The Illusion of Trade Deals
Now that the fast money has been made.
Let’s get to the bigger issue.
For goodness’ sake, Japan makes FDI in dumps.
If they make bigger FDI in the US, does it mean anything?
It actually mitigates the purpose of trade deals because trade isn’t about ‘money’ for the United States.
It’s about money to them because they equate money with power.
Governments with state-driven or “command” economies often pledge to open their markets. But when the cameras leave and the headlines fade, these promises rarely hold. Instead of embracing true competition, they offer up distractions: large-scale foreign investments, symbolic tariff cuts, or tightly managed trade quotas.
It’s not real reform—it’s performance. And the recent Japan–US economic deal is a textbook case.
Japan’s Expensive Evasion
Billed as a landmark agreement, the deal saw Japan commit over $550 billion to American infrastructure, energy, and manufacturing projects. In return? Modest U.S. tariff relief and vague pledges to buy more American rice and cars.
Why such imbalance? Because Japan’s domestic economy—still fragile after decades of stagnation—can’t absorb the shock of genuine liberalization. Protected sectors like agriculture and autos are politically untouchable. Dismantling those protections would risk backlash from powerful interest groups and destabilize an already cautious ruling class.
So Japan took the easier route: write a massive check to Washington, claim victory on diplomacy, and leave its internal system intact.
It’s not an open market. It’s outsourcing reform.
Communist: Fortress Disguised as Market
Where Japan dodges softly, China does so with force. China’s state-owned enterprises (SOEs) dominate strategic industries—energy, telecom, finance—and are shielded by state support: cheap credit, exclusive licenses, and policy favors.
Today, 22% of the world’s largest companies are state-owned, and a huge chunk are Chinese. That dominance isn’t accidental. It’s structural.
Beijing knows that if foreign firms were allowed full, fair access, many SOEs would collapse. They’re inefficient, overleveraged, and function more as political tools than market players. But they serve a purpose: they maintain employment, advance geopolitical goals, and keep the Communist Party’s grip on the economy intact.
Opening the market would mean putting those state champions in real competition. And that’s a risk China’s leadership won’t take. So it offers small, symbolic access while tightening domestic control—merging SOEs into mega-conglomerates and exporting influence through programs like Belt and Road.
Why They Can’t Compete
Whether in Tokyo or Beijing, the reason is the same: fear of failure.
True openness would expose state-backed firms to forces they can’t survive—efficiency, innovation, merit.
It would also unravel the political and institutional networks that depend on these enterprises for power, wealth, and control.
And so these economies fake it. They simulate openness through money, not markets.
But global trade doesn’t run on investment alone.
It depends on rules, competition, and reciprocity.