Once again, the amazing Japanese economy is the envy of the rest of the world. While the United States and Europe are suffering recession and high unemployment, Japan is ending its fiscal year on March 31 with a real growth rate of 4.1 percent, with unemployment a tiny 2.2 percent. And the forecast for fiscal 1982 is for a further real GNP gain of 5.2 percent, with unemployment at 2.1 percent.
Since this great economic success is led by Japan's exports, it is understandable that U.S. Trade Ambassador Bill Brock has been trying desperately to tell the Japanese that the $20 billion trade deficit the United States will incur this year with Japan is "politically unacceptable." At half that number, Brock says, "there has been grumbling."
Brock is trying to get the Japanese to wash away the "nontariff barriers" (NTBs)--some antiquated, some newly devised--they use to keep foreign goods out. For example, American baseball bat manufacturers might reasonably have expected to benefit from the Japanese devotion to the American sport. But by specifying a "safety standard" that only six manufacturers can meet--strangely, all Japanese--Japan has effectively protected the entire baseball bat market.
Japan's baseball bat NTB is just one small but dramatic example of a world-wide epidemic. Japan has all sorts of barriers to limit telecommunications purchases by its national telephone monopoly. Although the United States likes to brag that it has the most open economy in the world (and by and large it does), the United States twisted Japanese arms last year to establish "voluntary" quotas on car and truck imports. France, Canada, Italy, and the U.K. each have a different quota restriction on Japanese cars and on some electronic goods.
Maybe the worst example of bilateral trade discrimination, making a mockery of the idea of equal treatment, is the notorious Multi-Fiber Agreement initiated in 1974 by which all of the rich nations manage a set of restraints against textile imports from poor countries. The United States recently agreed to tighter quotas: If it hadn't acquiesced, protectionist-minded Europe might have slapped even more onerous limits on poor country textile exports--for many, a principal source of their foreign exchange earnings.
The new attention to import problems that create bilateral deficits carries with it, as Washington lawyer Carl J. Green says, "all of the dangers of the 'beggar my neighbor' practices of the 1930s."
But suppose all the Japanese nontariff barriers to imports were chucked overboard. Would that end that country's enormous success? We might get some cosmetic improvement in the trade figures, just as we would if the Japanese boosted their defense expenditures, bought a flock of nuclear reactors, or--as some have suggested--$8 to $10 billion worth of AWACS.
The truth is that after fixing all of the Japanese NTBs, the United States would still face an enormous trade deficit with Japan. As a recent House trade subcommittee report warned, America faces an economic crisis "precipitated by the brilliance of Japan's industrial drive." This bipartisan report said, in effect, that American industry had missed the boat, and that Japan's high-technology industries "will dominate the rest of this century."
If the Japanese are smart, they'll drop their NTBs on baseball bats, tobacco, books, agricultural products--set up to appease special Nipponese interests--and concentrate on the export goods of the '80s, '90s and beyond. Unlike other leading industrial nations, Japan has already been clever enough to yield textiles and other labor-intensive operations while concentratrating on the capital-intensive wave of the future.
Brock is sensitive to the dangers of focusing too much on bilateral trade relationships. If we're in the red with Japan, we're in the black with other important trading partners, including Europe, Canada and many of the major developing countries. Moreover, it's the overall "current account," which includes earnings from investments from abroad, that is the real test of a nation's international financial strength. And the United States has been running a world-wide current account balance (although the high-priced dollar is beginning to change that picture.)
But the heat is on to do something about Japan, because those dramatic Japanese trade surplus figures are there--and month by month, year by year, they're getting bigger and bigger: $10 billion in 1980, $19 billion in 1981, something like $20 billion in prospect for 1982 and 1983.
Trade Minister Shintaro Abe, who made a good impression here last week on a get-acquainted mission, told me in an interview that "we feel we should come to grips with the situation by promoting manufactured imports from the United States into Japan." Abe feels that American manufacturers aren't trying hard enough to get into the Japanese market. (He cites figures showing that the European share of imports into Japan is increasing while the U.S share is declining.) But the Japanese government is pushing through to completion a study of the "alleged NTBs" with a promise of a speeded-up grievance procedure.
"I emphasized to Brock and Secretary Alexander Haig that the U.S. should make further efforts to promote exports," he said. Japan, he observed, has six times as many offices as does the United States devoted to national export activities, and has a 13-to-1 advantage in the number of people involved in export promotion.
Abe was also not shy about pointing out something else: part of the huge jump in the Japanese trade surplus with the United States last year must be laid at the door of Reaganomics. What has happened is that high interest rates here, pushing up the U.S. dollar, depressed the Japanese yen--just as it forced a depreciation in European currencies. That added price-attractiveness to the already quality-attractive Japanese goods.
American officials note that domestic policies, not only American monetary policies, have operated to depreciate foreign currencies. In addition, some U.S. officials believe--although no formal charges have been made through the International Monetary Fund--that the Japanese government has manipulated the yen to keep it too cheap. Abe flatly denied this charge, or that the Japanese government is even in "a position to do such a thing."
The danger now facing the world is that the stagnation of the Western economies this year will heighten the demand for further protection, further bilateral fixes. The total disaster in Detroit--which will worsen if management and labor can't agree on wage restraints--is likely to lead to pressure on the Reagan administration to work for tightening the quota limits on Japanese cars.
The world's leading exporting and importing nations are supposed to get together at the end of the year for a ministerial meeting of the General Agreement on Tariffs and Trade (GATT), reaffirming liberal trading principles--and trying for the first time to extend them as well to services and investments.
But it seems to me that the GATT meeting will be a sham if, in the interim, all of the pious rhetoric about multilateral and open trade (doubtless including some that will be regurgitated at the Paris Economic Summit in June) is effectively voided by a burgeoning bilateral protectionism.