Act Soon on Trade, Japan Warned
Undersecretary of Commerce Bruce Smart warned Japan on Thursday that failure to reduce its “huge and unsustainable trade surplus” will precipitate a further fall in the relative value of the dollar, a decline in Japan’s export competitiveness and a “deep recession” in Japan.
Smart, in one of the harshest speeches made here in years by a U.S. official, told a Japan National Press Club audience that Japan has only two choices: to promote growth at home to draw more imports and slash its trade surpluses, or to watch the dollar fall and bring down Japanese exports with it.
Doing nothing, he said, alluding to Prime Minister Yasuhiro Nakasone’s belt-tightening policy, will precipitate a recession.
With Michael B. Smith, the deputy U.S. trade representative, sitting at his side, Smart warned that “a very short time limit” has been set for Japan’s Ministry of International Trade and Industry to enforce provisions of a U.S.-Japan semiconductor pact designed to halt Japanese dumping in third-country markets and to increase sales of U.S.-made chips in Japan.
“April Fool’s Day would be too late” for action, Smith said.
The two U.S. officials reported failure in their talks with Japanese officials this week to resolve American complaints about semiconductors and the sale of supercomputers to Japanese public institutions. They reported only qualified progress on a U.S. demand that American companies be allowed to bid for contracts on a new $8-billion airport at Osaka.
Intervention Not Mentioned
Speaking as reports came in about the first American intervention in the New York Foreign Exchange Market to support the dollar’s value against the yen, Smart warned that the United States will “let a falling dollar make our point for us” if Japan fails to reduce its trade surpluses.
He said nothing about the reports of American intervention in New York, which were confirmed by officials at the Japanese Ministry of Finance. These officials said the New York Federal Reserve Bank had used yen to buy about $50 million to support the dollar after the exchange rate plunged to 152 yen to the dollar.
In Tokyo Thursday, the dollar closed at 152 yen, up 0.80 yen from Wednesday, but only 2.02 yen above its record low of 149.98 yen recorded Jan. 19.
It was the first time that the U.S. Federal Reserve Bank had bought dollars since the top financial officials of the United States, Japan, Britain, West Germany and France agreed in September, 1985, to drive down the dollar’s value.
Although Finance Ministry officials said the intervention was proof that the United States is upholding Baker’s promise to stabilize exchange rates, some exchange traders here were not convinced that the Federal Reserve Bank would take forceful action to protect the dollar. They noted that the Bank of Japan bought nearly $2 billion in dollars in New York on Wednesday, compared to only $50 million by the U.S. central bank.
Smart disclosed that Commerce Secretary Malcolm Baldrige told Nakasone here last August that the United States had singled out semiconductors, access to bidding on contracts for the Osaka airport and auto parts as three “litmus tests of Japan’s desire for a fair and open trading relationship.” So far, he said, results have been mixed.
Smart said the trade ministry “has apparently been unwilling or unable--I cannot tell which--to implement Japan’s side of the (semiconductor) agreement reached last July.”
“Many Americans,” he went on, “believe past Japanese trade practices in semiconductors have amounted to unfair targeting and predatory pricing. . . . Failure of the July semiconductor agreement would add weight to their argument.”
George Scalise, an official with the U.S. Semiconductor Industry Assn., said in a telephone interview that the industry, in response to the apparent failure of the semiconductor talks, would formally ask the Commerce Department to impose a variety of duties against Japanese semiconductor makers.
An official of the Japanese Foreign Ministry, who requested anonymity, told correspondents that the trade ministry had investigated charges made by the U.S. negotiators that four Japanese firms were dumping semiconductors in third-country markets and had “found no evidence that dumping is taking place.” He said Japanese negotiators had “exchanged views” with Smart and Smith about reports of dumping by American semiconductor firms in third markets.
Smith told reporters that “the U.S. government stands behind” charges of dumping made Monday by a senior U.S. official against Hitachi, Toshiba, NEC and Fujitsu.
On American charges that Japanese public universities and research institutes are not giving U.S. superconductor firms a chance to sell to them, the two sides found “no common ground,” Smith said.
Doesn’t Accept Argument
On the Osaka airport, Smart complained that the Japanese had “even claimed that only Japanese can understand Japanese soil conditions” as an excuse to shut out U.S. bidders. Still, he said, some progress has been made toward opening doors to foreign firms.
Japanese and American negotiators will meet in Washington in February to discuss the third “litmus test”--Japanese purchases of American auto parts, Smart said.
In his speech, Smart acknowledged that the United States shares the blame for the massive trade imbalance with Japan, which reached about $60 billion last year. But he repeatedly lashed out at Japan and its policy of stringent budgets and government belt-tightening. Without naming Nakasone, Smart said Japan must adopt “policies that stimulate home consumption.” The result of doing nothing, he said, will be dwindling exports caused by a further decline in the dollar’s value, which in turn will cause a recession in Japan.
Contradicting Smart, the Foreign Ministry official said that domestic growth accounted for more than 70% of Japan’s growth in 1984 and 1985. Last year, he said, a decline in Japan’s exports, in real terms, pulled growth down to 3%, while the domestic economy was growing 4.2%.
