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Inside the Japanese `Invasion'

Growing foreign investment triggers criticism on both sides of Pacific

FROM foreign investment to trade, the relationship between the two largest economies in the world has become a source of increasing bitterness. When Japan's Sony Corporation bought Columbia Pictures a few weeks ago, some Americans labeled it the ``Sony shock.'' The $3.4 billion buyout was the largest example yet, the critics charged, of a Japanese ``invasion'' of the United States.

The takeover of a major Hollywood studio by the Japanese electronics giant has been described in particularly strong terms as the purchase of ``a piece of America's soul.'' Some Americans have even gone so far as to question whether Sony might try to slant the content of Columbia's films to make pro-Japanese propaganda.

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``Attitudes are hardening,'' comments Earle Harbison Jr., president of chemical giant Monsanto. ``There's more shrillness to the observations about Japan-US relations,'' he says.

A number of Japanese have publicly, and privately, joined the criticism of Sony's deal. The American reaction is understandable, a Japanese businessman said, comparing it to how Japanese might feel if an American firm bought Kinkakuji, a treasured Buddhist temple.

Buying into Hollywood ``enters into a realm where the colors of the heart overwhelm the calculated blacks and whites of legal contracts,'' writes Yoshio Matsui, economics editor of the leading daily Yomiuri Shimbun. ``Japanese firms must come to realize that there are certain untouchables,'' he concluded.

The Japanese news media gave widespread coverage to the American response to the Sony purchase. Particular attention was focused on a recent Newsweek magazine cover story which rang alarms over the ``Japanese invasion'' and suggested ``five ways'' to counter the Japanese challenge. The magazine published a poll, similar to ones taken previously by other news organizations, in which more Americans said they saw the economic power of Japan as a greater threat than Soviet military might.

``People in the United States seem to have escalated their criticism of Japan from a mere economic dispute to hatred of the `evilness of Japan and its culture,''' the Yomiuri said.

Foreign investment has been a major trigger for apprehensions about Japan's advance. The Sony purchase is the largest of a number of high-profile deals made recently. Dai-Ichi Kangyo Bank, Japan's largest, paid $1.3 billion for a 60 percent share of an investment subsidiary of Manufacturers Hanover. In 1988, Japanese bought about $16.5 billion in real estate and invested an estimated $13 billion in manufacturing firms in the US. Total Japanese direct investment has moved slightly ahead of that of the Dutch as the second largest, following Britain.

``The rash of acquisitions raises the sensitivity levels on issues that were already bumping around down there,'' Deputy Secretary of the Treasury John Robson told the Monitor.

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American feelings are a mix of several factors, the Treasury official explained during a visit here earlier this month. The Japanese have made inroads into key US industries such as autos and electronics. American firms have far greater difficulty entering Japan's markets, including as foreign investors. And Japanese investment has experienced a ``dramatic acceleration'' led by attention-getting purchases of real estate.

SOME observers have suggested that Japan's investment is being singled out for attack because of underlying racism. They point out, for example, that three other Hollywood studios were purchased in recent years by Australian, Canadian, and European interests without any similar outcry.

``It's [because they are] Japanese - no one cares if a Canadian comes down and buys it,'' says Monsanto's Harbison.

Mr. Robson rejects that idea. The reason for the reaction to the Sony move is that ``the biggest trade problem we have had has been with Japan,'' he said. Japan has a nearly $50 billion trade surplus with the US.

The Bush administration is ``faithful to the traditional American policy of open investment and seeking to liberalize investment abroad,'' Mr. Robson says. But he fears renewed efforts in the Congress to pass legislation to restrict investment in the US. ``The politics of open investment policy are getting tougher.''

Both Mr. Robson and Japanese policymakers say the Sony controversy may needlessly complicate ongoing trade negotiations. US Special Trade Representative Carla Hills visited Tokyo earlier this month to talk about a broad array of trade disputes.

Both countries are engaged in talks on reducing ``structural impediments'' to reducing the trade imbalance, including factors which unfairly undermine American competitiveness. There is pressure from the US Congress to produce results by next spring.

``If the perception is that we're trying to push a wet noodle uphill, the potential political consequences could be harsher than anyone wants,'' Robson says.

Japanese worry that the Sony deal may only worsen the political environment for those talks.

Next spring the Congress will be preparing for the 1990 elections, and the US government must again determine whether Japan qualifies as an ``unfair trader'' under the 1988 Trade Act.

``From now to next March is the worst time to make any bold move to initiate any business venture with the US which can be seen as making further inroads into the US economy,'' a Japanese Foreign Ministry official says. If Sony had asked, he adds, he would have recommended against the deal.

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