In trade talks, US officials tell Japan to change its ways or else. Cut trade surplus or yen will keep rising, US warns
While President Reagan took the high road in the effort to turn around the United States' soaring trade deficit, US negotiators here took to a decidedly different, if not lower, path. The President's State of the Union message stressed the need for US efforts to restore its competitiveness. While insisting on ``free and fair'' trade, he called on the US educational system, scientists, and industry to meet the challenge of foreign competitors.
US trade officials, here last week for a round of talks on opening the Japanese market, instead blamed Japan's closed door to foreign goods. The US officials told Japan either to change its ways or face ``deep recession.''
``In the world of 1987, Japan has two trade policy options,'' Undersecretary of Commerce Bruce Smart told reporters here. One path is ``continued prosperity based on increased home consumption and a market that actively welcomes imports.'' The other leads to ``recession, with falling exports induced by a rising yen.''
``The purpose of the competitiveness effort,'' Mr. Smart said, ``is to improve the US ability to compete in free and open markets.... If we have access only to one market and our competitors have access to two, that is a competitive disadvantage that we cannot tolerate.''
The weapon of a rising yen was unfurled frequently by the commerce official. If Japan does nothing to reduce its trade surplus, he argued, the yen will continue to climb. In that circumstance, he indicated, the US will not intervene to discourage the continued rise of the yen's value. Only last week, Finance Minister Kiichi Miyazawa went to Washington in an attempt to gain cooperation in stemming the pressure on the yen, which is causing serious economic problems in Japan.
The Americans were no less harsh in their assessment of the results of several days of talks here. They accused Japanese companies - and the government - of failing to implement an agreement on semiconductors reached in July. Talks on market access for US-made supercomputers produced ``no discernible common ground,'' said Deputy US Trade Representative Michael Smith. Only on the issue of a foreign role in the construction of the new Kansai International Airport did the negotiators report that the ``situation has improved.'' The US firm Bechtel recently won a small contract to participate.
The gap on semiconductors is particularly glaring. The agreement provided for improved access for US companies to sell the tiny chips, the key to modern electronics, in Japan. It also gave assurances against ``dumping,'' the practice of selling goods abroad below the price they are sold at home. US officials alleged that Japanese companies are dumping chips in third countries, and provided what they termed ``carefully analyzed information'' backing the charges. The Japanese said they found no evidence demonstrating that dumping is taking place. The Ministry of International Trade and Industry (MITI) said US firms were dumping.
The differing perceptions on specific trade issues extend to the broader assessment of the prevailing economic situation. The Japanese argue that ``there have been major achievements'' in US-Japanese economic relations during the past year, and released what they called ``factual evidence'' of the change.
The strong yen, the Japanese say, is already having an impact on the trade balance. During the past year and a half, the value of the yen has risen more than 40 percent against the dollar, making Japanese exports more expensive and foreign imports cheaper. If Japanese trade is measured in yen, rather than in dollars, exports dropped 15.9 percent in 1986. Measuring trade in volume terms - the actual number of goods - exports dropped 1.2 percent and imports rose 12.5 percent.
Still, measured in dollars (the standard yardstick), the Japanese surplus grew from $39.5 billion in 1985 to $58.6 billion in 1986, the largest trade imbalance ever posted between two nations.
With these figures, the Foreign Ministry official said, ``we see that there is a strong possibility, a definitive possibility, that the US will enact some kind of trade legislation'' this year. The threat of protectionism may be useful to ask a country to open its markets, he said, ``but once legislation is enacted, the damage will not only be caused to Japan but to the world, including the US.''
Japan is trying to head off that specter, but apparently to little avail. The MITI announcement last week of its decision to extend Japan's ``voluntary'' annual quota of 2.3 million auto exports to the US for another year was poorly received. Congressional leaders called for an even lower quota. Japanese automakers gave their support to the decision, fearing a worse alternative.
Given this, it is not surprising that Japanese officials went out of their way to praise the President. ``We can welcome the approach taken'' in the State of the Union speech, a Foreign Ministry official said. He noted the President had not mentioned the trade imbalance and had placed emphasis on the US's own ``quest for excellence.'' If a trade bill is to be passed, the Japanese are saying, better it be Reagan's than one produced by the Democratic-controlled Congress.