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Lessons Emerge From Years of U.S. Dickering With Japan : Trade: The first is, expect no voluntary concessions. Another is to ignore Tokyo's competitive strength at your peril.

March 06, 1994|SAM JAMESON | TIMES STAFF WRITER

TOKYO — When President Clinton declared last month that America's $59.3-billion trade deficit with Japan was "unsustainable," it was not the first time the Japanese had heard such a warning.

In 1973, for example, then-President Richard M. Nixon warned that "our economic disputes could tear the fabric of our alliance."

The year before, the deficit had reached $4.1 billion.

Threats by the Clinton Administration to retaliate with sanctions carry an aura of deja vu here, too.

In the first Japan-must-open-its-markets speech, then-Commerce Secretary John T. Connor complained in 1966 of Japan's virtual ban on foreign investment.

"We are determined to uphold the principles of equity and reciprocity--positively or negatively--whichever is called for," he declared.

Connor spoke six months after the United States suffered its first trade deficit with Japan: $359 million in 1965. Twenty-eight more annual deficits, countless rounds of trade negotiations and American cries of "Wolf!"--made at ever higher levels of red ink--have followed.

President Ronald Reagan in 1987 did slap 100% tariffs on $300-million worth of Japanese imports as a penalty for a single alleged Japanese violation of a bilateral agreement on semiconductors.

Clinton, by contrast, is now pondering a totally new path in U.S.-Japan economic relations--one that would impose sanctions to punish the entire Japanese market, which he insists is closed. On Thursday, he revived the harsh "Super 301" trade provision, which lets the President apply punitive tariffs against the goods of unfair trading partners.

Twenty-eight years of U.S.-Japan trade negotiations show that if Clinton does not act, the credibility of American threats will vanish. If he does act, the penalties will have to produce billions, not millions, of dollars worth of damage to reduce the "unsustainable" trade deficit to a "sustainable" level--and that could precipitate a trade war.

Foremost among the lessons of those negotiations is: Expect no voluntary Japanese concessions, and none at all that will cause pain and injury to Japanese industry.

When Prime Minister Kakuei Tanaka finally ended the government ban on 100% foreign ownership of companies in Japan in 1973, private industry already had set up its own wall against foreign takeovers by establishing an intricate system of cross-holding stocks. The system, which continues today, ensures that no more than about 30% of any company's stock is ever traded publicly.

Another lesson of U.S.-Japanese economic relations is: Ignore Japan's competitive strength at your peril.

Despite predictions in the 1960s that Japan was destined to become an economic superpower, Americans mostly ignored Japan's growing strength.

Nixon was the first president to devote major attention to Japan. At a time when high tariffs, non-tariff barriers, import quotas, and obstacles to foreign investment handcuffed American businessmen here, Nixon spent two years and five months bludgeoning Japan into implementing restraints on 18 categories of textiles.

Although some Japanese textile items had gained as much as a 50% share of the American market, at the time Japan accounted for only 3% of total textile sales in the United States.

The lack of American attention also has allowed problems to grow to the point where solutions became virtually impossible.

Japan's share of the U.S. market for television sets, for example, tripled to reach 30% during a 1974-76 period in U.S.-Japan economic relations that American officials described as "trouble-free." Only in 1977 did Japan implement a program to restrain exports of television sets. And it was not until Japanese cars seized nearly 20% of the American market in 1981 that Washington forced Japan to implement "voluntary" restraints on those exports.

Today, the only firms that manufacture TV sets in the United States are foreign-owned--mostly Japanese. And cars built by Japanese-owned firms last year held a 29% share of the U.S. passenger car market, an increase of about 10% since the export restraints went into effect. (Japanese auto makers' investments in plants in the United States provided the growth.) By contrast, the Big Three hold a 0.29% share of the car market in Japan.

Not until the Reagan Administration did the United States begin to focus on non-tariff barriers and the workings of the Japanese economy.

Despite claims by Clinton Administration officials that "nothing works" to drive down Japanese surpluses, history shows that a booming Japanese economy does pull in imports and cut red ink. Three times since 1966, the U.S. deficit with Japan has fallen. Most recently, from 1988 through 1990, red ink plummeted by 31% as American exports to Japan leaped by $20 billion.

But when Japan's economy fell into sluggishness in 1991, American export growth halted.

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