Sanctions Against Japan: A Necessary EvilRudi Dornbusch
In the perennial trade conflict with Japan, the Clinton Administration promised a change. And now, whether by design, frustration, or anger, U.S. policy is about to shift: Regrettable though they may be, sanctions are essential.
On the surface, a move from talk to sanctions seems ill-advised. First, such action makes Japan the victor in a world public-relations battle: Japan emerges as the "free trader," casting the U.S. in the role of "managed trader." Also, America appears as the big uncompetitive bully forcing Japan to cave in. Finally, there is the question of using unilateral action, rather than the multilateral process for conflict resolution available through the new World Trade Organization.
But these are only surface issues. In reality, Japan is a closed economy unlike any other in the Organization for Economic Cooperation & Development. Japan's bureaucracy won't accept free trade--plain and simple. On every international commitment, from the liberalization of trade to foreign investment, Japan has dragged its feet. Nonoil imports are a smaller share of total consumption today than 30 years ago. Whether it is auto parts, aircraft landing rights, or a myriad other issues, Japan is unique in its obsession with limiting access.
For more than 20 years, the U.S. has been trying to open Japan's markets. The back-and-forth has had little result. Every U.S. Administration brings fresh negotiators onto the field to face the same old Japanese warriors. They assume the U.S. will not force the issue and will simply accept promises to do better. They have been right--until now.
WRONG TURN. Unfortunately, the U.S. has chosen the automobile as its wedge for opening up Japan. Apart from the Jeep Cherokee, American cars have a poor image in Japan. The Japanese think their own autos are great, but until recently few would say that of U.S. cars. Moreover, Detroit's efforts to sell cars in Japan have been minimal. Clinton may have picked cars as the focus of the battle for domestic political reasons: With California and Texas probably lost to the Democrats, he needs Michigan's votes to win the 1996 Presidential election.
If automobiles were selected because they loom large in the bilateral trade balance, the choice was worse still. Open trade with Japan won't necessarily shift the balance. Japan still saves and invests more than the U.S., and if the yen should plunge and wages should fall, Japan's exports will rise sharply.
But America's decision to impose sanctions raises questions about the WTO. The U.S. has reluctantly accepted binding conflict resolution by the WTO, but if the verdict goes against the U.S., domestic political pressures may force an early exit. The Administration should not force the WTO into an early, high-stakes battle--where the wrong decision could play havoc with the world trading system. Globalists delight in the notion that international panels can make judgments and that countries will fall in line. But Congress and the people are not so sophisticated. It is more important to keep world trade going than to perform intriguing and premature experiments in internationalist maturity.
PARTY CRASHING. Another problem is Europe's wish to join the negotiations and get a piece of the action without paying the price. With breathtaking hypocrisy, Europeans have joined the chorus of lament over U.S. unilateralism. But their automobile trade is regulated by a WTO exemption that allows import restraints. Italy and France let in few Japanese cars. Nissan Motor Co.'s plants in Britain set records for high usage of local components. Europe and Japan understand each other all too well when it comes to managed trade. If the U.S. bears the burden of imposing sanctions, it should be prepared for Europe to crash the party later.
Who will gain or lose in the coming trade war? Of course, everybody loses. The U.S., a traditional proponent of open markets, has already lost the publicity campaign. But Japan is certain to suffer economically. Its stock market will fall when the public sees that the last protected franchise of Japanese companies--overcharging the domestic consumer--is coming under attack. For years, Japan has been lingering in near-recession. The coming trade war may push it over the cliff.
The U.S. is right to force the issue. If Europe had joined in earlier and if Japan had been more forthright, everything would have gotten on a less confrontational track years ago. Nobody in Washington believes Japanese promises anymore. In Tokyo, either the bureaucrats doubt U.S. determination or their nationalism leads them into a battle already lost. The U.S. has no choice but to push for open markets.