AN OPTIMIST would say that the U.S.-Japanese trade talks last week were a success, since the atmosphere is considerably improved. The accusatory, hectoring tone of the American complaints has diminished. But a pessimist would reply that the talks actually changed very little and, in fact, only demonstrated how difficult any change will be. The Japanese government is now going to speed up economic expansion, for good domestic reasons, but it isn't likely to hit its announced target. Deplomacy is keeping things from getting worse, but it isn't going to improve them very quickly.
The trouble is that the abstractions about trade imbalances and currently exchange rates come down rapidly to a matter of jobs.World trade is now dominated by three powerful economies - West Germany, Japan and the United States. Two of these countries are now runnin g tremendous trade surpluses, and the third - the United States - is running an even more tremendous trade deficit. A surplus tends to push up the value of a country's currency; both Germany and Japan are profoundly dismayed by this steady rise, which is making it harder for them to sell their exports. They sharply reproach the United States for letting it happen. The United States retorts that it's their own fault for running those big surpluses in the first place. The debate has been getting rather heated.
The United States explains that its unexpectedly huge trade deficit is owed partly to oil imports and partly to slow economic growth abroad. Nothing much can be done for the present about oil, the argument goes. The remedy consequently is to persuade the rest of the world - i.e., West Germany and Japan - to step up their growth rates.
Germans disparage that view severly. With remarkable unanimity, they observe that Americans underestimate the inflationary dangers of excessive expansion in Europe, a continent with a far less stable economy than North America's. The leading source of the imbalance, Germans argue, is the American refusal to do anything serious about its inordinate imports of oil.
Japan is willing, in principle, to increase its imports of American. But the Japanese negotiators caution that it has to be done slowly, very slowly, because of the impact on the structure of traditional Japanese society. Since you Americans haven't got much in the way of tradition, they're saying, you can hardly appreciate the sensitivity of it all.
Perhaps, by this point in the recitation, the reader has perceived that nobody is planning to change present policy in any dramatic way. President Carter had discovered that it's nearly impossible to persuade American consumers to cut down on oil. But it would hardly be any easier for Chancellor Helmut Schmidt to persuade German voters that a little more inflation won't hurt. Or for Premier Takeo Fukuda to persuade Japanese businessmen that a surge of American imports would be good for them. There are limits to anybody's powers of persuasion. But if governments can't act, what happens?
The answer lies in the exchange rates, and the continued rise of the Deutschemark and the yen against the dollar. The Germans and the Japanese can't have it both ways. They can't have both surpluses on the present scale and stable currencies as well. But leaving it to the currency markets isn't the worst of solutions. It's an automatic and impersonal process with widely dispersed effects for which no government gets blamed directly. For Americans the cost of the decline in the dollar is an increase in inflation and an erosion in living standards, both of them minor. In return, the country will get an easing of the foreign competition with the most vulnerable Americans industries - the melancholy catalogue that begins with shoes, textiles and electronics. The rise of the yen has already begun to reduce the Japanese pressure on the American steel-makers. That in turn lowers the volume of the political agitation for protectionist tariffs and imports quotas. Market forces are blunt instruments, which do not always operate as cleanly and efficienly as one would like. But when trade politics becomes too painful for the politicians to touch, there's a good deal to be said for leaving the process of adjustment to the invisible hand. That seems to be what's happening now.