The Myths of U S -Japanese Trade

...AFTER THE TOKYO ACCORD The Myths of U*S*-Japanese TlTclclc by michael berger San Francisco When American and Japanese negotiators signed a trade agieement in Tokyo last month, many hailed it as the beginning of a new ei a in the economic relationship between the two nations Alter moie than five months ot lough, ollen abusive talk on both sides, the mood seemed to have softened Hope was even expressed that the $10-bilhon-and-rising annual U S trade deficit with Japan might soon be heading in the other direction Some close observers of the situation, however, are less sanguine They believe the Tokyo accord was cosmetic and at most of short-term value, designed more to calm special interest groups in both countries than to deal with fundamental problems In their view, the general perception of U S -Japan trade relations is distorted by myths that continue to obscure sobering truths Myth Number One is said to be the belief that Japanese protectionism is the main reason why the U S trade balance is running heavily in the red "Anyone who thinks we're going to wipe out a $10 billion deficit by selling the Japanese more beef, oranges and citrus juices [three key items in the Tokyo agreement) is kidding himself," 1 was told by a U S government official in a position to know, who requested anonymity Yale University's Hugh Patrick, a specialist in Far Eastern economics, feels the same wav "We seem to have this quaint idea thai if the Japanese would only lower their trade barriers, we'd start selling lots of autos and TV sets to them I think that's totally unrealistic The crux of the matter was touched upon by a Japanese government official visiting California Speaking at a private meeting, he raised several embarrassing points "1 cannot understand why American auto makers have not changed the position of the steering wheel on export models from the left to the right side, knowing as they do that Japanese traffic rules are different Nor do I understand why they didn't try selling small cars to Japan many years ago, considering the narrowness of our roads Nor do I understand why U S appliance makers continue to send us huge refrigerators that are too large tor use in tinv Japanese apartments " The anonymous Washington official put the issue somewhat less diplomatically than his Tokyo counterpart "Japanese trade barriers don't help this problem," he sa\s, "but there's a Michael Berger, who has written J or the NL train Japan, is now a reporter for the San Frannsio Chronicle more important reason why Americans don't do better in Japan—our busmesspeoplfr are too profit-minded They aren't willing to spend the time and money to research Japanese market possibilities thoroughly " A recent article in Fortune magazine supports this contention It notes, for example, that the Japanese owe their dominance of the color television market today to a major U S blunder in the early '60s The wholesale price of Japanese color sets at the time was $150 more than that of larger, superior U S models There were, moreover, no restrictive Japanese import quotas or unreasonable tariffs on televisions Yet at that critical juncture, American producers failed to organize their distribution and service channels in Japan "American companies were aware of what had already taken place in transistor radios and in black-and-white TV,' William Rapp of Morgan Guaranty Trust, an authority on the Japanese economy, is quoted as saying "It is hard to believe that they could not see the handwriting on the wall " Hugh Patrick observes "We blew another chance in the early '70s There was a market then for larger-screen TV sets, but the American firms missed out because they didn't do their homework and adopted the wrong strategy for entering the Japanese market " Thus the evidence suggests that complex internal Japanese business regulations (many of them also faced by local manufacturers), and the quotas remaining on 27 items are not the root cause of the U S trade deficit Rather, it would appear that Japan, a traditional exporting nation, simply understands the international marketplace better than the US, where businessmen are accustomed to selling largely withm their own continent "Becoming export-conscious," says Patrick, "is a much more important long-range issue than trade barriers Two years ago, American and Japanese ambassadors were telling us that relations between the two nations had never been better And that was a time when trade barriers were more severe than they are now Not surprisingly, the Japanese agree that they shouldn't be cast as villains "Why should we be penalized because we work hard, make sacrifices when necessary, and are successful'" asks a Tokyo government representative who requested anonymity, too "I've spoken with agriculture officials in California They don't seem concerned with the causes of the trade imbalance—they just want to sell more to Japan And if the price to the Japanese consumer is high, they don't care about that, either " Myth NumberTwo is said to be that foreign imports?particularly from Japan?hurt U S workers in the long run Labor has made an impressive and by now well-known case that supports this Nevertheless, conservative economist Milton Friedman argues "Unemployed steel workers are highly visible, but imports do not affect total American unemployment one iota They only affect the kinds of jobs Americans have And what about the 'invisible' consumer7 We don't hear anything from Ralph Nader or people like him about the benefits millions of American consumers get from free trade with Japan " "When we're talking unemployment,' says Hugh Patrick less stridently, "we're not talking about 4 or 5 million people Essentially, we're talking about 50-100,000 steelwork-ers We never should let small vested interests change our total trade policy There are, after all, hundreds of thousands of American jobs that depend directly on foreign trade in general or Japanese trade in particular "There are indirect benefits as well If we buy $10 billion worth of goods from Japan, and Japan imports coal from Canada, and we export cars and TV sets to Canada, what's wrong with that7" U S -Japan trade Myth Number Three is said to be that the Japanese are getting rich at our expense "It's true," says another U S government economist, "that a relative handful of large, very visible Japanese firms are making huge profits in our market But back home in Japan, the majority of smaller companies are in trouble Bankruptcies in 1977 reached an all-time high [18,000 businesses with liabilities of $12 billion] The increased value of the yen [up 16 per cent in less than a year) has squeezed the profits of many more smaller export firms so much that they've been all but wiped out " Such misfortunes, according to Stanford University Japan scholar Daniel Okimoto, are bad for U S business "Our trade balance with Japan depends on the strength and vitality of the Japanese domestic economy," he says "When it's sluggish, as it has been for three years now, this has an impact not only on the U S economy, but also on the global market—to which our economy and Japan's are deeply tied " A final factor that is cited as inhibiting the improvement of economic relations between the two countries is an atmosphere of prejudice and mistrust which persists 32 years after World War II "It was very distressing," says Hugh Patrick, "to be called to Washington for consultation and to hear many people in our government using tired old phrases like 'Japan, Incorporated,' and suggesting that the Japanese couldn't be trusted After all these years, the latent vibes are still there It's easy to create a scapegoat when you don't fully understand a country or a people, and the Japanese do the same thing They make us scapegoats, they overreact Their press, even more than ours, can become hysterical in a crisis " Patrick and others urge that what we ought to remember, instead of World War II stereotypes, is Japan's present status as a major democracy that has in common with America important political and economic values "We also share," adds Patrick, "a trade relationship that is too important to both sides to be destroyed by ignorance...