Let New Thinking, Not Confrontation, Drive U.S.-Japan Auto Issues

In the aftermath of an unsettling election ordeal and with the future of our economic prosperity still an open issue, U.S. and Japan trade officials are meeting in San Francisco this week to head off another confrontation over automobiles--one that could threaten California jobs.

Japanese automobile companies have more facilities in California than any other state, including the GM-Toyota NUMMI (New United Motor Manufacturing Inc.) venture in Fremont, Toyota parts manufacturing in Long Beach, and the U.S. corporate headquarters of most of Japan’s auto manufacturers. And the issue goes beyond automobile trade. After all, more than $100 billion of goods were exported from California last year.

Why put this at risk in a trade conflict simply because the U.S.-Japan Auto Framework, a five-year-old agreement born out of one of the most intense trade disputes of the last two decades, is about to expire?

While Japan has indicated openness to a new arrangement, the U.S. is under intense pressure by the auto parts industry to negotiate purchasing targets and to succomb to other demands that were rejected as antithetical to free-market economies during the original negotiations.

Perhaps we should review lessons of the past. In June 1995, we were poised on the brink of a trade war. The U.S. was demanding that Japanese auto companies agree to purchasing targets for U.S. auto parts. Japan refused and the U.S. threatened to shut out luxury vehicle imports from Japan. Thousands of U.S. employees selling these cars stood to lose their jobs. An uproar ensued and the U.S. backed off, instead establishing a market-oriented approach designed to expand sales opportunities in Japan for U.S. companies.

The world’s economy has undergone tremendous change since those days, but the principles of the agreement provided enough flexibility for it to be successful on two counts. A trade war was prevented that would have had wrenching economic consequences for both countries. And, as our economy and Japan’s have both “gone global” in the interim, U.S. companies and others have achieved market share in Japan by acquiring major equity stakes in Japanese auto manufacturers.

For example, today Ford holds a 33.4% equity stake in Mazda, and Renault has a 36.8% share of Nissan. General Motors owns nearly 50% of Isuzu and has increased its investment in Suzuki.

The interaction between companies of investments, production and technology extends to this country as well, making old-fashioned, protectionist remedies to trade complaints even more unworkable than they were five years ago. Cases in point: American workers for Mitsubishi build the Chrysler Sebring and the Dodge Stratus in Mitsubishi’s plant in Illinois. Toyota and General Motors together build the Toyota Corolla and the GM Prizm in their joint-venture plant in California--again, with American workers.

And we should not forget that nearly two-thirds of the Japanese nameplate vehicles sold in the U.S. are made here, in nine different American factories, by American workers who largely use parts also produced here. In all, more than 285,000 Americans are employed by Japanese-affiliated auto makers and their dealers.

As manufacturers increasingly invest and produce in foreign markets, there has developed such a wide range of inter-relationships between the world’s auto makers that it is difficult, if not impossible, to tell by brand name what is an American, Japanese or European car.

Industry to industry relationships, while less spectacular than bilateral confrontation, have been the real engine in the dramatic move toward globalization. One of the best examples of this is the significant expansion of business between Japanese auto makers and American suppliers.

It is understandable that the Clinton administration would want to tie up loose ends to provide a legacy for itself and reduce problems for its successor. But auto trade between the U.S. and Japan should be looked upon as one of this administration’s successes--after all, a trade war was avoided, U.S. investment in Japan dramatically increased, and America sidestepped the economic disruption that protectionist sanctions would have inflicted.

Trade is always unfinished business--that’s the excitement and promise of free economies. However, trade agendas must not be cobbled together from rejected concepts of the past. We have entered a new economic age of globalization. We need new metrics to measure its dynamics, and forward-looking statesmen who understand it in order to lead it.