Kicking the Cat
Last year the United States bought from the world $123.3 billion worth of goods more than it sold to the world--a record trade deficit, one that probably will be broken again this year. How the country got into a situation that would bankrupt even your average huge corporation is complicated. For one thing the dollar, towering as it does above all other currencies, gives American consumers more for their money when they choose imported products over American goods. The huge federal deficit accounts in part for the high value of the dollar. American companies, for decades accustomed to a domestic market vast enough to grow fat on, are learning to compete worldwide, but it takes time even at home to win acceptance for new products.
Congress could begin to deal with these immense and interrelated problems by cutting the deficit substantially to relieve pressure on interest rates. It could rewrite business tax laws in ways that would emphasize making American industry competitive rather than sheltering it from competition. Instead, in a tantrum of utter and dangerous frustration, it plans to kick the cat. The cat nearest at hand, or foot, is Japan.
Congress has threatened that unless the Reagan Administration persuades Japan within 90 days to drop barriers to American imports it will build barriers of its own. The barrier most commonly discussed is a 20% surcharge on all goods that Japan ships to America. There is immense irony in that ultimatum. American consumers would pay the surcharge. And even if Americans could sell to Japan everything on their wish-list, the trade imbalance still would be around $30 billion in Japan’s favor.
As in all of history’s protectionist panics, Congress is responding to its local voters, automobile workers whose jobs are threatened by Japanese cars, electronics manufacturers who “lost” $15 billion in sales to the Japanese last year, and every other American company that competes with Japanese products.
Japan’s response so far has not helped, because in Japan nothing is as simple as it seems. On paper, government barriers to American imports are no worse than in most countries. In practice, thousands of little barriers are built into the distribution system itself, designed to impede access not only to foreign products but also to new Japanese products. Such cultural blocks to not recede easily in the face of ultimatums--certainly not in 90 days.
What Congress, in its frenzy, fails to recognize is that it cannot kick just one cat. The largest single trade deficit that the United States ran last year was with Japan--$36.8 billion. But the combined U.S. trade deficit with Canada, Taiwan and West Germany was larger--$40 billion. Would they be next? Would stiffing Japan have a ripple effect that would lead to barriers springing up in every industrialized nation? There is no clear answer to those questions except that it could happen, and it is not a gamble that the United States should take just for whatever satisfaction it gets from kicking the cat.
