If the United States wants to reduce its massive trade deficit with Japan, there's an easy way to do it. Send in the Seventh Fleet Halt Japanese exports to the United States, and force them to take ours.
Otherwise, there isn't a quick fix to the deficit. Moreover, the solutions being considered by Members of Congress - a stiff surtax on Japanese exports or quotas - risk doing more harm than good. They overlook Japan's island mentality: the deep sense of insecurity and dependence on outsiders.
About two-thirds of U.S. exports to Japan consist of raw materials, such as food, lumber and coal. The more the United States shows itself to be an erratic, unpredictable trading partner, the more Japan will diversity its trading patterns.
Indeed, that is part of today's problem. Just recently, for example, Japan signed a $20 billion agreement with China to exchange Japanese industrial equipment for Chinese coal and oil.
On both sides misconceptions and parochialism feed Japanese-American economic warfare.
Start with the prevailing popular view in Congress. Increasingly, Congress embraces the "dirty tricks" thesis of Japan's success: that Japan's huge exports reflect a host of underhanded sales tactics, including "dumping" and subsidies.
It's easy to understand congressional frustration. Japan's trade surplus, a record $17.5 billion last year, is still bigger in 1978; in the first six months it grew to $12.4 billion, against $6.6 billion for the same period in 1977. But these figures are misleading and the "dirty tricks" theory distorts reality.
The reality is that the Japanese have succeeded primarily on the basis of superior products, which have been eagerly purchased by American consumers and which often faced little effective U.S. competition. A new report from the U.S.-Japan Trade Council makes precisely this point: although the council is financed primarily by the Japanese government - and therefore, the analysis is self-serving - the main conclusions are really no more than common sense.
Consider automobiles. They constitute Japan's largest and most conspicuous export to the United States, accounting for about a third of the total. As recently as 1963, Japan's cars and trucks represented less than 2 per cent of all U.S. imports. Last year, when imports took more than 18 percent of the U.S. car market (up from 5 percent in 1963), Japan's share had increased to 72 per cent. So, Japanese success has come at the expense of other importers, not just U.S. firms.
Equally important, until recently, the U.S. auto industry never seriously challenged imports. In effect, it ceded them 15 percent of the market. Even now, the struggle is half-hearted. Whenever the appreciating yen forces Japanese car prices up, U.S. firms quickly follow suit on their small models.
The same pattern prevailed elsewhere as Japanese companies - often competing most fiercely against each other - tapped massive consumer markets largely ignored by U.S. firms. Honda, Yamaha, Kawasaki and Suzuki pioneered the explosion of motorcycle use for leisure and recreation; their sales constitute 80 percent or more of all U.S. sales. Japanese electronics firms led the boom in citizen band radios. There may be instances of dumping or subsidy, but to think that the Japanese captured with big markets through these devices is silly.
A more telling criticism is that Japan closed its own markets to imports. But this is probably less true now than in the past. A recent report to the Treasury Department concluded:
"For a very long time and until very recently, Japan was utterly protectionist in every aspect of international economic interaction. All transactions - goods in trade, technology sale and purchase, capital inflow and outflow - were closely regulated and circumscribed . . . Beginning slowly and cautiously in the mid-1960s, and accelerating steadily into the 1970s, the process of dismantlement of controls and regulations was undertaken . . . The West has been slow to perceive the recent rapid changes in this distant and ill-understood society."
Japan's view of its own problem is no less parochial than America's. Despite protests to the contrary, the Japanese still worship a large trade balance. They shouldn't.
Politically, a massive surplus could only antagonize Japan's major trading partners - as it has. Economically, it could lead only to a steep appreciation of the yen, as traders sought to buy yen (on foreign exchange markets) to pay for Japan's exports. The current yen appreciation - 35 per cent in the last year - should surprise no one.
But such a huge appreciation poses dangers for the Japanese. In time, it threatens to depress their export industries and inject new instability into Japan's economy. Meanwhile, the Japanese have not fully reaped the benefits of their strong technology and trade balance: the ability to improve their own standard of living by buying other countries' goods. Japan's own needs are massive in housing and environmental cleanup, to name just two areas. For its own sake, Japan needs to accelerate internal growth, encourage imports and moderate the yen appreciation.
And yet, the Japanese give the impression of having been coerced (mostly by the United States) into faster growth and more import liberalization. A good example is a reported dispute over tariffs on computers, which the Japanese offer to drop to about 4 per cent from existing levels of 10 per cent to 17 per cent. The U.S. wants a zero tariff. Why the Japanese do not have the imagination to propose this on their own is mystifying.
To think that today's U.S.-Japan trade imbalance could vanish overnight is fantasy. The initial effect of the yen appreciation and dollar depreciation is perverse. More dollars must be spent here for Japanese imports while the lower prices of U.S. goods don't instantly bring new U.S. exports. This explains most of the growth of the deficit, but the volume (if not the dollar value) of Japan's exports is now leveling off.
More important, boosting American exports requires time. U.S. businessmen need to learn Japanese, study the country's markets and tailor their products accordingly. But these financial and psychological investments do not happen automatically, and the increasingly contentious political climate - fed by economic nationalism on both sides - may not create the confidence to make them happen.