The Korean War also reshaped Japan’s postwar trajectory by igniting its economy. In early 1950, Dodge’s austerity program had caused a sharp economic downturn. Many small businesses went bankrupt, unemployment soared, and economic difficulties threatened to radicalize labor unions now under socialist and Communist stewardship. But massive US military procurements generated by the Korean War resuscitated the anemic Japanese economy. Not only producers of consumables but also mining and heavy industrial companies reported major gains in profits. The war boom enabled Japanese manufacturers to invest in research and development and to benefit fTom the transfer of industrial technology from the West. Equally important, US military procurements were paid in dollars, building Japan’s foreign exchange reserves. By the time the US occupation ended in April 1952, Japan was well on its way to economic recovery, readying itself for high-speed growth in the 1960s. Its economic rebirth during the Cold War was thus partially fueled by a hot war in Asia.
From the beginning of the occupation, American policymakers understood the importance of foreign trade to the resource-poor island nation. That was why they tolerated Japanese trade with the Chinese mainland even after the proclamation of the PRC, as long as it did not threaten the multilateral strategic embargo system then being put in place. After November 1950, however, Beijing became the main target of American economic warfare against the Communist bloc. Capitalizing on Japan’s desperate desire to be accepted into the Western world’s institutional network, including the General Agreement on Tariffs and Trade and the UN, the United States forced Japan to join the multilateral mechanism that was charged with enforcing embargoes against the PRC, trade sanctions that were even harsher than those imposed against the Soviet Union and Eastern Europe.
For officials in Tokyo, this economic straitjacket became another example of the unjust restrictions the United States placed on Japan’s relationship with China. Resenting US interference, Japanese business groups and their patrons in politics resorted to various subterfuges to contact the PRC and to promote trade. Between 1952 and 1958, four "private-sector" trade agreements were signed between a coalition of Japanese businessmen and the Chinese Communist Party’s foreign-trade agency. Yoshida’s successors, Ichiro Hatoyama and Tanzan Ishibashi, tacitly approved these maneuvers, which also received popular support. Believing that the Japanese were using these commercial contacts to move closer to formal diplomatic relations with Beijing, US officials fretted over the perceived disloyalty.
An alternative for the China market now controlled by the Communist regime might be Southeast Asia. By 1950, the idea of linking Japan’s industrial economy with resources and markets of Asia’s southeastern tier was nothing new in American policy circles. Eisenhower’s own words lent credence to the putative Japan-Southeast Asia economic nexus. While pondering a possible military intervention in the Indochinese conflict in April 1954, the president, in his famous speech on the domino theory, warned that Indochina’s fall to Communism might spill over to all of Southeast Asia and ultimately force Japan to seek accommodation with the Communists. This alarmist hyperbole was partially directed at protectionists in Congress who were threatening to block Japan’s accession to GATT. But this compelling metaphor, as well as the notion of the economic symbiosis between Japan and Southeast Asia, took on a life of its own.373
The president’s reference to falling dominoes particularly stoked Japanese expectations. From Yoshida on, a succession of Japanese governments urged Washington to translate this intense strategic concern into a large-scale regional aid program. When Yoshida traveled to Washington in late 1954 - as the first Japanese prime minister to visit the United States - he called for a $4 billion "Marshall Plan for Asia," and was openly rebuffed. In 1957, Prime Minister Kishi presented to the Eisenhower administration a blueprint for a Southeast Asia development fund, including a regional finance corporation with $3 billion in reserves to facilitate intraregional trade. But Washington again flatly rejected the Japanese proposal. Ironically, Japan’s need for trade, unrealized in Southeast Asia, was met by a phenomenal increase in sales to the Western industrial world, especially the United States, after Japan’s accession to GATT in September 1955.
World History
