How did Toyota pioneers overcome US pressure during the trade conflict?

By Eiichiro Tokumoto

Weekly Shincho magazine

May 4-11, 2017

A letter sits on the table in front of me. Typed in English, it bears a U.S. postmark. Dated
March 16, 1984, its addressee is Mr. Seisi Kato, auditor of Toyota Motor Corporation in
Toyota city, Aichi Prefecture. The sender was Mr. Kay Sugahara a Japanese-American
who operated a New York-based shipping company, Fairfield-Maxwell Ltd.

It appears to be an ordinary business letter, but its contents are anything but.

"As you are aware," it reads, "this is an election year. Who becomes President in
November can affect U.S. policies. President Reagan is very favorable towards open
trade, and his policies are generally helpful to you and other exporters from Japan. Mr.
Mondale, on the other hand, has made an agreement with organized labor so that he is
pushing for a bill to regulate domestic contents. However, his new chief rival, Mr. Gary
Hart, in the face of political pressure opposes protectionist measures

"We hope that the representatives of Toyota are well aware of what is happening on the
domestic scene to affect their future"

The letter also said to the effect that unless Reagan was re-elected, Mondale or Hart will
heighten the highly charged atmosphere toward Japanese automobile exports. One
may get an impression that the chairman of a U.S. shipping company was perhaps
overstepping, or getting a little excessively involved in politics.

That impression will no doubt change when you understand who Kay Sugahara was.
During WWII, Sugahara worked as an agent for the OSS (the forerunner of CIA), and in
the postwar era, he played a vital role in improving the Japan-U.S. political and
economic relationship, using his influence to connect relevant U.S. and Japanese figures
in the business and political domains, but always working behind the scenes.
Donald Trump's harsh tweets targeting Toyota Motor Corporation stirred much emotion
in Japan. He strongly criticized Toyota's plan to build new factories in Mexico, and went
on to warn that unless Toyota builds cars in the U.S. he would raise tariffs on Japanese
cars. He also referred to the inherently closed nature of Japanese market. His claims
reminded many Japanese of mid-80s, when the US accused Japan of allegedly flooding
the U.S. passenger car market. To many Japanese, the intensity of US bashing of Japan
in the 1980s was reminiscent of the anti-Japanese feeling just prior to the outbreak of
war in 1941.

And it was Kay Sugahara who helped Toyota by serving as its eyes and ears in the U.S.
during those difficult times.

I first heard the name Kay Sugahara in New York, when I met an ex-OSS serviceman
who mentioned a successful Japanese-American businessman.

Kay Sugahara was born in Seattle in 1909 to parents who had emigrated from
northeastern Japan. He lost his parents in early years but worked hard to graduate from
UCLA. He started a successful customs brokerage but following Pearl Harbor his
assets were confiscated and he was interned at one of the many relocation camps to
which Japanese-Americans on the west coast were evacuated.

During his internment, Sugahara was recruited by the OSS, which put him to work
producing propaganda aimed at the Japanese military.

After the war, he maintained his connections with U.S. Intelligence services and during
the Korean War was asked by CIA to help procure tungsten, a scarce mineral needed for
the blades in jet engines. On this occasion, through Yoshio Kodama, a somewhat sleazy
rightist with a reputation as a political fixer, in Tokyo, Sugahara succeeded in obtaining
the tungsten, which was secretly transported to the U.S. After that he launched an oil
and cargo business, establishing Fairfield-Maxwell, which became a conglomerate that
owned dozens of tankers and operated more than 30 subsidiaries.

Sunbelt Dixie
In 1988, Kay Sugahara died at age 79 of liver cancer. With his family's permission, I
pored over numerous items of correspondence he left behind. Among them, I found letters
exchanged between him and Toyota executives, which were filed as confidential and
"Gokuhi" (top secret). One of them was a personal letter to the aforementioned Seisi
Kato, dated August 15, 1984. Seisi Kato was at that time an auditor of Toyota Motor
Corporation, but previously had been Chairman of Toyota Motor Sales (which later
merged with Toyota Motor Company). In the letter, Sugahara wrote, "The continuing
Japanese trade imbalance has resulted in many meetingswith Administration Cabinet
Officers, who are concerned about the rising Congressionional sentiment against
Japanese imports. We are working with the Reagan people to hold back the tide of
protectionism. You will note that Mr. Walter Mondale, who you met, has become the
Democratic candidate for President and is for restrictive legislation. Meanwhile, most
Japanese car makers devote little effort to changing Japans image in the U.S., not
realizing the dangers that lurk below the surface."

The letter's tone conveyed urgency, understandable considering the tense situation
between Japan and the U.S. At that time, Japan was producing 11 million cars per year
and exporting 5.6 million, some 40%, of which were shipped to the U.S. Even though
from 1981 Japanese car makers voluntarily reduced exports to the U.S., the imbalance
became heavily politicized during the 1984 presidential election.

Young Donald Trump witnessed the flood of Japanese car imports to US and Kato, then
Chairman of Toyota Motor Sales, had played a pivotal role in the surge of Japanese car
imports. Sugahara told Kato, "During your tenure, you were sensitive to American
sentiment and helped mold the Sunbelt-Dixie cenept (sic). The favorable reaction was
widespreadWe hope Toyota will give priority consideration to Sunbelt-Dixie II."

The Sunbelt-Dixie project was launched when Kato was still Chairman of Toyota Motor
Sales to ease the US-Japan trade friction. In March 1978, Toyota announced using the
US-registered Sunbelt-Dixie to transport cars from Japan to US. Before Sunbelt-Dixie,
Toyota used its own Japanese registered vessel named Toyota-maru to export their cars
to the US. Sunbelt-Dixie was an about-turn for Toyota when it decided to contract with
a US-registered vessel.

Sunbelt-Dixie transported citrus fruits from California and Florida to Japan, and on its
return carried Toyota cars. Who owned Sunbelt-Dixie? It was a subsidiary company
of Fairfield-Maxwell whose Chairman was Kay Sugahara.

One may get an impression that Sugahara took advantage of US-Japan trade imbalance
in order to profit one of his subsidiary company. But it wasn't as simple as that. In
the same letter, he informed Kato of his intention to hold a reception in California to
publicize how much Sunbelt-Dixie was helping to cool down negative US sentiment
towards Toyota cars coming from Japan. Sugahara also wrote, We are not asking that
Toyota underwrite the expense. Rather, we feel that Toyota should be aware of our efforts
to upgrade your image. Your attorneys and Public Relations people are doing fine work.
But you cannot leave this important task to hired professionals. Toyota itself should
exert leadership. Toyota is the largest and most visible. We hope you will brief the Toyoda
family."

What Sunbelt-Dixie could transport on its own may be insignificant relative to the total
imports of Toyota cars to the U.S., but its psychological impact on US citizen was
profound. It conveys Toyota's aspiration to engage in fair trade. Not surprisingly this
idea came from Sugahara, who had engaged in propaganda works during the war. In
another letter to Kato dated September 7, 1984, Sugahara explained the significance of
African-American votes in the presidential election and offered to introduce Kato to
influential black leaders. I've gone through letters from Toyota thanking Sugahara for
providing them with information and insights.

Contacts with central/pivotal figures in the administration

Those days, Toyota hired prominent law firms and lobbyists as well as former
government officials in order to get information about what were on the minds of the
White House, Congress, and so on. But Sugahara's role was unmatched. He was
frequently exchanging notes/letters with then vice-president George H.W. Bush, W.E.
Brock (Head, USTR), Bill Casey (director of the CIA) and others. He was advising them
how to curb trade imbalance and improve the US-Japan relationship. They addressed
each other on a first-name basis, which implied closeness of the relationship.

It's believed that in the background of Sugahara's forming these tight personal
relationships was his work for the OSS during the war. The OSS recruited competent
individuals regardless of their racial backgrounds, which enabled Sugahara to become
acquainted with those who became successful after the war. They seemed to keep in
touch through alumni gatherings. For example, Bill Casey was in charge of intelligence
works combatting a Nazi resurgence in Europe, and Sugahara provided him with
information and intelligence on the Middle East which he obtained through his shipping
business.

His networks must have helped Toyota. Because Sugahara owned his own channels, he
was able to communicate with the U.S. administration's core figures without involving
any "official" letters or notes.

What surprised me among other things, going through his old correspondence , was that
he had been paying out of his own pocket (probably exceeding $1 million) to ease and
reduce US-Japan trade friction. When Emperor Hirohito visited the U.S. for the first
time in 1975, on behalf of Japan's Imperial Household Agency's official, he took steps to
ensure the visit would be covered favorably by US media. He also chaired the U.S.-Asia
Institute, and in 1982, in order to reduce the U.S.-Japan trade imbalance, announced a
plan to raise $10 billion in Japan which was to be invested in U.S. infrastructure projects.

Why did he engage in matters/affairs which seemed unrelated to his business? His
remarks in interviews with a major Japanese newspaper may provide an answer. He
was interviewed as a successful Japanese-American businessman.

At the time of the interview, a yearlong TV drama series was being aired on NHK, the
quasi-public TV network. The English translation for the title of the drama, "Sanga
Moyu" would be "Mountains and Rivers, Burning." It was adopted from the novel "Two
Homelands" (Futatsu no Sokoku) by Toyoko Yamasaki. The story was about a Japanese-
American family that became separated through the attack on Pearl Harbor, internment
and the Tokyo war crimes trials. Sugahara watched the series and commented, "For
Japanese-Americans who went through those terrible times, the theme is so solemn, as
if gazing into the bottom of one's soul. The stormy days starting from the internment
camp, for us, are lingering, haunting memories of the original scenes. (Yomiuri
Newspaper, February 27,1984).

FEC-230
Apparently, memories of Sugahara's experience in the internment camp, and the
confiscation of his hard-earned assets prior to "relocation" to with his family to the camp
in desert --- just like the protagonists in the TV drama --- were profound and
unforgettable for Sugahara. After the war, he became an active member of a group called
the "Japan Lobby".
Soon after the war, GHQ, as its occupation policy, was trying hard to dissolve the
Zaibatsu (Japan's industrial-financial consortiums) and to purge war criminals from
public offices. But gradually, there appeared those with opinions which claimed that
excessive measures to deprive Japan of its economic capacity to wage wars would turn
Japan to a communist state. The group was led by Joseph Grew (former US
ambassador to Japan) and Eugene Dooman (a former Counselor at the U.S. Embassy in
Japan). The group argued that GHQ should allow Japan retain the emperor system
because the Japanese people needed a spiritual/mental core in order to operate as a
nation-state, of which the core is the imperial system.

The group harshly criticized FEC-230, the directives, titled Policy on Excessive
Concentrations of Economic Power in Japan," for aforementioned measures to dissolve
the Zaibatsu, which would chip away at Japan's economic power base.

The Japan Lobby group was so adamant that they leaked the contents of FEC- 230 to
Newsweek magazine as to pressure GHQ to go along with their opinion, and they
succeeded. Sugahara played a role in this change of GHQ's occupation policy, such as
providing an office, but he always acted behind the scenes, even though he used his own
personal assets for the cause, and he was proud of it in his own way. When FEC-230
was declassified in January 1984, he obtained copies of the document and sent them to
managers of Toyota with his comments. In a letter to Kato dated January 13, 1984,
Sugahara wrote, "I am enclosing FEC 230 which we had great difficulty resurrecting
because it was almost four decades old. Please read carefully. If we had not fought
against its implementation, the rise of huge industrial combines might not have been
possible." In another letter to Hideo Kamio (Vice President of Toyota Motor
Corporation) dated February 1, 1984, Sugahara wrote, "If we had been unsuccessful,
large corporations like Toyota Motors may not have enjoyed such great growth."

Even to Prime Minister Nakasone

The correspondence between Sugahara and Toyota executives inform of his pride in
acting behind the scenes for the betterment of the U.S.-Japan relationship, from
immediately following the war to the difficult mid-80s (the time of trade friction). In
the mid-80s, Sugahara was also communicating with Yasuhiro Nakasone (then Prime
Minister), with whom Sugahara had long been acquainted, of political trends in the U.S.
And now, does Toyota value what Sugahara did for it, and for Japan? I called Toyota
and asked that question. They said that it had been such a long time and none of the
correspondence between Sugahara and Toyota executives were stored and couldn't be
found. "Someone called Kay Sugahara was probably one of many people who gave us
opinions," was all the person at Toyota's Public Relations office was able to tell me.

In November 1987, Sugahara, for the first time in his life, traveled to Miyagi Prefecture
in northeast Japan, from which his parents emigrated to the U.S., and visited the grave
of his ancestors. As if he had accomplished everything he had set out to do, he passed
away in September the following year.

He said in the aforementioned interview with the Yomiuri in February 1984:

"Insignificant anecdotes, no worthy recollections, may be, for present-day Japanese
people. But I'd like them to remember that when Japan was going through the most
difficult times, many pro-Japan Americans sacrificed a great deal for the well-being of
Japan and its people "(Yomiuri, February 29, 1984)

Toyota was to become a major, globalized car manufacturer, recovering from the defeat
in WWII, economic reconstruction and thriving during the period of dramatic economic
growth. It also became a source of trade friction because it stood out. Current
criticism of Toyota by President Trump can be viewed as analgous to a baseball game
going into extra innings. In this sense, what Sugahara warned to Kato back in 1984 ---
"The biggest naturally is the most conspicuous" --- proved to be prophetic.

Some may argue, trying to cope with Trump's criticism, that Toyota should reinforce its
lobbying activities in US. But probably that will result in paying large sums of money
to prominent lawyers and supposedly competent lobbyists. Does Toyota now have true
friends who would transcend business and impulsively help it when the chips are down?
At present, those are the best weapons for dealing with the U.S.