Why More U.S. Exports to Japan Won’t Amount to a Hill of Beans : Trade: U.S. products cost more in Japan because of non-tariff barriers. The evidence comes from the Japanese themselves.

President George Bush’s trade mission to Japan will satisfy few in either the United States or Japan. Japanese politicians and business leaders promised to stimulate U.S. imports, particularly of autos and auto parts, but at levels well below those sought by the President. From the beginning, though, the competitive weakness of U.S. auto makers virtually guaranteed that the best that could be achieved would be more symbol than trade redress.

Indeed, one of the most troubling aspects of the U.S. mission was its obsessive focus on cars as the principal way to increase American exports to Japan. The concerns of thousands of U.S. firms whose products would sell well in Japan, as they have in virtually every other world market, were largely ignored. The President would have better served the cause of U.S-Japan trade by attacking the heart of the problem--Japanese non-tariff trade barriers that inflate the prices of foreign products. Ironically, the evidence to make this case, and to press for more equitable trade terms, is contained in a series of price studies conducted by the U.S. Commerce Department and the Japanese Ministry of Trade and Industry.

The price studies, carried out in 1989 and 1990, sought to determine whether imports in Japan are disadvantaged by such non-tariff barriers as costly port-of-entry inspections or unjustifiably high retail markups. To settle the issue, prices of identical American, Japanese and European products were compared in at least two retail outlets in the United States and Japan.

When first published, however, the survey data for both foreign and domestic goods in Japan were unaccountably averaged, rather than compiled separately. To no one’s surprise, average prices in Japan turned out to be 40% higher than in the United States.

But when American and Japanese product prices are individually analyzed, the results are quite different. They point to substantial trade barriers in Japan that adversely affect only foreign products. Prices for the same U.S. or European products are about 65% higher in Japan than in the United States. For example, a U.S.-made laser printer costs $449 here, but more than $825 in Japan. Its U.S.-made paper costs $5 here, $8.75 there.

But prices for Japanese products sold in the United States or Europe are almost exactly the same as in Japan. For example, a Japanese camera that sells for $555 in the United States costs $578 in Japan. The Japanese-made film costs $3.50 here, $3.25 there. No wonder Japanese products sell better in the United States than do American products there.

Virtually none of these products were subject to tariffs. Transportation costs, which normally raise the cost of goods in foreign markets by about 5% to 15%, were not factors, either. This strongly suggests that non-tariff trade barriers are the reason why foreign-product prices are strikingly higher in Japan.

What makes the survey results all the more valuable is that they undercut alternative explanations for pricey foreign products in Japan. Temporary exchange-rate volatility is one of the most common. The two surveys were taken 18 months apart, when the yen-dollar exchange rate was extremely stable. But import prices in Japan during that time did not measurably decline.

Another favored explanation is that Japan’s inefficient distribution system drives up the prices of both foreign and domestic products. The surveys show, however, that the system is especially inefficient--and thus a trade barrier--only for imports.

The results also help to explain the persistence of the U.S. trade deficit with Japan. After the devaluation of the dollar in the mid-1980s, America’s merchandise trade balance with most of its major trading partners steadily improved. The exception was Japan. If Japanese non-tariff trade barriers prevent import prices from falling as the dollar weakens against the yen, Japanese consumers have no incentive to buy more U.S. products, no matter how many are available.

Such barriers might also indicate why Japanese import purchases have recently declined. Extremely high import prices transform foreign products that are staples in other countries--electronic parts, computer equipment, or foodstuffs--into luxury items in Japan. When the Japanese economy turns sour, as it recently has, “splurge” purchases of imports would be the first to be cut back.

Although the best forum for making the case against Japanese non-tariff barriers has passed with Bush’s return home, there will be other opportunities to further American trading interests vis-a-vis Japan. Three points must be made:

-- Trade barriers do exist in Japan, and they must be eliminated as rapidly as possible. Anything less will feed protectionist passions in the United States.

Japan’s non-tariff barriers, to be sure, account for only a part of America’s economic difficulties. But at the very least, they reduce potential export earnings from Japan that would help U.S. firms compete in world markets.

-- More surveys are needed to measure trade-barrier reductions. Price surveys, although imperfect, are an objective way to detect barriers that might exist between countries. Additional surveys would indicate how much progress is made on reducing these barriers.

-- American computers, ketchup, camera film, spark plugs and sporting goods can double in price during the trip from Los Angeles to Tokyo, while Japanese products often become cheaper traveling the opposite direction. To understand why, we need much more information about how U.S. and Japanese products are priced from the moment they leave the factory until they appear in retail stores at home and abroad. Such knowledge would enable quicker identification and reduction of specific non-tariff barriers.

The disappointing outcome of the President’s mission to Japan underscores the need for a different approach to the political nitro that is the U.S.-Japan trade imbalance. Unless Americans can sell their products in Japan at prices consistent with normal levels--an opportunity the Japanese have enjoyed for decades in the United States--all the added U.S. exports to Japan will do little more than occupy space. The Administration already possesses the information it needs to make its case to the Japanese. It is time to get on with the job.