The issue of Japanese auto restraints has bogged down in a rhetorical swamp, and real- world facts are being overlooked. Lost in the debate are two issues of national importance: the punishing economic impact of huge trade deficits and the preservation of U.S. jobs.
The Washington Post concluded in its editorial (Jan. 30) that auto restraints "can't shield the American economy from the effects of past budget errors and present currency misalignment." To the contrary, that's what auto restraints are doing -- keeping temporary trade distortions from permanently dislocating U.S. jobs and production.
The United States has chalked up an enormous $125 billion trade deficit, which already has cost 2 million jobs and $30 billion a year in tax revenue. The trade deficit is especially acute with Japan, where autos account for over half the shortfall, even with restraints. Without them, it would be impossible to keep the trade deficit from swelling -- let alone cut it back.
There may not be any easy way to reduce the trade deficit, but it would be easy to avoid a large increase. The Japanese have the capacity to produce nearly 2 million more cars a year than they make today, but their ability to sell them is restricted in every other major market. Under these circumstances, America would become an irresistible target for Japanese cars.
Even Japan admits that exports to the United States will surge. Susumu Nikaido, the vice chairman of the ruling Japanese Liberal Democratic Party, said recently that without restraints, Japanese car shipments to the United States could reach 2.5 million annually -- or 35 percent above the preshappen, the trade deficit would increase another $5 billion, and nearly 100,000 U.S. jobs would be lost to foreign competition. If the country is serious about reducing the trade deficit, the first step should be to avoid making the problem worse.
It's clear that restraints are shifting sales from Japanese cars to U.S. cars. As a result, U.S. auto pro,000 cars a year. What is overlooked, however, is the resulting $4 billion increase in national income, including an additional $1 billion in tax revenue. Restraints also have encouraged Japanese manufacturers to invest about $2 billion here to assemble cars and trucks. Together, these actions are creating thousands of American jobs and keeping the trade deficit from growing even larger.
Given these benefits, why are people saying that restraints should be eliminated? The rationale seems to be tied to claims that restraints raise car prices, inflate auto profits and sap the desire of U.S. producers to become competitive. For example, The Post cites Robert Crandall of the Brookings Institution. But Crandall's analysis is faulty; it relies on theoretical models that confuse the effect of shifts in consumer demand with pricing.
As gasoline prices declined and the economy strengthened, consumers spent more for new cars because they wanted larger, more fully equipped models. It's wrong to treat this shift in consumer demand as a price increase -- just as it would be wrong to conclude that meat prices increase when people buy steak instead of hamburger. When the shift in consumer car preferences is taken into account, which the Bureau of Labor Statistics does, there is no credible basis for claiming that restraints increased U.S. car prices.
There's no need to speculate about the facts on car prices. Published BLS data show that prices for all cars (including imports) rose only 4 percent a year during restraints, compared to a 5 percent general rate of inflation. More important, prices of U.S. small cars, which compete directly with 95 percent of the Japanese imports, have gone up only 2.4 percent a year -- less than half the rate of inflation. In Ford's case, our high-volume 1985 Escort model is selling for less today than the comparable 1982 model.
Ford has cut annual operating costs by $4.5 billion, boosted productivity by 35 percent, and improved quality by 55 percent. And Ford has made record investments in new products, plants and facilities during a period of record losses.
But our progress has been more than offset by the misalignment between the dollar and the yen, which is even worse now than before restraints, and reflects the disparities in government budget and trade policies between the United States and Japan. The Post's editorial noted that there were differing views within the automobile industry on this matter. General Motors' view should surprise no one. GM has announced plans to import at least 350,000 cars a year from Japan and Korea and to build 250,000 cars with Toyota that have 50 percent Japanese content. With that accomplished GM would become one of this country's largest automobile importers.
We believe that the right view is that of Rep. Bob Michel and Sen. John Danforth, who last week introduced resolutions calling for auto restraint to continue until U.S. access to Japanese markets improves and the bilateral trade deficit is reduced. These members of Congress recognize that ending auto restraints now will only make these serious national problems worse.