One excellent indicator of the heat of political discourse on an issue is the degree to which usually sensible people are driven to embrace nonsensical policy proposals. Recent U.S.- Japan relations are a good case in point. A striking example for the nonsense prize in the 98th Congress is a proposal by California liberal Fortney (Pete) Stark, who would limit the bilateral trade imbalance between our two countries to $10 billion a year.
Stark's bill takes its central idea from MIT economist Lester Thurow, who recently proposed that "we abolish all of our current restrictions on specific Japanese exports and replace them with a system of general reciprocity." Instead of yielding to the UAW on "local content" or haggling with Tokyo over oranges and semiconducters, we would say to Japan: sell us whatever you wish, but if the total comes to more than a certain level above what we sell you, the walls will go up. Thurow suggests a ceiling of a $1 billion Japanese surplus every three months; Stark would be more generous, allowing 21/2 times as much, or $10 billion for a year.
The idea is, at first glance, enormously appealing. In our economic disputes we are becoming, Stark suggests, "like monkeys in a cage, we keep picking at each other, and the scratches become ever-more inflamed and infected, spreading and infecting the whole relationship." Our determination to open the Japanese market has led us to press Tokyo on any number of sensitive matters, from overt quotas (as on beef) to Japan's internal distribution and zoning laws. Meanwhile, the bilateral deficit continues to grow--reaching about $20 billion in 1982. What is wrong with a proposal that we step back from this wrangling, stop fighting over baseball bats and sake and let the numbers do the talking instead?
Just about everything.
The most obvious problems are operational. Forget the question of just how, administratively, we would enforce such a broad limit. Assuming that we could, a sudden, across-the-board cutoff of Japanese imports would be incredibly disruptive--not just for U.S. consumers but to the many American firms for whom the timely arrival of, say, Japanese-made semiconductors or machinetools is important to their productive efficiency. In its disruption of normal, ongoing business relationships, it would make Reagan's 1982 pipeline sanctions and the 1973 soybean embargo look trivial. (And the negative political impact in Tokyo would surely be far greater than that produced by current disputes, however heated they may become.)
And to what end? In periods when the U.S.-Japan trade deficit has risen rapidly, a major underlying cause has been an undervalued yen in relation to the dollar. A sudden cutoff in Japanese exports to its prime market would surely cause the yen to plummet further, giving its products a still greater price advantage.
But would things really get this far? The premise of the Thurow-Stark proposal is, presumably, that Japan sells us more than it buys from us because its market is less open. The overall limit would supposedly force it to reduce its import barriers, and the imbalance would decrease. But would that happen? In recent years, Japan's overall international accounts have been in rough balance: a surplus in trade in goods but a deficit in services; a surplus in manufactures but a deficit in raw materials; a surplus with the United States and Western Europe but a deficit with the Persian Gulf oil producers. If Japan imports more from the world, Japan will have to export more in order to pay for it. How that would affect its bilateral trade with the United States is uncertain--it would depend, to oversimplify slightly, on the composition of those added imports and exports. But its surplus with the United States could quite plausibly end up larger than before.
If the bilateral trade imbalance will not dependably contract as Japan's import market exapnds, this suggests that Stark and Thurow have fixed on the wrong target entirely. If the level of the bilateral imbalance is not a product of nefarious Japanese practices, then it is hard to see why, in economic policy terms, it is a problem for us at all. Why does bilateral trade balancing make any more sense with Japan than it does with Western Europe--where the United States typically runs a large surplus--or with Saudi Arabia? Rapid surges in the Japanese imbalance are certainly a problem for particular U.S. industries, but greater exchange-rate stability is the only plausible means of getting a handle on them.
We have a number of real economic problems with Japan: a skewed yen-dollar rate and high-technology competition are among the most important. On none of these real problems does regulation of the overall U.S.- Japan trade balance offer us any real-life help. And that should not be surprising, for the much-lamented bilateral trade deficit is not, in and of itself, a real-life problem at all. Maybe we should stop pretending otherwise.
The writer is a senior associate at the Carnegie Endowment for International Peace. graphics/illustration: Made in Japan By Beattie