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Jousting With Japan

April 26, 1987

Congressional supporters of trade protectionism are not without their allies in Tokyo. That was made clear again last week when Special Trade Representative Clayton K. Yeutter and Agriculture Secretary Richard E. Lyng, on separate missions to Japan to promote increased purchases of U.S. products, publicly expressed "frustration" and "disappointment" at their lack of progress. This week the House is scheduled to take up a sweeping trade bill, including a key protectionist amendment aimed particularly at Japan. The amendment's supporters have no reason to be less confident after events in Tokyo last week.

All this comes at a time when Japan is making a major political effort to head off a threatened trade shock. High Japanese officials have gone to Washington to urge repeal of the 100% tariffs that President Reagan imposed on $300 million worth of Japanese electronic products in retaliation for Japan's alleged violation of an agreement on semi-conductor marketing. The tariffs, which probably will remain in force only a few months, are largely symbolic. Reagan wanted to impress on Japan how serious the trade dispute has become, hoping at the same time to head off more punitive steps by Congress. So far he has been unsuccessful on both counts.

This week Prime Minister Yasuhiro Nakasone will arrive in Washington to plead Japan's case concerning trade. Nakasone will carry with him a still sketchy plan, long urged by the United States, to stimulate Japan's economy. Expanding Japan's domestic consumption would create a larger market both for Japanese producers who now rely so heavily on exports and for foreigners who are eager to sell their products to the Japanese. But the $35-billion plan is a long way from being fleshed out, and its implementation is longer away still. Congressional action on trade will come far sooner.

Economists generally agree that the massive U.S. international trade defict--$170 billion worldwide, nearly $60 billion of that with Japan--in good part is a product of the federal budget deficit. Because Americans are undertaxed in comparison to what their government spends, because revenues don't meet expenditures, the Treasury must borrow heavily at favorable rates abroad. For years that made the dollar more attractive, but it also made U.S. products more costly and harder to sell overseas. That contributed mightily to a trade deficit that only recently has shown the first signs of shrinking.

The trade deficit, though, is not entirely a self-created problem. Japan, for example, continues to impose significant non-tariff barriers on many imports, denying its trading partners opportunities to offset their deficits. Lyng was reminded of that again when he once more failed to win Japan's agreement to take more American agricultural products--particularly rice, beef and citrus. Japan argues that it needs to maintain its own farm economy. Heavily subsidized farmers, by no coincidence, are a mainstay of political support for the governing Liberal Democratic Party. The result is beef that retails for $22 a pound and rice that costs six times what the American product sells for. Japanese consumers pay dearly for their government's protectionist policies.

Opening Japan to more U.S. agricultural products would make only a modest dent in the U.S. trade deficit. But along with other market-opening moves it could work to defuse the political explosiveness of that deficit by easing the image of Japan as an unfair trading partner. Those complaints have given momentum to the amendment that Rep. Richard A. Gephardt (D-Mo.) will offer to the trade bill. The amendment, aimed at countries like Japan that run large trade surpluses with the United States and that are accused of unfair trade practices, requires dollar-for-dollar retaliation if negotiations fail to reduce the surpluses. If that doesn't work, the President would be required to take action to reduce the trade surplus by 10% a year for four years.

A presidential veto of such legislation seems certain, but sustaining a veto could be another matter. Should it become law, the Gephardt amendment would virtually guarantee the launching of an international trade war that would quickly lead to higher prices for all consumers and to shrunken markets for all exporters. Japan certainly understands that, but it has yet to show that it has the political will to head off the threatened confrontation.

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