President Reagan's trip to Japan, which begins in a few days, again will raise the specter of America's "Japanese problem"--the frustrating ability of Japanese companies to sell more things to Americans than they buy from us.
Japan probably will run a trade surplus of more than $20 billion with the United States next year, a figure held down by large sales of American agricultural products. The United States will enjoy a surplus of about $7 billion in sales of food and other farm products to Japan, which means that the U.S. deficit on manufactured products will be close to $30 billion.
What American officials do not like to mention is that our trade surplus with Europe has been almost as large over the years as our trade deficit with Japan. Moreover, because Japan does run a global trade surplus, and is likely to do so for years, there is a large capital outflow that enables Japan to be a major lender and investor abroad. This is precisely the role that the United States and Great Britain played for many years while their economies were surging forward.
Nonetheless, while preparing for his visit with Prime Minister Yasuhiro Nakasone, senior administration officials are urging Reagan to take a tough line.
"The time in which Japan has been able to get by , offering these 'packages' of trade liberalization is at an end," said one administration official angrily. "We get a public commitment at a high level, but then it's ignored by the Japanese bureaucracy. The time has come for less talk and more action."
American officials claim that Japan persists in maintaining inspection and certification standards for imports that make no real sense--and are there simply for the naked purpose of blocking imports. There can be little doubt that this is true, and Japan should lose no time in repairing this situation.
But beyond that, Trade Representative William Brock and Secretary of Commerce Malcolm Baldrige want Reagan to persuade his friend "Yasu" that Japan must agree to "a sense of reciprocity" in its trade dealings with the United States. By that, they mean that Japan must provide the same relative access to its markets that Japan enjoys in the United States.
This sounds entirely reasonable, but to demand exact "reciprocity" in this sense is tricky. As Council of Economic Advisers member William A. Niskanen has said, we have every right to demand a "national treatment standard"--that is, American firms in the Japanese market must be treated no better and no worse than Japanese firms. And Japanese firms must get similar treatment here.
But that's not the same as demanding that American firms get the same treatment in Japan as Japanese get here: Everyone has different institutions, and we cannot impose ours--for example, a distribution system--on the Japanese, even if we think it's better and more open.
Nonetheless, there is little doubt that many Americans have become convinced that Japan follows unfair trade practices. These feelings have been exacerbated by the recent recession that wreaked havoc on the so-called smokestack industries--that is, autos, steel, and related manufacturing.
Many businessmen--and they have support in some departments of the Reagan administration--also believe that the Japanese government "targets" key industries for development, nurturing them with subsidies, tax relief, and import protection until they are ready to compete in world markets.
As former ambassador to Washington Nobuhiko Ushiba has said on frequent occasions, the intensity of bitter feelings in this country has stunned those Japanese who are anxious to preserve a close relationship with the United States. They see Japan as the scapegoat for economic problems that are at least in large part made in America.
There is a large and respected body of opinion in the United States that agrees with Ushiba--although no one defends Japan's continuing protectionist policies on agricultural imports, its foot-dragging on inspection standards, or its reluctance to open up its capital markets.
The major argument between Reagan's advisers and those who think he will be making a mistake to adopt a hawkish posture in Tokyo revolves about this question: Is Japanese intransigence on trade the primary factor in the swollen Japanese surplus with the United States, or is the real problem the overvalued American dollar?
Outside of the White House, the Treasury, and the Commerce Department, the preponderant opinion among experts is that the overvalued American dollar is a much more important cause of the Japanese surplus than all of the overt and covert protection combined.
According to a study by the General Accounting Office, the dollar has appreciated about 21 percent against the yen in the past three years, which means that there has been that much of an increase in the price of American cars or other goods relative to the price of Japanese products. Against European currencies, the appreciation is in the neighborhood of 50 percent, which makes it difficult for American manufacturers to go head-to-head with Japan in many third markets.
Were it not for the "voluntary" quota on Japanese penetration of the U.S. auto market, Japanese sales here might have been as much as 50 percent or more above the current level.
Administration officials offer little help--and no figures--when one asks them by how much the U.S. trade deficit with Japan would be reduced if all of Japan's tariff and nontariff barriers were eliminated.
But Gary Saxonhouse, a University of Michigan expert on the Japanese economy, estimated in a study for the Institute of International Economics that wiping out all barriers might reduce Japan's trade surplus by between $2 billion and $3 billion. If even two-thirds of that were to benefit the American trade balance, it is clear that Japan still would have an overwhelming surplus.
It is clear that the major correction in the increasingly tense American-Japanese economic relationship won't occur until the dollar and the yen come into better balance. If the huge American budget deficit that is running about $200 billion were reduced, this would result in lower interest rates with an almost automatic reduction in the value of the dollar against the yen. The two currencies would come into even better balance if Japan were to shift its macroeconomic policies by tightening up on its interest rates while liberalizing its fiscal policy.
But as Brookings Institution scholar Philip Trezise said the other day, neither country's political agenda calls for dramatic changes in overall economic policy. Although Nakasone is strongly pro-America and has made a determined effort to cut through the bureaucratic red tape that maintains tariff barriers, he is not anxious for the kind of fiscal stimulation that might push Japan into an inflationary cycle.
And Reagan, in advance of the election, is trying very hard to make believe that the budget deficit is not a real problem. Thus he has come down hard against the tax increase that would reduce the deficit, hoping that expansion of the economy by itself will cut the red ink.
That leaves both countries trying to solve a major economic dilemma by dealing with fringe elements of the main issue, and these are the ones that tend to polarize bitter and emotional feelings among the public in each country--auto quotas here, and beef and citrus quotas there. A thin reed of hope is that Yasu and Ron, as two good politicians, may in the end prove to be more flexible than many of their principal advisers.