COVER

The new squeeze on Japan

Hal Quinn April 22 1985
COVER

The new squeeze on Japan

Hal Quinn April 22 1985

The new squeeze on Japan

COVER

Hal Quinn

The televised address was a formidable display of a veteran politician’s ability to appeal to his nation. When Yasuhiro Nakasone, Japan’s dashing 66-year-old prime minister, appeared before a nationwide Japanese television audience last week, his domestic viewers were captivated by his informal, comfortable style. But Nakasone’s message transfixed an audience around the world as well. In a major shift in Japanese trade policy, Nakasone announced that over the next three years his country plans to lower many of the controversial trade barriers that have sheltered its industries since the end of the Second World War. Stressing the growing danger that the United States might launch a retaliatory trade war against Japan, Nakasone exhorted Japanese consumers to buy more foreign goods and announced a series of measures aimed at removing existing trade barriers. Then he declared: “If we do not solve the existing trade frictions today, there is a possibility that there will arise a very serious situation affecting the life and death of our country.”

Around the world, trade officials met in hasty marathon meetings to assess the impact of Nakasone’s surprise announcement. When they emerged from the deliberations their reactions ranged from skepticism to guarded optimism that Nakasone could fulfil his undertakings. In the United States, where recently—after years of complaints—frustration with Japan’s closed-door trade policies has reached crisis proportions, White House officials were initially in a state of confusion over the Japanese premier’s remarks. President Ronald Reagan’s staff had received advance copies of Nakasone’s text, but the politician digressed from his prepared statement and his “off the cuff” remarks so startled the Americans that White House chief of staff Donald Regan summoned his aides to a meeting at 4:53 a.m. to draft the U.S. reaction. Later that day Regan applauded Nakasone’s initiative, but he also pointed out that the announcement “contains few new or immediate market-opening measures.”

In Brussels officials of the European Community dismissed the Japanese initiative as inadequate. Said Willy de Clerq, an EC commissioner responsible for trade policy: “The measures are

modest in scope and uncertain in effect.” In Canada, Japan’s second-largest trading partner after the United States, trade officials welcomed Nakasone’s overture but they said they are adopting a wait-and-see attitude to its potential impact. Said Barry Connell Steers, Canada’s ambassador to Tokyo: “Nakasone is calling for a whole change in the attitudinal barriers that have blocked foreign trade in this country. Until now you would go into a Japanese store and find the foreign goods piled up in a corner.”

Defuse: But clearly Nakasone’s performance was by Japanese standards a radical departure in the way the island nation deals with the world. And the message—that Japan is ready to listen to the complaints of its trading partners—took place at an opportune time. Indeed, his new commitment was the major topic of discussion two days later when the finance and trade ministers from the 24-nation Organization for Economic Co-operation and Development met in Paris for their annual meeting. The statement gave support to those OECD members who were campaigning for greater liberalization of world trade and helped to defuse the

growing threat of a return to global protectionism.

Nakasone’s gesture was a critical one—at stake in the current tariff debate is $1.8 trillion (U.S.) worth of world trade. Last year Tokyo had a $44-billion (U.S.) trade surplus with the rest of the world. And the imbalance has escalated in the past three years. The United States and Japan alone exchanged $84 billion (U.S.) worth of goods last year—at enormous advantage to Tokyo, which had a 1984 surplus of $37 billion (U.S.) with Washington. The European Community’s trade deficit wih the Pacific nation in 1984 was $10 billion (U.S.). And despite large exports of raw materials, Canada’s traditional trade surplus with Japan went into an $82million deficit last year.

Giant: Nakasone may not be able to correct the trade imbalance enough to satisfy his angry allies. But his action last week revealed his determination to try to shift Japanese consumers, companies and bureacrats away from the protectionist mentality that has characterized the Asian nation for decades. Protected by a barbed-wire fence of import restrictions and a bureaucratic minefield of regulations, the tiny chain of islands off the shore of mainland China has become an industrial giant. Japanese exports of motor vehicles, cameras, televisions, computer chips, watches, and audio and video equipment inundate the marketplaces of North America and Europe. Nor have the Japanese slackened their innovative pace. The latest examples of the nation’s high-tech wizardry are currently on display at Expo ’85, a showplace of technological feats near Tokyo.

In recent years Western nations have sent a steady stream of emissaries to Tokyo, pressing for an end to the frustrating obstacles to imports. And the EC nations have been the toughest bargainers. In early 1983 the Community’s hard-nosed approach paid off when Japan signed an agreement to limit exports of goods ranging from cars to electronic consumer items to Europe for a period of three years.

Damage: But for Washington a decade of polite political lobbying in Tokyo has produced only limited results. And this year congressional resentment over that lack of success has reached a peak. Incensed because Japanese imports accounted for almost one-third of the total U.S. trade deficit of $123 billion (U.S.) in 1984, U.S. legislators have called for harsh steps to redress the situation. In February, Republican congressman Richard Schulze introduced a bill to levy a 20-per-cent surcharge on all imports from all nations unless they negotiate free-trade agreements. Although primarily aimed at the Japanese, the bill, which is still before Congress, would

seriously damage other trading nations, including Canada, America’s largest trading partner. Declared economist James Greene, an executive director of the New York-based Conference Board Inc.: “We have not seen protectionism on this broad a front since the 1930s.” Force: The current trade dispute began in March, shortly after President Reagan announced that he would not ask Japan to extend a fouryear-old voluntary quota system on exports of Japanese autos to the United States which expired on March 31. Then, Japan declared that its auto exports to the United States would climb to 2.3 million in 1985 from 1.85 million last year. The position of the Japanese—and their apparent insensitivity to Ameri-

can trade concerns—so angered U.S. politicians that both the House and the Senate passed resolutions urging Reagan to erect new tariff barriers to Japanese imports. And early this month the Senate finance committee approved a bill that, if passed by the full Senate this month, would force Reagan to either win concessions from Japan within 90 days or implement retaliatory protectionist measures against the Pacific nation. Declared the Republican chairman of the committee, Senator Robert Packwood: “We are going to give them an eye for an eye.”

‘War’: Nakasone emphasized the seriousness of the retaliatory threats by the U.S. Congress in his televised appearance. Said the prime minister: “When we look back on the Second World War, the raising of tariffs and the building of

high barriers caused a slump and unemployment. That process may have been one of the causes of the outbreak of the Second World War.” The Japanese leader plédged to end regulations requiring foreign medical equipment makers to submit their products to performance tests in Japan which duplicated those already carried out in the country of origin. He added that his government would “positively consider” reducing the 15-per-cent tariff on wood products starting in 1988.

Frustrated: At the same time, Nakasone announced concessions designed to allow foreign firms to compete for business in Japan’s newly deregulated $18billion telecommunications industry. He declared that government officials would simplify the complex licensing procedures and technical standards for telecommunications equipment that have traditionally frustrated foreign companies. Nakasone stressed that his concessions were designed to give American businessmen an equal opportunity to compete with their Japanese counterparts. Added the prime minister: “Then if they fail to do well in Japan it is their responsibility, not ours.”

Still, his efforts did not appear to have a significant effect on Capitol Hill. Said Packwood, who has earned a reputation as the leading “Japanese basher” in Congress: “As much as I admire the prime minister, our patience has worn beyond the breaking point. The passion is so great that even a badly crafted amendment could pass. It has become a tidal wave.”

For its part, the U.S. business community also expressed skepticism over Nakasone’s undertakings. Said John Stern, a Washington-based representative for the American Electronics Association: “We cannot be satisfied with ringing j words. We have to hear cash registers ! ring as well.”

Even Japanese business leaders ex-

pressed doubt that Nakasone’s pledges will have a major practical effect on trade patterns. Yoshihiro Inayama, chairman of the Federation of Economic Organizations, criticized the absence of details on how his government plans to eliminate excessive regulations against imports. Said Inayama: “I tell you, it will not change anything.” For his part, Noboru Goto, president of the Japanese Chamber of Commerce and Industry, declared that even if all tariffs and restrictions were dropped, Japanese imports would not increase by more than $5 billion.

Threat: Indeed, experts say that Japanese consumers are unsurpassed in their loyalty to domestically made products. Said Lorne Seitz, senior vice-president of the Canadian Chamber of Com-

merce’s international division: “You are dealing with a society that is proud and self-conditioned to look toward Japanese products.” Added Lawrence Krohn, international economist for the Royal Bank of Canada in Montreal: “Despite Nakasone’s plea, consumers do not change their habits overnight.”

But some Western observers claimed that Japan cannot be blamed for all the problems of the .international trading system. According to Charles Schultze, the former chairman of President Jimmy Carter’s Council of Economic Advisers, Japanese trade policy is not even the main cause of the large U.S. trade deficit. Said Schultze: “We had a $37-billion trade deficit with Japan last year. We had a $120-billion trade deficit with the world as a whole. We have an $ll-billion trade deficit with little Taiwan. We are now making the Japanese the scapegoat

for our own unwillingness to cut our own budget deficit and bring interest rates down.” Added New York-based economist Alan Greenspan, also a former chairman of the President’s Council of Economic Advisers: “It may be satisfying to bash the Japanese, who I do not deny probably require a little bit of bashing. But it strikes me that it is a terribly short-sighted policy.”

Still, economists say that the possibility of a trade war, caused by retaliatory moves against Japan in Congress, remains a serious threat. Declared William Empey, an economist with Data Resources of Canada in Toronto: “This whole current round of expansion in the world economy is fuelled by international trade. Trade is the catalyst to growth for every country in the world, and we

can not afford to have it blocked. If the United States put up barriers, so would other countries.”

Hurt: Economists point out that crippling worldwide protective tariffs were last erected following the stock market crash of 1929. With the collapse of industries, massive unemployment and the onslaught of the Depression, virtually every nation established high trade barriers to protect what jobs remained at home. The barriers lasted until after the end of the Second World War, slowing the world’s economic recovery. Said the Conference Board’s Greene: “The conventional historical view is that the barriers to trade postponed recovery in the world economy by isolating each national economy and preventing the proper allocation of resources across borders.” Added Flemming Larsen, chief international forecaster for Phila-

delphia-based Wharton Econometrics: “If the United States brought in protective measures, they would raise costs, hamper growth, hurt overall employment and depress world trade.” Concern: Nakasone’s statement and the threat of a disastrous trade war did force government ministers meeting in Paris last week to agree on the need for global action to reduce import barriers. For three years the Reagan administration—with the support of Canada and Japan—has been lobbying for a fresh round of trade liberalization talks under the auspices of the General Agreement on Tariffs and Trade (GATT). But EC members, led by France, have demanded that discussions aimed at redesigning the international monetary system be held as well. Then, last week U.S. Trea-

sury Secretary James Baker announced in Paris that he would consider hosting a high-level international monetary conference sometime after June. That concession led to an agreement on a new round of GATT talks. But a firm date for the discussions was not set, causing some concern among participants who said that talks on defusing trade tensions are needed urgently. Declared outgoing U.S. Trade Representative William Brock: “We need multilateral negotiations and we need them now. Otherwise, our business community will be able to accuse us, with some justification, that we fiddled while the trading system was breaking down around us.”

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