Herbert W Armstrong

At the same time, a 10-man advisory committee in Japan issued a long­ awaited report recommending that Japan open up its markets in stages over the next three years. Mr. Nakasone pledged that the government will prepare the action plan" as soon as possible and seek its implementation without delay." White House Chief of Staff Donald T. Regan said President Reagan "was pleasantly surprised" by Nakasone's "unprecedented appeal to the Japanese people to embark on the path to free trade." Critics, however, said Nakasone's three-year plan to boost sales of U.S. products was totally inadequate and would do little to halt growing sentiment for a U.S. trade war against Japanese goods.

The Reagan Administration, while also stressing the need for results, took a more conciliatory note. Vice President George Bush said the speech "took a good deal of courage...." Bush warned that calls in Congress for import tariffs and other retaliation to force increased U.S. exports would end up hurting America. "Whatever walls we dream of building, it's not walls we'd get if we started to live out a nightmare like that," Bush said. "It's a cliff, and we'd find ourselves falling straight down into chaos."

The latest — and by far most serious — trans-Pacific trade dispute started shortly after President Reagan released the Japanese from another year of "voluntary limits" on the export of Japanese autos to the U.S. The Japanese instead kept a limit, but raised it about 25% — roughly 2.3 million vehicles instead of 1.8 million. In response, a wave of protectionist fervor swept through Congress demanding that Japan almost instantaneously (in 60-90 days) greatly reduce import barriers on U.S. goods, specifically in the telecommunications, pharmaceutical and wood products industries. The Congressional mood was, frankly, ugly and extremely dangerous, with no small amount of "Jap-bashing." Emotions threatened to overwhelm caution. Senator Max Baucus of Montana charged: "I would like to leave this body with one word, 'Bo-eki-sen.' Just so everyone knows what that means, that is Japanese for 'trade war.'"

Otherwise normally sound-minded officials seemed to be swept up in the anti-Japanese rhetoric. "They are sucking the world dry" complained Republican Senator from Missouri, John Danforth, one of the leading exponents of trade retaliation against the Japanese. "In category after category they are slicing us neatly and thinly off like a piece of sashimi, which they so elegantly do," added Senator John Heinz, Republican of Pennsylvania. Heinz also said at a March 8 Senate hearing that when the "Japanese get their little fork into us — or chopsticks — they really do stick it to us."

Japanese-Americans in government and business have been deeply concerned over the racial overtones of these and other remarks. Senator Spark Matsunaga, D-Hawaii, one of four Americans of Japanese descent serving in Congress, says that there is "so much emotionalism" in the trade debate that the rhetoric sometimes reminds him of the pre-Pearl Harbor atmosphere in the United States.

At the same time, more knowledgeable trade experts stressed that about 75% of the current problem lay with the United States, specifically with the overvalued dollar, which makes U.S. exports more expensive, and imports cheaper. But Congress seems more intent to pursue the ruinous course of import quotas and tariffs than to come to grips with the U.S. budget deficit, which, by necessitating heavy federal borrowing, keeps interest rates high. This also sucks in investment funds from overseas, further elevating the dollar's value. Several articles in THE WALL STREET JOURNAL have given much needed factual background to this highly charged issue. First of all, there was the lead article in the April 4 issue:

If Japan is worried by the sudden outbreak of protectionist bombast in Washington, welcome to the club. We too have been more than a little shaken by the King Kong roars from the House and Senate chambers this past week. They threaten to touch off jungle emotions no one could control. And nothing would halt the U.S. economic recovery or send U.S. living standards tumbling faster than a trade war with Japan....

As we have said here before, Japan is not blameless for this outburst of jingoism.... Its tariffs are lower than those of the U.S., but its non-tariff barriers are the rub.... The U.S. would be even more foolish, however, if it took steps to limit its trade with Japan. As George Gilder observed so astutely [quoted later in this report]..., U.S.-Japanese trade is synergistic. Both sides benefit enormously.... High-quality Japanese components are vital to high-tech U.S. products. Japanese competition keeps U.S. manufacturers on their toes. Most important, inexpensive Japanese goods help Americans raise their living standards, reducing wage demands on U.S. manufacturers.

Some U.S. companies complain about Japanese competition but then some companies complain about any kind of competition. There is no evidence that Japanese competition has damaged the U.S. economy as a whole. Employment and capital investment have risen sharply. Factory shipments, presumably most vulnerable to import competition, were up nearly 30 percent in December from two years previously.

But what about all those dollars the Japanese are accumulating, asked one of the pundits on a Sunday TV panel. The answer is that Americans should give thanks that the Japanese will accept flimsy paper dollars in exchange for shiny Toyotas, Panasonics and the like. They accept them happily because the dollar is a good currency. The Japanese can use them to buy in Australia or Brazil, which in turn use them to buy in the U.S. Or maybe the Japanese invest them in U.S. bonds or in building plants in the U.S.... Dollars will continue to be well accepted so long as the U.S. follows sound, free-trade economic policies....

Part of the reason for this week's outburst, we suspect, is that a disorganized Congress finds positive tasks too demanding. So members relieve their frustrations and their reelection fears with primal screams toward the Pacific. That worries us.... Americans, unfortunately, will be the main victims if Congress gets itself into a self-destructive mood.

THE WALL STREET JOURNAL, on January 4, 1985 ran an article entitled "The Political Dimension of Japan's Trade Balance," written by Robert Keatly, editor of the ASIAN WALL STREET JOURNAL:

Some Japanese are becoming extremely peeved by all this. What the West wants, they contend, is for efficient Japan to adopt European sloth and American inefficiency. They say foreigners should work harder to meet Japanese competition and to penetrate the admittedly complex Japanese market, and stop complaining. They insist Japan won't sink to standards of the West by importing its lackadaisical labor methods, whimsical strikes and middling management.

As a recent book phrased it, the Japanese believe Europeans in particular "have lost the habit of work.” Thus, tourists find Europe only a nice place to visit, with cultural monuments, good shopping and exotic sex — all at reasonable prices and all set in elegant stagnation." Others call Europe a boutique, America a farm: beyond fashions and food, the West has little to offer that meets Japan's high standards — and that's not something for which Japan deserves blame.

Interestingly enough, the Common Market, by admitting two additional "poor cousins" (Spain and Portugal) may be in even less of a position to meet Japanese competition. The Europeans have employed all sorts of elaborate gimmicks to restrict Japanese imports — far more than the Americans have used. This has served only to deflect more Japanese sales to the U.S.

Murray Weidenbaum, a former chairman of President Reagan's Council of Economic Advisers, also wrote in THE WALL STREET JOURNAL, April 2, 1985, in an article titled "U.S. Export Curbs Contribute to the Trade Deficit":

A more constructive approach to reducing the trade deficit can proceed from a little-known fact: The U.S. has erected many barriers to its own exports. These are self-inflicted wounds that are easily treated. For example, the Trans-Alaskan Pipeline Authorization Act prohibits the export of oil from North Slope fields. Under free-trade conditions, Alaska would be Japan's least-cost supplier of energy....

Another burden to U.S. trade is the Foreign Corrupt Practices Act, which requires strict record-keeping standards to guard against bribery of foreign officials. It is difficult to discuss that law without being criticized for ethical callousness. However...the language of the act is so sweeping and ambiguous that American firms turn down foreign business when they merely suspect that they could be charged for actions technically classifiable as bribery. In a survey of 250 American companies, the General Accounting Office found that 30 percent of the respondents engaged in foreign trade had lost business as a result of the Foreign Corrupt Practices Act.

One of the most prominent economists today is George Gilder, author of such books as WEALTH AND POVERTY and THE SPIRIT OF ENTERPRISE. In the April 27 WALL STREET JOURNAL, Mr. Gilder wrote an article entitled "Imports Are Not a Problem but a Cure." In it he stressed the incredibly interwoven economies of Japan and America, and how disastrous it would be to disrupt this relationship. Most of all, asks Gilder, why the sudden hew and cry over imports when the U.S. economy is humming along with millions of jobs having been created during the current boom?

Many economists persist in predicting dire damage from deficits in the U.S. budget and balance of payments despite the lack of any significant evidence of serious malfunction. After a two­ year period when the nation's businesses created some seven million jobs...these economists nod sadly and speak of two million jobs lost through the trade deficit.

After a record 33.2 percent rise in real capital outlays over a two-year period — making U.S. plant and equipment newer on average than Japan's...leading pundits and politicians speak in despair of U.S. competitiveness and urge drastic new protectionist laws [which]...threaten to poison the most important source of U.S. and world recovery: The rising exchanges of goods, people and ideas between the U.S. and Asia, particularly Japan.

On the simplest and most immediate level, the surging growth of the U.S. economy stems in part from the availability of high-quality products, such as cars and VCRs, made in Japan and sold here at ever more attractive prices.... Many of the most highly motivational products in America today — the goods that most enhance the real value of after-tax income — come from Japan....

More important still,...far from inhibiting the expansion of U.S. high technology, Japanese imports, sold at ever lower prices, helped lower costs and expand markets for computers and related equipment that also dominated demand for U.S. parts. Without key inputs from one another, neither the U.S. economy nor Japan's could grow nearly as fast. Whether the more measurable parts of these exchanges happen to balance out during any one period is of no importance if both economies benefit.

Take, for example, the IBM personal computer, which rose from nothing to approach a $7 billion business over the past three years and was perhaps the exemplary product of the recovery. Its success was made possible by about 5,000 software entrepreneurs, led by Lotus; its most essential parts were sophisticated micro­ processors and controllers from Intel, Motorola and Western Digital. But more than 60 percent of the other parts came from abroad, mostly from Japan.

In fact, U.S. makers of parts and peripherals were utterly incapable of fulfilling the needs of the computer revolution that erupted with unexpected fury over the past few years. Without hardware imports from Japan, the software would not have been sold, the memory sockets could not have been filled in time, disk drives and cathode ray tubes would not have been available....

Even the U.S. semiconductor industry, often cited as a victim of Japanese imports, benefited greatly from such imports.... Japan's efficient output of huge volumes of commodity chips at ever lower costs lowered the prices of all electronic gear and thus enlarged the market for more specialized and higher-margin devices from U.S. companies.... Nothing could so rapidly cripple U.S. technical progress as to exclude trade with Japan.

These imports are in general a positive reflection of the good health of the U.S. economy and its superiority to Japan in crucial technologies. The $30 billion deficit in our balance of trade with Japan in high-technology products mostly reflects our faster and more resourceful application of computers and related equipment....

The U.S. lead is not limited to applications, however. In a recent poll by the Organization for Economic Cooperation and Development, 200 leading European chief executive officers found the U.S. to be the world leader in five major fields of technology, even with Japan in two others (electronics and manufacturing) and number two only in robotics and metal alloys.... Europeans, behind in every area by their own appraisal, have not benefited in any discernible way from their aggressive industrial policies and exclusion of much Japanese technology.

Failing to comprehend the multifarious and delicate pattern of U.S.-Japanese interdependency, economists and politicians fixate on the two deficits [budget and foreign trade] and threaten to inflict real damage on an essentially healthy system.... When the U.S. and Japanese economies are intimately symbiotic, they urge disruptive protection that will hurt both....

Although the U.S. must continue to negotiate for easier access to Japanese markets, particularly in semiconductors and telecommunications, it must always recognize that America benefits from Japanese capitalism, even when — and perhaps particularly when-­ Japan floods U.S. markets with its goods. In particular, the most recent U.S. recovery was in considerably degree made in Japan.

Another leading American economist, Robert J. Samuelson, writing in the April 8, 1985 LOS ANGELES TIMES, worried that U.S.-Japan trade frictions could explode in the future. A major reason, he explained, is the cultural gap between the two powers.

Although today's dispute may subside, the United States and Japan have fundamentally different trading aims and political styles. It's hard to be optimistic that the differences won't one day explode into a protectionist spasm that harms everyone.

The trade dispute is heavily laden in mythology. Is Japan most responsible for America's widening trade deficit? No. Since 1982 the overall trade deficit has roughly tripled to $107 billion in 1984. In the same period the trade deficit with Japan only doubled. Three-quarters of the increase came elsewhere. The main reasons have been the rapid economic growth in the United States, which increases imports, and the high value of the dollar, which make exports more expensive and imports cheaper....

But the Japanese use American myths to justify their own. They routinely argue that their markets are open and that the difficulties of Americans and others reflect either uncompetitive products or lazy salesmanship. In fact, Japan heavily protects many uncompetitive industries, like plywood and agriculture....

Much of Japan's protectionism also reflects tradition.... Commercial relationships are based more on trust and familiarity than on contracts: "If a new company in the United States wants to supply components to General Motors, if it can meet price and quality, it can make a deal," [William Tanaka, a Washington attorney who represents many Japanese firms] says. Not so in Japan; the company "not only has to beat the terms and conditions of the current supplier" but also has "to develop a relationship of trust."...

At bottom, Americans and Japanese view trade differently. Even when practicing protectionism, most Americans praise open trade.... There is little of this from Japan. Even rhetorically, the Japanese show scant interest in the abstract virtues of importing for its own sake. Their interests lie in assuring essential imports — foods, fuel and minerals — and maintaining their own export markets. So the Japanese preoccupation is in soothing "trade frictions." They will make concessions — grudgingly and often of little value — to do this, but not to realize the gains of larger two-way trade....

We are fast approaching the limits of our messy way of dealing with trade conflicts. The younger generation of Japanese lack their elders' sense of gratitude to Americans for fostering the country's postwar recovery. In the United States, anti-Japanese resentment is rising.... It is an ill wind that blows no good.

Mr. Nakasone's chief adviser on the trade crisis is Saburo Okita, a former foreign minister. Mr. Okita said rather glumly of the current situation: "I am seriously concerned that there is too much emotion and impatience in Congress, without due understanding of the situation. There is the concern (here) that if we are pressed too much by a foreign government, it may arouse nationalistic sentiment. This would really damage Japan. At the same time...if you have a nationalistic, unfriendly Japan in this part of Asia, the whole U.S. policy would be upset."

Nothing could bring the U.S. economic recovery to a screeching halt faster than a retaliatory trade war. It is estimated that one in every five jobs in U.S. manufacturing is dependent on exports. Fully one-third of U.S. farm produce is shipped overseas. The notorious Smoot-Hawley Act of 1930, imposing stiff tariffs on imports, played a major role in turning the chaos resulting from the stock-market collapse into a full-fledged international depression. It seems that many of today's younger politicians in Washington have not learned the brutal lesson of Smoot-Hawley. (I heard a funny definition of Washington, D.C. yesterday — "an island surrounded by reality.")

And, as Mr. Okita, quoted above, alluded to, the prospects of an aggrieved Japan, aroused to dangerous nationalistic sentiment, is something nobody should desire. In this light, it is interesting to note an observation made in an editorial which appeared in the Spanish-language newsweekly, VISION, in its October 22, 1984 issue. Most of the editorial, entitled, "Facing the Giant," dealt with the ever-sensitive U.S.-Latin American relationship. But note this reference to U.S.-Japan ties.

Perhaps the most outstanding example in the contrast between a formal alliance and actual rivalry is Japan. When MacArthur occupied it at the end of the Second World War, he prepared himself for a guerrilla war. What did he find instead? Respect and smiles. The pre-war militaristic Japan gave way to commercialistic Japan. Has the competition between Tokyo and Washington ceased because of this? Or shouldn't it rather be said that Japan, having been crushed at Hiroshima and Nagasaki, is biding its time for revenge some time after the year 2000?

A rather shocking assessment. The fruition of any such vengeful feelings would await future leaders, not men like Prime Minister Nakasone, who are doing all in their limited power to preserve the shaky U.S.-Japan relationship. But what if a full-blown trade war should erupt, bringing modern Japan to its knees? It is no coincidence that the real test in U.S.-Japan ties should come at this time, forty years after the end of the war. In 1945 Japan turned abruptly from hostility to America, toward a position of confidence — confidence in U.S. military protection, and reliance on trade links to Washington. This forty year period, too, is nearing its end.

— Gene H. Hogberg, News Bureau