Lessons Emerge From Years of U.S. Dickering With Japan : Trade: The first is, expect no voluntary concessions. Another is to ignore Tokyo’s competitive strength at your peril.
TOKYO — When President Clinton declared last month that America’s $59.3-billion trade deficit with Japan was “unsustainable,†it was not the first time the Japanese had heard such a warning.
In 1973, for example, then-President Richard M. Nixon warned that “our economic disputes could tear the fabric of our alliance.â€
The year before, the deficit had reached $4.1 billion.
Threats by the Clinton Administration to retaliate with sanctions carry an aura of deja vu here, too.
In the first Japan-must-open-its-markets speech, then-Commerce Secretary John T. Connor complained in 1966 of Japan’s virtual ban on foreign investment.
“We are determined to uphold the principles of equity and reciprocity--positively or negatively--whichever is called for,†he declared.
Connor spoke six months after the United States suffered its first trade deficit with Japan: $359 million in 1965. Twenty-eight more annual deficits, countless rounds of trade negotiations and American cries of “Wolf!â€--made at ever higher levels of red ink--have followed.
President Ronald Reagan in 1987 did slap 100% tariffs on $300-million worth of Japanese imports as a penalty for a single alleged Japanese violation of a bilateral agreement on semiconductors.
Clinton, by contrast, is now pondering a totally new path in U.S.-Japan economic relations--one that would impose sanctions to punish the entire Japanese market, which he insists is closed. On Thursday, he revived the harsh “Super 301†trade provision, which lets the President apply punitive tariffs against the goods of unfair trading partners.
Twenty-eight years of U.S.-Japan trade negotiations show that if Clinton does not act, the credibility of American threats will vanish. If he does act, the penalties will have to produce billions, not millions, of dollars worth of damage to reduce the “unsustainable†trade deficit to a “sustainable†level--and that could precipitate a trade war.
Foremost among the lessons of those negotiations is: Expect no voluntary Japanese concessions, and none at all that will cause pain and injury to Japanese industry.
When Prime Minister Kakuei Tanaka finally ended the government ban on 100% foreign ownership of companies in Japan in 1973, private industry already had set up its own wall against foreign takeovers by establishing an intricate system of cross-holding stocks. The system, which continues today, ensures that no more than about 30% of any company’s stock is ever traded publicly.
Another lesson of U.S.-Japanese economic relations is: Ignore Japan’s competitive strength at your peril.
Despite predictions in the 1960s that Japan was destined to become an economic superpower, Americans mostly ignored Japan’s growing strength.
Nixon was the first president to devote major attention to Japan. At a time when high tariffs, non-tariff barriers, import quotas, and obstacles to foreign investment handcuffed American businessmen here, Nixon spent two years and five months bludgeoning Japan into implementing restraints on 18 categories of textiles.
Although some Japanese textile items had gained as much as a 50% share of the American market, at the time Japan accounted for only 3% of total textile sales in the United States.
The lack of American attention also has allowed problems to grow to the point where solutions became virtually impossible.
Japan’s share of the U.S. market for television sets, for example, tripled to reach 30% during a 1974-76 period in U.S.-Japan economic relations that American officials described as “trouble-free.†Only in 1977 did Japan implement a program to restrain exports of television sets. And it was not until Japanese cars seized nearly 20% of the American market in 1981 that Washington forced Japan to implement “voluntary†restraints on those exports.
Today, the only firms that manufacture TV sets in the United States are foreign-owned--mostly Japanese. And cars built by Japanese-owned firms last year held a 29% share of the U.S. passenger car market, an increase of about 10% since the export restraints went into effect. (Japanese auto makers’ investments in plants in the United States provided the growth.) By contrast, the Big Three hold a 0.29% share of the car market in Japan.
Not until the Reagan Administration did the United States begin to focus on non-tariff barriers and the workings of the Japanese economy.
Despite claims by Clinton Administration officials that “nothing works†to drive down Japanese surpluses, history shows that a booming Japanese economy does pull in imports and cut red ink. Three times since 1966, the U.S. deficit with Japan has fallen. Most recently, from 1988 through 1990, red ink plummeted by 31% as American exports to Japan leaped by $20 billion.
But when Japan’s economy fell into sluggishness in 1991, American export growth halted.
Conversely, appreciation in the value of the yen initially drives up the U.S. deficit. But if the pattern of the past repeats itself, the 20% appreciation of the yen since the beginning of 1993 will drive down Japan’s surpluses later this year or next year.
Ironically, Japan’s economic friction with the United States has precipitated proposals for fundamental change that, if implemented, might indeed reduce Japan’s surpluses permanently.
Various Japanese leaders have essentially echoed American assertions that Japan needs to change its culture to be more receptive to imports. Prime ministers back to Tanaka (1972-74) have talked about reversing Japan’s priorities from “production first†to “living standards first†to promote domestic-led growth and pull in imports.
“The only way we can solve (the problem of land prices) is to start building skyscrapers,†Tanaka said shortly before he took over as prime minister. “Yet today the average height of a building in Tokyo is only 1.7 stories. We should start restricting not the height of buildings but rather the lowness of them. (For) so many of our problems, what we must do is totally reverse our present policies and laws.â€
A report drawn up under Yasuhiro Nakasone in 1986, known as the Maekawa report, proposed no less than a restructuring of the entire economy so that the country would rely wholly on domestic demand for growth.
Such changes were taken up under the so-called Structural Impediments Initiative under President George Bush, with some success. Japan agreed to increase its public works spending for 10 years. Large retail stores, which tend to handle imports, have found it far easier to establish new outlets since then. And Japan’s Fair Trade Commission at least has started acting against collusive practices that help keep foreigners out of the market.
Yet, the average height of buildings in Tokyo is still 1.7 stories. Calls for overall government deregulation, most recently taken up by Prime Minister Morihiro Hosokawa, have not produced any action. And not one major Japanese automaker has reduced its reliance on exports below 37% of its total production.
Back in the 1960s, Americans were battling Japanese government quotas on imports of even such items as chewing gum and ketchup, not to mention computers. Even non-quota items required import licenses, copies of which were sent to responsible government bureaucrats, who could exert pressures on potential buyers.
In 1972, Japan had the world’s second-highest tariffs--an average of 11%--on manufactured goods, after Britain. Now, it maintains the lowest average--1.9%--of any advanced nation. And import quotas on beef and citrus fruit have been removed.
A “nightmare†that William E. Brock said he suffered as Reagan’s trade representative in the early 1980s--that “Japan does everything we ask it to do, and we wind up with no change in our trade deficitâ€--has in effect come true, at least in part.
Now that many, if not all, government obstacles have been removed, the business practices and mind-sets of Japanese corporations and consumers shape up as the biggest headache.
Japan’s markets have nonetheless opened up far more than Americans are willing to recognize. Just four days before Clinton and Hosokawa fell out at their Washington summit Feb. 11, Clinton’s own economic advisers issued a report--one the President ignored--suggesting that removal of all Japanese barriers would shave the $60-billion U.S. trade deficit by only $9 billion to $18 billion.
In addition, much of the American trade deficit with Japan has been created by Americans.
“Of some $60 billion of Japanese exports to the United States, about one-third--more than $19 billion--are parts which American companies import from Japan. . . . Japan is being used to help make American products,†Nakasone said in 1985.
In autos--which alone account for more than 60% of the American deficit--there is no question that American manufacturers were kept out of the market here during the days of boom growth.
In the 1960s, Japan forbade foreign investment in its auto industry, imposed tariffs of up to 40% on imported cars, and limited the number of foreign car salesrooms to 10 per company. Today, American auto makers hold minority shares in Japanese auto firms, are free to build factories of their own, and face no tariffs on either cars or auto parts. Nor do limits on establishing showrooms exist any longer.
Now the main obstacle is persuading established dealers in Japan to handle American cars.
The only remaining government barrier--Japanese safety standards that force American auto makers to remodel the cars they ship here--could be eliminated by building the cars to meet the standards in the first place, as the Japanese do with cars they ship to the United States.
Signs of change have emerged only recently. Chrysler’s new Neon and General Motors’ Saturn models are considered potential winners here--although they are not yet on sale. And all of the Big Three have finally declared they will install right-hand drive in the cars they ship to Japan, where cars run on the left side of the road.
But between the 19,000 cars that the Big Three sold in Japan last year and the 2,482,345 that the Japanese sold in the United States lies a long, long road.
US-JAPAN TRADE TENSIONS: VOICES THROUGH THE YEARS
Maurice H. Stans, Commerce secretary, May, 1969: “It is no accident that the U.S.-Japan Security Treaty commits our two nations to seek to eliminate conflicts in their international economic policies. Without conscious effort of political will, our economic disputes could tear the fabric of our alliance.â€
President Richard Nixon, in a foreign policy report, May, 1973: “No nation can expect to enjoy for long the fruits of a one-way policy.â€
Sen. Lloyd Bentsen, May, 1980:â€If it is impossible or impractical for the Japanese to buy more from us, then we must be prepared to purchase less from them. I can see no good reason for the United States to commit economic hara-kiri on the altar of a bogus free-trade relationship.â€
Malcolm Baldrige, Commerce secretary, October, 1981: ‘In the past, it’s been mostly the Congress which has been worried about this (U.S. imbalance in trade with Japan). Now it’s the Congress and the Administration. . . . The trade imbalance cannot keep growing like this, even between friends.â€
Akio Morita, Sony chairman, March, 1982: “Americans are trying to impose their own laws and their own ways of life on the rest of the world. . . .Things appear to have gotten as bad as they were on the eve of World War II.â€
Robert A. Mosbacher, Commerce secretary, March, 1990: “No system can long function in a state of permanent disequilibrium. There will be corrections.â€
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