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Land of Rising Yen Struggles to Retain U.S. Market

January 18, 1987|JONATHAN PETERSON | Times Staff Writer

Bob Miller, a vice president of Radio Shack, recalls the jittery days at the company last year as the Japanese yen soared higher and higher on international markets while the dollar took a swan dive:

"I was panicked," said the executive of the retailing firm, which relies on low-priced suppliers from Japan and other countries for the electronic gadgets it sells throughout the United States. "We were just devastated. We didn't know what would happen--but not very much did happen."

Corporate executives and government officials had expected the higher-valued yen to make products from Japan much more expensive, thereby giving import-battered U.S. factories a desperately needed boost. Consumers would find it cheaper to buy American. Companies that had benefited from inexpensive Japanese products--such as Tandy Corp., which owns Radio Shack--would bear part of the burden. According to the textbooks, it had to happen.

But it hasn't happened.

The experience at Radio Shack, where Japanese price hikes on semiconductors, switches, transistors and other parts have been relatively insignificant, symbolizes a painful lesson only now being absorbed by American industry: International competition in the 1980s has become so ferocious that foreign producers are prepared to slash their profits--even swallow losses--in order to keep their customers.

They also are tightening their belts and producing products at even more competitive prices.

What this means is that selling U.S.-made products at home and abroad is an even tougher challenge than many envisioned. As a result, the widely held view that a weaker dollar can cure America's imbalance in trade with Japan and other nations is now being questioned, even as the dollar plunges on world markets as it did last week.

"It's like grabbing the horn to stop a bull," said Gilbert Benz, an economist with A. Gary Shilling & Co. in New York.

A Commerce Department trade analyst acknowledged that the Reagan Administration currency policy has yielded disappointing results so far: "To be honest, we really haven't seen a lot of improvement yet. We're finding that things don't work the way economic theory says they should."

The theory is simple enough. As a nation's currency rises in value internationally, the products of that nation cost more for foreigners to buy with their own cash. When a currency falls, the opposite happens. So, while it may seem that a weak dollar is a bad thing, it does not have to be. In theory, at least, it means that U.S. products can be sold more cheaply--and more easily--throughout the world.

That in mind, the United States, Japan and three European countries agreed in September, 1985, to drive down the dollar. The other countries had their own reasons to cooperate with the United States. Their fortunes are linked to a healthy U.S. economy, and they fear the growing congressional sentiment to restrict imports.

Contrary to American hopes, however, the U.S. trade figures with other countries have remained dismal since the agreement at New York's Plaza Hotel. U.S. consumers continue to indulge their tastes for foreign goods, and U.S. exporters continue to have trouble competing--not only with Japan, but with suppliers from many countries.

The deficit with Japan is of special significance, however, both because of its magnitude and because of Japan's successful challenges to American industry in automobiles, electronics, machine tools and many other areas. "It's part of an overall picture, although Japan stands out because it is an extreme," observed Irwin L. Kellner, chief economist with Manufacturers Hanover in New York.

In 1985, for example, the United States bought $72.4 billion worth of products from Japan, while selling the Japanese just $22.6 billion worth, for a whopping trade deficit of nearly $50 billion, according to the Commerce Department. The 1986 imbalance is expected to be even larger, in the range of $60 billion.

That is the largest single portion of a U.S. trade deficit with the rest of the world that is likely to exceed $170 billion when the figures for 1986 are finally added up.

Many specialists still expect a turnaround in 1987. And to be sure, it can take a long time for established trading patterns to alter, despite price changes. But if that is to happen, it is important for U.S. manufacturers to sell more goods to Japan and other nations and for Americans to buy fewer imported products.

Anecdotal evidence suggests at least minor progress for U.S. exports to Japan. Geert Jensen, whose Algert Co. in Los Angeles ships goods internationally, said he now is moving U.S.-made kitchen cabinets there for the first time in a decade. "Right now, we're selling products in Japan that we haven't sold for years, simply because we weren't competitive," he said.

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