India must learn from Japan to win the economic war with Donald Trump

Our own negotiations have so far come to nought. We face amongst the highest tariffs of any country. Mr Trump has supplemented his tariffs with claims and threats

The world could have chosen to deal with Donald Trump’s tariff threats through international coordination (see my “Trade and Trump”, April 17, 2025). It chose not to, with the European Union, Japan, and others signing lopsided deals that give the United States more than they get.

 

Our own negotiations have so far come to nought. We face amongst the highest tariffs of any country.  Mr Trump has supplemented his tariffs with claims (of making peace between India and Pakistan), insults (“dead economy”), and threats (cosying up to Pakistan’s military leader).  So where are we, and what are our options? 

 

T N Ninan’s outstanding piece (“Our Perry Moment”, Business Standard, August 11) reminds me of two things.  First, how much I miss his always-insightful weekend column.  And second, how much there is for us to learn from how Japan responded to US bullying in the mid-19th century to drive a series of transformations that made it a leading industrial economy. My major source is the sociologist Ronald Dore, who wrote widely on Japanese culture and its interplay with economic success. 

 

Humility and ambition: Ninan reminds us that we seek to win the economic war, not the argument with Mr Trump.  This means humbly shrugging off insults while keeping our eye on the final prize.  Japan’s “Perry moment” forced it to open to trade and extracted several concessions.  These “Unequal Treaties” included losing the rights to set their own tariffs and allowing Western law to apply in enclaves where foreigners lived.  The Japanese had humility forced on them.  They responded after the Meiji Restoration with a series of increasingly ambitious goals:

 

1870s: Keep Japan free of colonialism.

1890–1911: Revise the unequal treaties that the Western powers had extracted.

1890s: Keep China from seizing control of Korea.

1900s: Prevent Russia from seizing control of Korea.

1930s: Achieve total equality with the Great Powers.

 

Dore tells us that these ambitious goals were presented as the shared objective of all the Japanese people — and were highly effective in galvanising action through a nationalist spirit.  Nationalism often ends badly — for both the nation and its neighbours.  As here.  “Badly” meant defeat in war and occupation — for the Chinese in 1895, the Koreans in 1905, and for the Japanese themselves in 1945 following two nuclear bombs.  After World War II, things were more positive.  Economic growth became the national ambition.  Japan’s daily papers published a league table of gross domestic product (GDP) growth rates.  Each time Japan overtook another country in per capita GDP (which is what matters, not overall GDP), it hit the headlines. The target was national prestige, not economic growth itself. 

 

As Japan grew at world-record rates in the 1950s and 1960s (9-10 per cent for two decades), the acquisition of technical capability played a critical role.  Between 1950 and 1978, Japan was the world’s largest importer of technology, sourcing it across industries and countries.  It spent, Dore tells us, $9 billion on importing technology, a big sum, but nothing compared to the $60 billion that one country, the US, spent on research and development (R&D) in 1978 alone.  Together with importing technology, from the 1960s onwards, Japanese firms greatly expanded their investment in in-house R&D. Meanwhile, constraints of space and capital were turned into an opportunity — a whole new system of lean manufacturing that led the world.  Japanese firms expanded overseas, as Honda, Sony, Panasonic, and Toyota became household names worldwide.  Learning from the best requires humility.  New technology and developing world-leading firms and industries require ambition.  It was the combination of humility and ambition that was so powerful.

 

The will to develop:  Dore describes Japan, South Korea, Taiwan and Singapore’s “will to develop”.  This “will” came out of a sense of backwardness, that one had to catch up.  After 30 years of the highest growth in our history, we have moved from the poorest fifth of countries in per capita GDP to the poorest third.  That is a fine improvement, but it is surely not good enough.  China is today five times richer than India and invests 25 times what we do in R&D.  I keep repeating this not to depress us, but to strengthen our will to develop and catch up.  

 

Dore points out that this sense of backwardness must be shared across society.  Both India and Latin America have long had elite enclaves at world-class levels.  We point with pride at our Nobel Prize winners and the number of Indians who head some of the world’s leading companies.  If we simultaneously ask why our most recent Nobel awardees —Amartya Sen, Venkatraman Ramakrishnan, and Abhijit Banerjee — do their work in institutes of higher education overseas, and our Nadellas and Pichais lead firms in the US instead of India, then the urge would be wholly positive.  But if pride in our great intellectuals and businessmen lessens the urge to pull the farmer in the field up with us, we dilute a common will to develop. Setting ambitious goals for rapid economic growth can foster our will to develop.  Focusing on how wonderful we are (“India is the world’s fastest growing large economy”) or were (“India invented the zero and plastic surgery”) dilutes the message.  Farmers and informal labourers live the experience of poverty and backwardness.  As political leaders and industrialists, we need to share this sense of backwardness even if we do not experience it ourselves.  From it can spring a shared urge to catch up, a will to develop.

 

So as we ignore Mr Trump’s insults, what ambition should we have?  Our goal of being developed by 2047 is a fine economic goal — for all Indians.  It means growing at 9 per cent+ a year for 20+ years as Japan did, about 3 percentage points faster than we are achieving now.  Our papers, too, can publish a league table that shows how we overtake one country after another — there’s lots to do, we are #136 in per capita GDP at present.  

 

T N Ninan and Sajjid Chinoy, also in this newspaper, argue for several major reforms: Implementing the new education policy, making India a good place for manufacturing, addressing agricultural productivity, transforming our cities, reducing the concentration of industrial power in a few inward-looking conglomerates, truly reducing the cost of doing business, a single goods and services tax rate, doubling down on privatisation, and reducing tariffs to drive competitiveness.  That is an impressive list. Many would doubt our ability to undertake such comprehensive reform.  We can continue to keep reforming incrementally, as we have done since 1993, two steps forward and one step back. We can choose to respond to Mr Trump’s threats and insults with bravado and a turn inward.  Or we can humbly shrug them off — and, as we did in 1991, turn challenge into opportunity.  That would mean pursuing the ambition of being a fully developed economy, with all the structural change and pain that demands. The choice is ours.  

 

ndforbes@forbesmarshall.com 

The author is co-chairman Forbes Marshall, founding member of Nayanta University, past president of CII, and chairman of Centre for Technology Innovation and Economic Research. His book, The Struggle and the Promise has been published by HarperCollins