The Karate Kid III (1989)

Factual error: The storyline in Karate Kid 3, based on the happenings and reference points of the first two movies, is supposed to take place roughly about late 1984, or early 1985. However, if you look close at the beginning of the film when Terry Silver drops off John Kreese at the airport, there are several cars that are definitely later 80's models.

Mr. Kesuke Miyagi: Inside you same place you karate come from.
Daniel Larusso: My karate comes from you.
Mr. Kesuke Miyagi: Ah. Only root karate come from Miyagi. Just like bonsai choose own way grow because root strong you choose own way do karate same reason.
Daniel Larusso: I do it your way.
Mr. Kesuke Miyagi: Hai. One day you do own way.

Trivia: When Daniel is persuading Myagi to use his college money to buy a store for selling Bonsai trees, he takes a wad of cash, smells it, and says, "Hmm. Looks like money.smells like money." Ralph Macchio has practically no sense of smell at all, so just for fun he always makes a point to smell something in every movie he does.

Question: Why does Daniel's karate skills regress in this movie? After fighting a Karate champ in the first movie and a Japanese fighter in the second, surely he must have gotten better as a fighter, not worse?