JAPAN IS CONFUSED. So are other countries watching Congress wrangle over protectionist legislation.
What, they ask, do the Americans want?
Do they want to keep jobs in the United States? Do they want to sell as much overseas as they buy? Do they want more access to foreign markets?
Do they realize that they can't have all three because they contradict each other?
Let's take the issue of equal access to foreign markets. Legislation on this assumes that imbalances happen when another country's markets aren't sufficiently open to U.S. manufacturers. What would Congress do, however, with a country such as Taiwan? Granted, in 1984 Taiwan exported $10 billion more goods to the United States than it bought from the United States. But this was because American companies produce their goods there and ship them back across the Pacific.
These goods show up as Taiwanese exports to the United States. To balance this, the average Taiwanese would have to buy close to $800 worth of American goods a year, the equivalent of one-third of their per- capita income.
A similar situation exists between Japan and the United States. About $15 billion of Japan's exports to the United States are either under American manufacturers' labels, or they are components and modules to be incorporated into American finished goods.
If Congress wants equal access to all foreign markets, it should consider whether the term includes such American operations in overseas markets, in which case the equal access is already achieved with respect to Japan.
During 1984, $44 billion was grossed by some 200 American corporations with direct production and sales operations in Japan -- companies such as IBM, NCR, Coca-Cola and Texas Instruments. Japanese direct production in the United States was only $13 billion, or an imbalance in "direct-presence statistics" of $31 billion in favor of the Americans in Japan.
Add each country's exports -- $56 billion from Japan to the United States and $25 bilion from the United States to Japan -- and you learn that during this intense and passionate trade debate, both Japan and the United States ended up with exactly the same amount of purchases of the other country's goods, approximately $69 billion (though this is not to say that there is a balance of trade between the countries).
But on a per-capita basis, a U.S. citizen in Brooklyn spent 2 percent of his or her income on Japanese goods, while a Japanese citizen in Yokahama spent nearly 6 percent on U.S.-brand goods manufactured in Japan.
Is Congress simply talking about access via export from the United States? If the latter is their definition, they can ask the American multinationals to come back home for production. Instead of Coca-Cola shipping only concentrate to Japan, Congress could ask Coke to ship the bottles and cans.
American multinationals would tell Congress that they don't care where they make the goods, as long it is possible to sell them at a profit. The job of Congress would then be to make America once again the most hospitable land for industrial production so U.S. corporations would choose to build their factories at home rather than in Asia and South America where they have fled because the price of production is less.
The presence of American multinationals in Japan is greatly underestimated and not currently counted in the trade statistics. American companies are very advanced in the management of their international operations and they opt for direct production and marketing in key markets.
Contrary to popular wisdom, American multinationals are very competent in producing overseas, and the Japanese multinationals are not yet capable of working directly in the difficult and challenging environment of the West.
There has been little evidence to date that the so-called Japanese management is transferable across the ocean, but there is $44 billion in American-company grosses alive and well in Japan as evidence that, despite the decline of the United States as the land of industrial production, American corporations are getting stronger and bigger in key markets of the world.
GM and Ford, for example, are two of the biggest insiders in Europe, each with more than a 10 percent share of the pan-European auto market, and they are also the largest shareholders of Isuzu and Mazda, respectively, in Japan.
In some cases, increasing free access to the Japanese market by foreign producers would hurt American exporters. Japan has restrictive quotas on 22 agricultural and fishery commodities which help American farmers because they discriminate against other producers.
If the market is completely opened, then countries such as China, Australia and Argentina will increase their exports to Japan of such products as peanuts, beef and wheat at the expense of U.S. producers. From where Japan sits, these countries are the low-cost producers by a factor of two, for example, in the case of beef.
The state of Georgia, in fact, has protested to the Japanese government against removing the peanut quota after indications that liberalizing quotas in 1981 has meant that a chunk of Georgia's market share has gone to the Chinese. Under the original quota, Georgia had enjoyed a secure share of total imports.
What U.S. farmers need may be more restrictive quotas rather than "free access" to global markets. Free access would, of course, be ideal if the U.S. competitiveness were unquestionably number one in the world, but such assumptions are naive and optimistic today, as evidenced by the increasing number of agricultural quotas by the United States.
In 1982, Japan imported $5.6 billion in American agricultural products, including 64 percent of U.S. beef and veal exports, and 26 percent of U.S. orange and tangerine exports. In general, the Japanese buy an average of 15 to 30 percent of American agricultural exports, including feedgrains, corn, soybeans, cotton, tobacco and wheat.
Japan's largest purchases from the United States are in agriculture and mining (coal, uranium, aluminum and rare metals) but it is also the leading foreign purchaser of America's commercial aircraft, organic and inorganic chemicals, pharmaceuticals and photographic supplies.
It is the second largest foreign purchaser of medical and scientific supplies, measuring and testing devices, pulp and wood products, and semiconductors. These are the products in which the United States maintains international competitiveness as a producer and exporter.
There are, however, other products and services where the United States as a country of production is no longer internationally competitive, but American companies, as global operations, are absolutely dominant. In petroleum, for example, the oil companies known as the Seven Sisters, six of which are American, control Japan's energy supply, operating a spectrum of businessses in Japan from importing and refining all the way to gas stations.
Yet their exports do not appear in the Japan-U.S. trade statistics since most of the American majors' oil comes from the Middle East and Indonesia.
The sponsors of current protectionist bills don't seem to include this type of American operation when they complain about "American access to the Japanese market." From the Japanese consumer's viewpoint, there is no way of telling where Exxon (Esso in Japan) gets its crude. It may be from Texas, in which case it is imported from the United States, or from Saudi Arabia, in which case it is not counted as an American export.
On average, petroleum imported and distributed by the American majors has amounted to $15-$20 billion in Japan, depending on the price of crude. This is not an insignificant sum.
This is not to say that Japan has no task at hand. On the contrary, Japan has its own idiosyncracies and selfish trade practices. For example, the farm lobby in Japan is very powerful and has succeeded in restricting some markets. Textile and plywood imports as well as several others are also restricted. These are sensitive political areas (not trade or economic subjects at all) which the two governments could discuss openly and sincerely try to change the status quo. What we do not need, however, is public Japan-bashing. This only makes things harder to change.
So what does Congress want? If it wants to balance trade then it must bring down the value of the dollar because so much of America's currently exportable goods are price- sensitive commodities such as agricultural products. A new study by the United States International Trade Commission indicated that the high dollar caused 88 percent of the decline in agricultural exports in 1981-82.
If Congress wants access, then it must realize that better access will not improve trade numbers substantially, and will hurt certain exporters such as some farmers.
If Congress wants to create jobs, or more specifically preserve jobs in maturing industry sectors, then it must take steps to enable manufacturers to modernize themselves and be internationally competitive. This is not a short-term solution and will not restore jobs already lost, because it will rely heavily on automation.
In the short term, perhaps Congress should encourage or insist that Japanese companies produce more goods in the United States to really put the overvalued "Japanese management" system to the test.
And it should figure out what it really wants, after calculating what will happen if it gets is.