Japan Risks Retaliation

A visiting Prime Minister encounters tension and tough talk over trade

Shortly after he took office in December, Prime Minister Masayoshi Ohira, following a ritual established by his predecessors, scheduled a trip to Washington to clear up what he thought would be some minor issues. As it happened, Ohira's visit to the U.S. last week took place in an atmosphere of tension and ill will caused by the growing confrontation between the U.S. and Japan over trade.

Despite repeated promises by the Japanese to dismantle their myriad nontariff barriers and allow more foreign goods into their potentially rich market, Japan's trade surplus continues to pile up. Last year it rose to $24.6 billion, from $17.3 billion in 1977. Imports of Toyotas, Sony TVs, Nikon cameras and other Japanese goods to the U.S. outpaced American exports to Japan by $13 billion, accounting for fully a third of the American trade deficit.

No substantive trade issues were resolved during the visit, but Ohira showed a conciliatory attitude that managed to ease, if not erase, the skepticism about Japan's intentions and the talk of economic retaliation. In his three-hour meeting with President Carter, Ohira pledged to push to narrow the trade gap between the two nations, noting that some improvement has already been made. Japan's trade surplus in the first three months of this year totaled $2.7 billion, vs. $6.7 billion in the same period last year. Generally Carter and Ohira hit it off fairly well. Honoring Ohira's request for a "truly American meal," the President served up a barbecued buffalo dinner on the White House grounds, with the Texas barbecue sauce stirred up by the President's chief trade negotiator, Robert Strauss.

Still, some Administration officials fear that Congress, in its present impatient mood, could take severe action against Japanese imports. Anger at Japan's nontariff restrictions has been intensifying in both the U.S. and Europe. Congressional leaders have warned that unless Japan moves more quickly to cut its surplus, Congress will impose a 15% tariff surcharge on Japanese goods, and take other retaliatory steps. Says Senator Lloyd Bentsen of Texas: "I can see no good reason for the U.S. to commit economic harakiri on the altar of a bogus free-trade relationship."

The immediate focus of U.S. ire is Japan's reluctance to open up enough of its government contracts to foreign bidders. Specifically, the U.S. wants to be allowed to bid on high-technology items like computers and switching equipment bought by the Nippon Telegraph and Telephone Co. (NTT). But NTT vigorously opposes foreign bidding because the company has worked closely with several Japanese suppliers in developing its computer technology, which it protects like a mother bear guarding her cubs. Yet such technology is precisely where the U.S. has an edge, and could expand in what will be a growing industry in years to come. For many American businessmen and politicians, the NTT case is a perfect example of how Japan's cartel-like industry, in alliance with major trading houses, is able to preserve its profit margins by holding sway over the ruling Liberal Democratic Party, which is largely financed and backed by big business and farmers.

That is the message of a tough report on Japanese trading policies by a House Ways and Means task force headed by Oklahoma Democrat James R. Jones. Among the many charges made by the Jones report is that Japan's Ministry of International Trade and Industry (Mill) works hand in glove with private industry cartels to set consumption, price and import levels of copper, aluminum, naphtha, and caustic soda and other chemicals.

The report also says that Japan throws up a bristling array of barriers to stop manufactured imports. To get a new car model past customs, a U.S. manufacturer must supply 400 to 500 pages of technical data. In addition, every car that enters the market must have the rear seats changed and headrests added, plastic floor covering installed, wheels rebalanced, fender mirrors attached, paint and finish work touched up. All this adds at least $1,000 to the price. Then the car must go through the importer, the distributor and the dealer; each level adds a markup, kicking the overall price of the auto skyward. For a Ford Mustang 2800-cc Ghia that sells in the U.S. for $4,920, the Japanese buyer must pay $15,000. Small wonder that from January to August last year the U.S. exported only 7,900 cars to Japan, while the Japanese spewed 1.3 million autos into the U.S.

Anong the most frustrating and emotional restrictions, says the report, are the import quotas on 27 types of agricultural goods of which the U.S. is a big and low-cost producer, including beef, which was limited to a meager 100,000 tons in 1978. As a result, sirloin steak in Tokyo goes for $45 a pound. A package of King Edward cigarillos that costs 36-c- in the U.S. sells for about $2 in Tokyo; California cherries cost from $6 to $8 a pound. The controversial quotas are maintained because Japan's powerful farm bloc obdurately refuses to accept outside competition that might result in the lowering of food prices for the long-suffering Japanese consumer.

Much the same bias in favor of high prices is reflected by businessmen selling hakuraihin (imports). Though the yen lately has weakened against the dollar, Japanese money still has about a 40% higher value than it did two years ago. Thus foreign goods are less expensive for the importer; but businessmen have pocketed the difference and left the price of imports high. A small Kelvinator refrigerator costs $900; a bottle of Johnnie Walker Black $34 a fifth; a can of Campbell soup 95-c-.

The Japanese business establishment argues, with some justification, that American traders are not really trying hard enough to crack its market. In its view, the U.S., which encourages consumption instead of capital formation and improved productivity, is simply unable to compete against Japan, which stresses hard work and thrift. One key example of this basic cultural difference is that Americans save only 5% of their personal income, while the Japanese save a remarkable 24%.

Many Japanese are advocating a stronger stand against foreign demands. An editorial in the Tokyo Shimbun, an influential daily, argues that "it has become a fixed pattern that as soon as Japan concedes one issue, the U.S. brings up a fresh one. We cannot tolerate the disgusting threat of retaliation every time a Congressman opens his mouth." Says Economist Kunihiro Takano: "What the Americans are really telling the Japanese is, 'Change your tastes, your attitude and your life-style so you can buy more American goods.' That borders on domestic interference."

Japan's political leaders are eager to defuse the trade issue before the economic summit meeting of the heads of the major industrial nations begins in Tokyo on June 28. But as matters stand, the session is likely to be marred by a barrage of criticism against Japan by both Americans and Europeans, who are openly threatening to take strong retaliatory steps against Japan by autumn.

The Western industrial nations want Japan to expand domestic demand and consumption by taking steps to stimulate the economy and lift average Japanese incomes. That would tend to raise imports and reduce exports because Japanese wages and other costs would go up. But such a course risks higher Japanese inflation and lower profits, which the nation's business establishment opposes. Unless the corporate chiefs relent, however, they risk the greater shock of having their access to world markets sharply curtailed. The threat of selective protectionism against Japan is rising, and it worries U.S. officials. It would dangerously damage relations with the nation's staunchest ally and biggest customer in the Far East and possibly lead to an international trade war.

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