U.S.-Japan: A Closing Door : Five Misconceptions About How Washington and Tokyo Do Business
The U.S. threat to impose 100% tariffs on Japanese luxury cars to open up Japan’s auto and auto-parts markets has stirred up the usual crowd of worriers about the consequences of an aggressive trade policy. There are, to be sure, calculated risks in the Clinton Administration’s strategy, but most of the arguments deployed against it display a fundamental misunderstanding of how the international trade system is policed. The following is a reader’s guide on the current commentary in the U.S.-Japan trade debate.
* Trade deficits are a macroeconomic problem, the direct outgrowth of low savings rates, excessive borrowing from the rest of the world and fiscal irresponsibility in the United States.
It’s simply a nonsequitur to argue that our policy choices are limited to fiscal rectitude, benign neglect of a continually falling dollar or coaxing cooperation on macroeconomic policy from an ever-reluctant Japanese Ministry of Finance. Even if we had no trade deficit with Japan, Tokyo would present market-access problems that have adverse consequences for production, employment and profits in important U.S. industries.
* Japan is not an unfair trader; it has lower average tariffs and fewer formal barriers to manufactured imports than most industrial states, and though it still promotes cooperative business-government relations, the days of heavy-handed bureaucratic targeting are over.
Unfortunately, these claims are irrelevant to the current dispute. At-the-border barriers and industrial policy are yesterday’s issues. Trade policy increasingly centers on the deeper and more complex questions of domestic regulation and the private business practices that distinguish Japanese capitalism.
U.S. firms face two sorts of barriers in the auto and auto-parts market. First are the regulatory policies that have the effect of discriminating against imports. The second barrier is more formidable: the way Japanese industry itself is organized. The auto industry, for example, is characterized by interlocking ties among auto manufacturers and subcontractors, on the one hand, and distributors, dealers and repair shops, on the other. These networks are difficult to penetrate because of government regulations, collusive business practices and informal relationships based on proximity and trust.
* Sanctions hurt us more.
No other claim typifies more clearly the U.S. retreat from international leadership. The rules of the trading system, and progress toward further liberalization, rest on negotiation, including the ability to invoke sanctions. If the Administration proves unable to enforce costs on a handful of luxury-auto dealers and high-income consumers, what credibility can it have in future trade negotiations?
* Sanctions run the risk of a trade war , with sanctions and counter-sanctions leading to a downward spiral in political, as well as economic, relations.
The Japanese and U.S. economies are so interdependent that the degree of room for political maneuvering to impose sanctions is highly limited on both sides. Washington could do no better than target luxury cars. Given the weakened state of the Japanese economy, reports that the Minister of International Trade and Industry is “studying” counter-sanctions are even more incredible.
The fact of the matter is that we have been in a “trade war” with Japan for more than a decade.
* Sanctions undermine the multilateral trade system .
The most misleading criticisms of the Clinton strategy have come from internationalists who contend that U.S. demands run counter to our commitment to multilateralism, in general, and to the nascent World Trade Organization, in particular.
In three important respects, the “internationalist” critique misunderstands how progress is made in trade negotiations. First, the success of the Uruguay Round of GATT negotiations can be traced to the persistence of the United States in placing new issues on the agenda, initially through aggressive bilateral discussions with its major trading partners. An aggressive U.S. trade policy is complementary to meaningful multilateralism. Second, although Washington’s demands on Japan concern products of interest to the United States, we have, generally, not sought special treatment. The market-opening measures the United States have sought benefit other trading nations as well as Japanese consumers.
Finally, the contention that U.S. demands represent an undesirable move toward managed trade puts things exactly backward. The private and public management of trade in the Japanese market is precisely what the United States is targeting. The United States has left the door open for further negotiations with the Japanese government. The threatened sanctions will have the desired effect of pulling the major Japanese auto producers directly into the discussions. Washington should respond aggressively to serious Japanese proposals. But in the absence of them, this is not the time for America to blink.
