Don't Fix Japan Trade By Hardball Tactics
WHAT will the Clinton administration decision to slap trade sanctions on Japan do?
It will hurt American car buyers. Also, by the administration's own reports, it will not appreciably impact the US trade deficit with Japan.
The faulty premise of United States trade negotiators, dating to 1993, made the trade sanctions decision inevitable. It even contradicted the basic economic facts stated in the President's Report on the 1995 Trade Policy Agenda: ''Trade policy has a lot to do with the composition of trade: who produces what, where. It has little to do with the size of the overall trade balance, which is primarily determined by larger macroeconomic forces.''
A trade deficit is largely a function of exchange rates and a country's national savings rate. This fact negates much if not all of the impact any negotiations could ever hope to achieve.
In fact, the notion of a trade ''imbalance,'' or a favorable balance of trade, is itself flawed. The belief that trade is a zero-sum game -- and that only exports are good and imports are bad -- is an incorrect one. Economist Milton Friedman goes even further: ''The US gains from imports, not exports. Imports contribute to our standard of living. Exports are a cost. They are what we have to pay for the imports. The larger the volume of imports we can get for each unit of exports the better.''
Japan has accused the US of seeking to set numerical targets for Japanese purchases of American auto parts. The US would like Ford, Chrysler, and General Motors to sell more cars in Japan. However, Western European companies, which have invested in car dealerships for years, have a strong share of Japan's auto market. US companies, following Europe's lead, have substantially increased sales of American cars in Japan for three years.
Yet the real issue is the Clinton administration's premise that it can reduce the US trade deficit with Japan through hardball negotiations, a mistaken premise that has substantial support among US car manufacturers. Chrysler vice chairman Thomas G. Denomme writes, ''We can't fix the trade gap with Japan unless we fix the auto sector.''
Not only is it unnecessary to ''fix'' the trade gap with Japan (or any other nation), but the President's 1994 Economic Report estimates that even if Japan eliminated all of its trade barriers, something that would take it far beyond America's own policy on imports, the US-Japan trade deficit would still decrease by less than $9 billion out of the $66 billion total.
If Tokyo's policy has treated anyone unfairly, it is the Japanese people. A Japanese household spends over 20 percent of its income on food, compared with 6 percent for a US family. The higher standard of living afforded by less expensive food, stereos, and cars allows Americans the income to live better and invest.
Ironically, US trade sanctions against Japan will mainly hurt US consumers. Sanctions raise the cost both for Japanese cars sold here, and for American cars, whose prices rise in the face of less competitive pricing. A 1987 International Monetary Fund study found that because of an earlier US-Japan trade negotiation that resulted in voluntary auto-export restraints, American consumers paid an average of $1,650 more for new domestic and imported cars between 1981 and 1984.
The White House should abandon its futile effort to lower the US trade deficit with Japan through negotiations. US trade negotiators should instead recall the Greek legend of Sisyphus, who was condemned forever to push a large boulder up a hill only to see the stone always roll back down before it made the summit. US and Japanese trade negotiators always take things to the brink. But this could finally be the time when US consumers are crushed beneath that boulder.