Don't Back Down On Japan Now
No one wants to start a trade war. But in the aftermath of the May 5 breakdown of the trade talks with Japan, the Clinton Administration's vow to impose sanctions on Japanese imports is a sad necessity. The U.S. must continue negotiating, but it must also show that it is serious about free trade--and that means imposing punitive tariffs on Japanese-made goods unless Japan agrees to substantially open its domestic auto and auto-parts markets to U.S. companies.
The key issues are clear. The U.S. auto and auto-parts markets are, for the most part, open to Japanese manufacturers, while the Japanese have made it hard for U.S. auto companies and their suppliers to compete there. For example, U.S. parts cannot be sold in most Japanese repair shops, cutting U.S. companies out of the lucrative aftermarket. As a result of trade barriers such as these, the U.S. is running a $37 billion deficit in auto and auto parts with Japan, almost 60% of the total bilateral trade deficit. Opening up the Japanese car market and requiring Japan to increase its purchases of U.S. auto parts would go a long way toward restoring the U.S. trade balance.
The outcome of this dispute may set the tone for world trade for years to come. There's much more at stake than simply the health of the U.S. auto industry or the size of the trade deficit. Asia's developing countries are intently watching Japan's strategy of closed domestic markets and aggressive exports. If the U.S. backs off now, it will send a signal that this sort of mercantilist behavior is acceptable.
The U.S. sanctions will likely target imported Japanese luxury cars and minivans. That may cause some anguish for U.S. dealers who sell these vehicles. Nevertheless, the pain at home is worth the price. If the tariffs are high enough, Japanese exporters will start complaining loudly to their government. The Japanese bureaucrats who are blocking progress in the trade talks are more likely to listen to Toyota Motor Corp. and Nissan Motor Co. than to U.S. Trade Representative Mickey Kantor and Commerce Secretary Ronald H. Brown.
In the event of trade sanctions, the Japanese have threatened to bring action against the U.S. at the World Trade Organization. Aside from the fascinating spectacle of the pot calling the kettle black, the U.S. shouldn't be worried. The U. S. is planning to bring its own case against Japan, which the U.S. has a good chance of winning. A more worrisome, if less likely, possibility is that Japan will retaliate, either by cutting off the supply of critical electronic components or by slowing down their purchases of U.S. treasury securities, which would drive up U.S. interest rates. Either one would trigger the worst protectionist impulses in Congress, leading to a further escalation of the trade dispute.
Free trade is the critical glue holding the post-cold-war global economy together. But it only works if everyone follows the same rules. Countries that keep their markets closed should not expect easy access to the U.S. or anywhere else. That's a principle worth upholding.