Experts Comment on Problems in Selling to Japan : Dropping Barriers Wouldn’t Erase Trade Imbalance

Ask a dozen experts why the United States has so much trouble selling products in Japan and here’s what they’ll say:

- It’s not so much tariffs on foreign products, although Japan has some.

- It’s not so much quotas or other restrictions, although Japan has some of those too.

- And it’s not that there’s a Japanese xenophobia; in fact, they love some familiar American names--Coca-Cola, McDonalds, Kentucky Fried Chicken, Schick, Gillette, even Disneyland.

So why then is the United States buying $37 billion more from Japan than it is selling there? And why is this trade gap prompting desk-pounding in Washington and talk of a trade war, why this undercurrent of protectionism in the United States?

To a person, these experts will say the big problem is the high value of the U.S. dollar. Its strength makes Japanese goods cheaper to buy here, and makes American goods more expensive to buy there.

Second, there’s a cultural barrier. The country’s web of business relationships and bureaucratic structures can seem impenetrable. For some products, they may be impenetrable.

And the third reason they’ll cite is a problem that lies here, with American manufacturers and sellers--a lack of knowledge of what Japan is like and what its consumers want, an impatience to do years of work learning the language and the market and a reluctance to make a long-term commitment in time, money and people.

Dollar Biggest Problem

The dollar is the big problem, the experts say. Next to it, other barriers and questions about American product quality pale.

“The overwhelming thing is the exchange rate,” said Lawrence Krause, senior fellow in economics at the Brookings Institution. “The magnitude is so great that nothing is a close second.”

Economists say the strong U.S. economy and high interest rates, encouraged by the country’s huge deficit spending, have boosted the dollar’s value against the yen and other currencies. Foreign money pours into the United States seeking its high interest rates, in part financing the federal government’s borrowing and bidding rates up further.

“The strong dollar, in effect, becomes an export tax of 30% to 40%” on American products, said Philip Trezise, also a senior fellow at Brookings. “If you in fact put on a tax of 40%, you’re not going to export that much.”

The overvalued dollar isn’t a problem unique to Japan trade. It hampers American manufacturers in sales to nearly all countries; the United States’ overall trade deficit last year reached a record $124 billion.

But Japan is this country’s second-largest trading partner, behind Canada, and judging by the cars on almost any street, its most visible.

Wouldn’t Hel Much

The dollar problem is so great, experts say, that even if Japan were to open its markets to American products such as telecommunications equipment and agriculture, the trade deficit would only inch down a few billion dollars, if that.

Moreover, Krause contends that the dollar’s overvaluation means that even if the United States did export a lot more products to Japan, the United States would find more imports pouring in here too.

“Until we get a decline of the dollar, we’re not likely to see any significant diminution of the trade deficit with Japan, even if the Japanese do take major steps to increase purchases of American products,” said I. M. Destler, senior fellow at the Institute for International Economics.

“That’s the bind we’re in,” he added. “Because it’s trade, we think trade policy ought to solve it. It’s a trade problem, but it’s not a trade policy problem.”

Japanese tariffs aren’t the problem, most experts agree; they will be among the lowest in the industrialized world after a scheduled final round of reductions.

Japan places import quotas on some products, notably agriculture, but they are generally in areas sensitive for domestic political reasons, just as the United States has tried to protect textiles and some other sectors, the experts say.

That is not to say Japan’s markets are open, though.

Hidden Cultural Barrier

George R. Packard, dean of the Johns Hopkins School of Advanced International Studies, says the Japanese word keiretsu represents the hidden cultural barrier many American would-be exporters run into.

“It’s a web of relationships that go back 50, 100, sometimes 300 years in a highly cultured society,” he said. “It means an interlocking web of relationships in which a parent corporation has a lot of subcontractors who traditionally supply it with materials or services. The relationships go far beyond contract work.”

It means, he said, that distributors and manufacturers in Japan deal with one another over generations. They resist new players, be they American or Japanese. The business relationships are seen as more than contracts, but as continuing obligations.

Krause contends that this is more than a benign network. It is, he said, “reinforced by hardball mechanisms.”

Japanese manufacturers and distributors in some areas, he said, “would cut off any distributor who handled imported goods.” He cited textiles, steel and sporting goods as examples. Or, he said, such a distributor “may well find his bank credit cut off.”

And there are some regulatory barriers, such as onerous inspection requirements and specifications that amount to restraints on trade. “These are imposed by bureaucrats who still haven’t gotten the picture,” said Packard. “It’s like pulling teeth, but these things are going to come out of the picture.”

No Voice in Standards

American telecommunications companies seeking sales in Japan have been frustrated in trying to gain a voice in setting the standards Japan uses for those products.

“Japanese companies have input (into U.S. standards) here,” said Joe Bhatia, executive staff engineer for Underwriters’ Laboratories. “It’s not the case for Japanese standards. It’s a very close-knit process.”

There are American success stories in Japan, however. IBM has big sales there, and U.S. computers and software are considered ahead of the Japanese. American fast-food chains and soft-drinks are popular in Japan. Schick and Gillette dominate the shaving market.

Japanese have by tradition bought their own products, but that there is an ingrained fear or refusal to buy foreign goods is a canard, said Nathaniel Thayer, director of Asian studies at the Johns Hopkins International School.

“Go to the third floor of any department store in Japan and you’ll see perhaps half the floor given over to display of foreign goods,” he said. “If anything, the Japanese are very, very sensitive to brand name sales, and it doesn’t have to be Japanese.”

But many U.S. companies haven’t been willing, Packard contends, to make the commitment IBM did.

Need Trained People

“American corporations with very few exceptions have not gotten the message that they need trained people in Japan who can work in that market, speak that language,” he said.

On a basic level, he said, U.S. manufacturers haven’t tailored their products to the Japanese market. Packard cites automobiles and the complaints by Chrysler Chairman Lee Iacocca about inability to get through Japanese regulation.

“Somebody should ask Mr. Iacocca when was the last time he built a car with right-hand steering. That’s they way the drive over there,” Packard said.

“We couldn’t understand why the Japanese weren’t buying American-style large, noisy refrigerators,” he added. “They don’t understand Japanese live in a very small apartment with paper walls. You can’t fit a refrigerator in and if you could, it would keep you awake at night. It would occupy half the kitchen.

“We don’t build for their market,” he said. “We don’t understand their consumer market.”

It takes a long-term commitment to succeed in a country where business acquaintances go back decades. Japanese want to know that a company they deal with will be around for longer than the next annual report’s profit statement.

Japanese manufacturers had to take lumps to gain the markets they now hold in the United States, such as consumer electronic products and automobiles, Thayer said.

No Success at First

It took Nissan eight years of trying to sell cars in the United States before it succeeded, he said. The company began with the Bluebird model in the early 1960s.

“It was a total failure,” he said. “They pulled out for three years, then came back into the market. They had a little luck. The oil crisis came along. Luck was in there, hard work was in there, failure was in there.”

And the Japanese face Asian competition themselves, from Taiwan, Hong Kong, South Korea and Singapore. Low labor costs in those countries are playing a role in taking over the lower-end market in many types of products.

Experts say it is to Japan’s economic advantage to open up to more trading. But they also say bringing down trade barriers and changing buying patterns aren’t enough to right the imbalance. Even if all the problems could be corrected right away, the experts agree the United States would still have a large trade imbalance with Japan--and it will for some time.

“Shake away the trade barriers on both sides, get the dollar-yen rate more nearly reflecting purchasing power parity, and we wouldn’t run a trade surplus with Japan in any predictable time,” said Trezise. “But we would come much closer.”