The recent agreement to limit Japanese imports to 1.68 million units during the next 12 months and 1.82 million the following year is a compromise that pleases neither the Japanese nor the American auto makers and won't solve the problem anyway. It does nothing about high interest rates, escalating materials costs, soaring gasoline prices and excessive government regulation.
Nor does it do anything about the poor management, poor labor leadership and poor market research that have put us in our present quandary: One in six American jobs is related to the auto industry. Its products and services compose 8.5 percent of our GNP and 25 percent of retail sales. The automotive industry uses 21 percent of America's steel, 60 percent of our synthetic rubber and 20 percent of both our glass-manufacturing and machine-tooling capacity. The auto industry is the prime purchaser from 2,000 companies.
If the economy catches a cold when the auto industry sneezes, then the economy should be in intensive care given the current health of this industry.
The United States and Japan are the world's two largest trading partners. U.S. farm exports to Japan in 1980 reached $6.3 billion. The total this year is expected to exceed $7 billion. Japan is second only to Canada as an importer of U.S. fruits and vegetables. Even with the existing import quotas imposed by Japan, it imported nearly $137 million in U.S. citrus products in 1980.
Japan also imported $286 million in American beef, poultry and pork, with an additional $300 million worth of hides and tallow shipped to the Far East.
We are a major exporter of maize, logs, wheat, cotton, airplanes and scrap metal. In 1980, a total of $21 billion worth of American goods and products were exported to Japan. We imported $30 billion worth of goods and products from Japan. Of that $30 billion, $11.4 billion went for autos and auto parts.
It would be foolhardy to attempt to engage in open warfare with the Japanese on the field of automobiles. The high taxes and tariffs imposed, plus the modifications that are required by Japanese law, can double the price of an American car being sold in Japan. Although there is little evidence to show that we would be any more successful selling American cars in Japan than we have been selling American cars in America, a common complaint of American businessmen is about the tangled course that must be run to get goods to the Japanese consumer. It might be in Japan's best long-term interests to allow American shippers to cut through some of the economic and institutional barriers that have been erected through the years.
In addition to the technical problems of attempting to control artificially the import-export markets, there is the problem of presenting a rather hypocritical face to our trading partners in the European Economic Community. If we attempt to bring into balance a $10 billion trade deficit with Japan by limiting imports, it would be reasonalbe to expect the EEC, which as a $17 billion trade imbalance with us, to do likewise.
Given the recent mixed signals the Europeans have been getting from the United States because of the lifting of the grain embargo, it might well be in Europe's best interests to institute import quotas on shipments from the United States to protect industries on the continent.
Restriting imports without restoring the basic demand for American-made automobiles will be the equivalent of treating the industry for its cold, while ignoring the advanced arteriosclerosis.
A better approach, while the industry changes its living habits and its diet by producing X cars, J cars, K cars and the other alphabet models, would be to use tax policy to foster the purchase of new American-made cars.
I have suggested a $750 tax credit as an incentive to buy an American car. The tax credit would be refundable against federal income taxes. By extending this credit to an 18-month period, sales would increase by some 2 million units (using Congressional Budget Office ratios). These units would create or restore 440,000 jobs both in the automotive industry directly and in supplier and indirect services.
The cost to the U.S. Treasury -- about $10.7 billion for the 18-month period -- will be more than offset by tax revenues generated from employed workers and restored businesses, as well as from reduced unemployment benefits, trade adjustment assistance and other government transfer payments.
It would be a grave mistake to look at this import agreement with the Japanese and assume that, because they were at fault, the problem is now solved.
Remember Ceasar's warning: "The fault, dear Brutus, is not in our stars, but in ourselves . . . ." That was good advice on the Ides of March in ancient Rome. It is still good advice in the middle of May in modern American.