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Rivalry With Japan

July 05, 1987

Given the success of Japanese multinational corporations, many U.S. observers feel compelled to offer explanations for our relative industrial decline.

For example, Warren Bennis dismissed claims of unfair Japanese advantages and the need for U.S. protectionism while calling for "a lot less organization" and a renewed commitment to innovation. Although these prescriptions are much too general to evaluate seriously, I would like to suggest that, in some ways, the Japanese do indeed enjoy some "unfair" advantages.

To begin with, the Japanese impose significant barriers other than tariffs to U.S. sales in Japan through, among other things, government regulation.

U.S. companies seeking to enter the Japanese market have been forced to form joint ventures dominated by their Japanese partners. Indeed, some observers have seriously proposed that the U.S. government block multinational joint ventures with the Japanese because they always seem to exploit our innovations. And there are many well-documented cases of the violation of intellectual property rights.

I recently testified before a congressional committee on the impact of maquiladora manufacturing facilities on U.S. jobs and on trade competition with Japan.

The key issue was the use of Mexico's maquiladora program as a "back door" into the U.S. market. (Under the 22-year-old maquiladora program, foreign companies bring equipment and raw materials into Mexico duty-free, then ship the products out of the country, almost always to the United States.)

In research I conducted with an associate, it was evident that large companies with maquiladoras are more likely than small firms to cut U.S. employment as a result of utilizing their Mexican production facilities. This is significant in economic relations between Japan and the United States because many of the large maquiladoras are Japanese-owned.

The explanations for major developments in our trade relationship with Japan must go beyond comparing management in the two nations. We must recognize much more complex issues such as those exemplified by the actions of Japanese operations in the United States and Mexico.

STEPHEN R. JENNER

Associate Director,

Institute for Regional Studies

San Diego State University

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