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Let the Buyer Enjoy

February 24, 1985

Indications are that President Reagan won't ask for an extension of quotas on Japanese cars when the current import restrictions expire on March 31, and probably he will leave it to the Japanese to decide how many more cars they will sell here above the 1.85 million a year now allowed. All this alarms the United Auto Workers union, which fears a flood of foreign cars that will cost its members jobs, and Chrysler Corp. and Ford Motor Co., which foresee their sales and profits dropping in the face of stiffened competition. But General Motors is pleased, since it is ready to import 200,000 small cars a year from its Japanese affiliates, and consumers have reason to be happy as well. As Japanese car imports rise, new-car prices should fall.

The United States expects restraint on the part of Japanese auto manufacturers when the quotas expire, and it is putting out the clear message that it also expects reciprocity from the Japanese government. Restraint means that the Japanese won't try to sell as many of their cars as Americans might want to buy. Reciprocity means trade concessions in areas where American companies have been trying, with minimal success because of discriminatory policies imposed by Tokyo, to crack the Japanese market or boost current sales.

Restraint there almost certainly will be, but reciprocity is another matter. Japanese protectionism is a stubborn fact, and overall, says W. Allen Wallis, undersecretary of state for economic affairs, it is costing American exporters about $10 billion a year in sales. That $10 billion, even if achieved, would of course still fall far short of erasing the $37-billion trade deficit that the United States last year ran with Japan. But right now it's not the size of the trade gap that matters so much as it is the frustration and anger that have been created by what Wallis calls "unfair" Japanese trade practices and a refusal to change them. One high U.S. official now predicts that an "explosion" on the trade dispute is near. Neither country would find that pleasant.

For many, the obvious response to Japanese protectionism is retaliation, and the most obvious place to retaliate might seem to be against Japanese car imports, which last year were worth about $17 billion. Given Japan's attitude, why then lift the import quotas? Why not even tighten them, as a way to pressure Japan to change its attitude? The answer, as U.S. government studies show, is that whatever economic harm might be done to Japan by such a policy, the real losers and payers would be American consumers.

Four years of import quotas have demonstrated vividly how consumers lose. According to the U.S. International Trade Commission, the artificial restraints on competition resulting from the quotas have been directly responsible for adding $1,300 to the average price of a Japanese car, while inflating U.S. car prices by an average of $660. What has been gained by these billions of dollars in unnecessary costs? Outside of record profits for the auto companies, very little. The International Trade Commission says that the import restrictions saved 44,000 American jobs. The Federal Trade Commission estimates that in fact far fewer jobs were saved, and at an exorbitant price. The cost to the U.S. economy of each job retained because of import quotas, according to a commission staff report, has been $240,000 a year . By any standard, that is an unconscionable subsidy.

A boost in Japanese imports would undoubtedly add to the trade imbalance, but would also be anti-inflationary, forcing a return to the kind of price competition in new-car showrooms that has not existed for years. How many more cars might the Japanese sell in the United States? Special Trade Representative William E. Brock III has suggested up to 750,000 a year, but that reflects potential market demand, not export intentions. Japanese car manufacturers have instead been talking about export increases of perhaps 300,000 a year.

What would the effect on American jobs be? The Federal Trade Commission report says that the disappearance of restraints could eliminate not the 150,000 auto-industry jobs that the UAW suggests, but no more than 4,600 jobs--jobs that, as noted, have been maintained only at the painfully high cost of soaking consumers on new-car prices. By any reasonable economic measurement, then, the benefits of going back to a free market on autos, of ending the extortionate price run-ups that import quotas have encouraged, would far outweigh the costs. Starting on April 1, Americans should be able to start enjoying those benefits.

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