Commentary: Even If Japan Backs Down, Detroit Won't Win MuchDavid Woodruff
The rhetoric flowed freely when U.S. Trade Representative Mickey Kantor announced trade sanctions aimed at wedging open Japan's auto market on May 16. U.S. auto makers have become as "productive as any industry on earth, and they should be allowed to compete fairly," Kantor declared. By slapping 100% tariffs on Japanese luxury auto imports, the Administration is hoping that Japan will cave in and allow U.S. autos and parts to freely enter its market.
Don't bet a yen on it. Even if the Japanese government does relent, a U.S. victory is unlikely to reduce the $66 billion trade deficit with Japan significantly or to bring a big payoff for U.S. industry. Detroit's Big Three have no major plans to expand into Japan, which they see as a mature, low-margin market. And while U.S. parts suppliers are hungry to sell more in Japan, the Japanese government is unlikely to open its market enough to make much of a difference.
ON A LIMB. Ironically, the Clinton Administration may be gambling on the wrong horse, while risking a serious downturn in U.S.-Japanese relations. The Administration has challenged Japan on autos and parts because those products account for 60% of the trade deficit--and the industry employs millions of voters. But before U.S. trade officials headed out on a limb, they should have secured a commitment from Detroit to invest in new models and expanded dealerships in Japan.
The Big Three have never invested the megabucks needed to crack Japan. Only in 1992 did Chrysler Corp.'s and General Motors Corp.'s Adam Opel unit begin to sell righthand-drive cars there. Most important, the Big Three never developed the dealer network needed to compete with Japanese rivals. That's in contrast with European luxury carmakers, which have made substantial inroads in Japan.
With the Japanese market expected to grow just 2% annually over the next several years, Detroit still does not find Japan an attractive place to sell cars. Even though the high yen has made American auto imports more competitive, Detroit will come away with about 1% of Japan's market this year.
About the best that the Administration can hope to gain from the trade tussle is a voluntary agreement by Japanese carmakers to buy more U.S. auto parts both in Japan and in the U.S. Even that will be tough. Most Japanese plants in the U.S. already buy a great many small parts locally. But experts expect the Japanese companies to continue bringing in most big-ticket items, such as engines and transmissions, from home. In Japan, U.S. suppliers such as Tenneco Inc. want to boost sales of parts, but they still face a variety of obstacles, from complicated rules for parts approval to closed distribution systems controlled by the auto makers.
On the plus side, some Big Three executives argue that taking on Japan will improve Detroit's access to other booming markets, from India to Vietnam. Even so, that's an insufficient reason to pick a monumental fight with Japan. Japan's economy is undeniably plagued by Byzantine regulatory policies. But without clear U.S. industry intentions to compete with Japanese carmakers on their own turf, it doesn't make sense to wage trade war to gain entry.