Furor over Japan

Rising ire over a still soaring surplus

Ater so many years of talks, protests and promises on both sides, the squabbling between the U.S. and Japan over trade might be expected to subside. In fact, tempers seem to be getting worse, not better. Yankee businessmen complain that they are still all but shut out of the Japanese market, and more and more of the American consumers who buy the goods that the Japanese export with such zeal seem to agree. Pollster Louis Harris found that a strong (64%) majority are persuaded that the U.S. is getting shortchanged on trade, by Japan as well as by other countries. Today a good many Americans would applaud the exasperation confessed by John Nevin, chairman of Zenith Corp., in the latest Harvard Business Review. Says he: "The question is whether Japan is going to open up or the rest of the world is going to shut down Japan."

High up on the list of American complaints is the sluggishness with which Japan has moved to live up to the trade agreement that was concluded with the U.S. last January. That pact pledged Japan to cut tariff walls and quotas, with the aim of bringing U.S.-Japanese trade back into balance by 1980. But there have been few signs that the promises are being kept, and trade hassles with the Japanese are still regularly in the headlines (last week's concerned Japanese import quotas on American beef and oranges).

Now the dollar's tribulations are focusing further attention on the trade problem with Japan. A main cause of the dollar's weakness is the U.S. trade deficit, which may run to more than $30 billion this year; the deficit with Japan will account for almost half of that. Economist Otto Eckstein of Data Resources Inc. in Lexington, Mass., last week declared that what is really needed to restore the dollar's health is "quick and dramatic relief from Japanese imports." In trade, says Eckstein, the Japanese "have done nothing for us." The Japanese, for their part, argue vehemently that they have done much to open up their market and that it is now the fault of American exporters if they cannot crack it. Who is right?

The one fact on which there is no debate is that Japan's huge trade surplus with the U.S. is growing bigger all the time (see chart). The excess of what Japan sells in the U.S. over what it buys from America reached $9.3 billion in the first nine months of this year, and is expected to hit a record $12.4 billion for all of 1978.

These huge imbalances not only cost American workers jobs and help fan U.S. inflation but have also contributed mightily to the weakening of the dollar. In theory, the 40% fall of the greenback against the yen over the past two years should have helped correct the U.S.-Japanese trade imbalance. This would happen if Japanese exports became more expensive and therefore less attractive to American buyers, thus cutting the cost of U.S. exports to Japan. To some extent, this has happened. For instance, Toyota's U.S. sales fell almost 8% in the first nine months of 1978, partly because prices of new cars were lifted 13.9%. Yet, overall, sales of Japanese exports remain strong in the U.S., while sales of American products in Japan show little new strength.

The Japanese concede that, up to the mid-1960s, their trade policy was plainly protectionist. Since then, they claim, controls and regulations that hampered imports have been pulled down so far that they now have one of the most open domestic markets in the world. One reason U.S. companies still find that market so impenetrable, says Toshihiko Yano, formerly a top policymaker at Japan's Ministry of International Trade and Industry, is that they have ample room to grow at home and do not "want to take the time and trouble involved in exports. They have got to make the effort." Echoes Yasuo Oki, a spokesman for Mitsubishi, Japan's largest trading house: "American businessmen come in here, throw up their hands at the differences in doing business in this country and go home muttering about the closed market."

Some Americans agree. Writing in the current Foreign Affairs, two officers of the Boston Consulting Group, a private management study firm, place the blame for the trade imbalance on a lack of aggressiveness among U.S. exporters. They insist that over the past ten years America has steadily lost its share of the Japanese import markets for most manufactured goods and that, whatever the barriers and for whatever reasons, the U.S. has been supplying a smaller and smaller part of what Japan does in fact import.

American businessmen and some Government officials take a different view. Some argue that the Japanese language constitutes a trade barrier. Assistant Commerce Secretary Frank Weil agrees that the technical quotas and tariff restrictions have now been largely dismantled and that "there are really few restrictions on manufactured goods." But, he adds, they have been replaced by something different: "a mentality on the part of the average Japanese businessman that says 'I've been told for a hundred years I shouldn't import. I can make it here.' It's a sort of conditioned reflex." Says Norman Glick, a member of the U.S. Commerce Department's trade facilitation committee: "The Japanese have protection in depth. As soon as you peel away one layer, you find another."

One key hidden barrier, Weil agrees, is "the gigantic Japanese bureaucracy, with its bias against foreign manufactured goods." This shows itself in many ways. Government agencies like the railways and telegraph and telegram systems, which spend roughly $52 billion a year, have been under orders to "buy national," and although this restriction has been eased in recent months, old habits die hard and few foreign orders have been placed. And when the government does not want to buy foreign, wholesalers and industrial buyers steer clear of imports as well. At the same time, customs officers have been known to effectively shut out imports by finding fault with documentation. Moreover, since there is no reciprocity between Japan and the U.S. on normal standards, certifications and product health and safety regulations, foreign imports have to face lengthy and expensive testing procedures. Until very recently, even the smallest error gave minor bureaucrats an excuse to order the whole thing redone. Certification, laments John Quick, vice president in charge of GM's Asia-Pacific operations, is "a long, involved process that can take up to eight months" and requires "carloads of papers."

A further problem U.S. firms face is Japan's multilayered, complex distribution system. This retail network is dominated by the giant wholesale trading houses, which can set the prices of imported goods so high that they fall into the luxury, low-sales category. Despite the drop in the dollar, the Japanese prices of hakuraihin (foreign-made goods) have not dropped, because wholesalers simply pocketed most of the difference. What price cutting has occurred has been meager: a Kelvinator refrigerator has been marked down from $942 to $910, a fifth of Johnnie Walker Black dropped from $39.50 to $37, and Campbell soup fell from $1.16 to $1.05. Says Weil:

"If GM distributed its Seville directly, it could be sold for $15,000 rather than the $30,000 it now costs."

The middlemen can also, if they so wish, effectively block the import of products that threaten and compete with domestic producers. Zenith's Nevin insists that this is what happened to his company and others when they tried to enter the Japanese TV market. He asserts, despite its denials, that the Japanese Electronic Association put pressure on the government, the stores and the trading houses to make things tough on the American invaders. When sets made for Sears, Roebuck did finally make it to Japanese stores, he points out, their prices were set prohibitively high. Customers had to buy them at 600 yen to the dollar rather than the 300 yen set for other goods. The result: of 5 million TVs sold in Japan last year, only 452 were imported.

Despite some weak evidence of import liberalization, the slow increase of U.S. sales in Japan at a time when the dollar has never been cheaper supports American claims of at least some unfair import obstacles. Even if lack of export skill or will on the part of American firms must bear a small part of the blame, this will do nothing to shake the conviction in the U.S. that, as Trade Negotiator Robert Strauss puts it, "we could have landed a thousand tanks in Japan 30 days after Pearl Harbor easier than we could land a thousand Ford cars today."

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