bio:
Dr. Charles Dallara is Chairman of the Americas for the Partners Group private equity firm. He is a veteran of global finance, having previously served as the head of the Institute of International Finance in Washington, where he was involved in helping mitigate numerous banking crises, including the Greek debt crisis of ten years ago. Before that, he served with the US Treasury Department and the International Monetary Fund under Presidents Ronald Reagan and George H.W. Bush.

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