Japan: The Modernization of an Ancient Culture
by Lawrence C. Wolken
Much attention has been given recently to the trade frictions which have developed between Japan and the United States. It is no coincidence that this change in attitude began during the 70s when both countries faced a variety of domestic economic problems. When a recession hits, it is only natural for a nation to blame someone else for its problems. During the 60s while the economy was strong, the American people focused their attention on social issues like poverty, on environmental issues like clean air and water, and on America’s involvement in the Vietnam war. As inflation and unemployment began to rise during the early 70s, Americans looked for someone-preferably foreigners- to blame for their economic problems. It was easy to blame OPEC and the oil companies for the energy crisis and the accompanying shortages, the long lines at gas stations, and rising prices. It made little difference that the shortage and long lines were the result of governmental price controls. High unemployment rates in the automobile and steel industries were blamed on Japanese imports. Congress responded with quotas and trigger prices. Apparently it did not matter that many Americans preferred the quality and price of Japanese products and that trade restrictions reduced consumers’ choices and increased the prices paid for these products.
The Japanese readily admit that the vitality of their economy is highly dependent upon maintaining strong economic and political ties with the United States. In 1980, for example, one fourth of Japan’s exports went to the U.S. and over 17 percent of her imports came from America. No other country has as significant an impact on Japan’s foreign trade-the life blood of the country. There is a great deal of truth to the saying that when America coughs, Japan catches a cold. Fully aware of their dependence on the United States, the Japanese feel they have made every effort possible to maintain friendly relations between the two countries. However they are afraid that America may be losing interest in this friendship.
Japan’s concerns date back to three changes in U.S. foreign policy which occurred during the early 70s. They are referred to as the Nixon shocks. On the diplomatic front, President Nixon changed long-standing U.S. policy and suddenly announced to the world he was opening relations with China. The Japanese did not object to this move itself but felt they should have been notified ahead of time about such a major change in foreign policy. Second, in an effort to stabilize the value of the dollar, President Nixon asked the governments of America’s allies not to turn in the dollars they held to the U.S. Treasury in exchange for gold. France ignored the request while Japan was one of the few nations which honored it. When the United States suddenly announced it would no longer sell gold to foreign governments and that the dollar was being devalued, the Japanese felt they had been betrayed. The third incident involved soybeans, an important part of the Japanese diet. When the soybean crop was smaller than expected, America restricted exports to foreign countries, including Japan, and used the soybeans for cattle feed. It was very difficult for the Japanese to understand how a country could place more importance on feeding its own cattle than on feeding people living in another country. These three incidents raised serious questions in the minds of many Japanese concerning the extent of America’s commitment to the previously strong ties between the two countries. Economic events during the early 80s did little to reduce their fears.
Trade Frictions – Japan’s Side of the Story
Relations between the two countries have deteriorated partly because of the different points of view Japan and America have concerning foreign trade. The United States tends to concentrate its attention on trade between individual nations, particularly merchandise trade. For example, the American press has long given much attention to the fact that the United States imports more Japanese goods than it exports to Japan. This situation resulted in a trade deficit of $10 billion in 1980. Figures like these help sway public opinion toward imposing trade restrictions on Japanese goods. In contrast, Japan prefers to look at a country’s worldwide trade figures. They quickly point out that the United States enjoyed a $17 billion trade surplus with European nations during 1980. This more than offset the deficit it had with Japan that year. To be consistent, the United States should voluntarily take the same steps to reduce its surplus with Europe that it demands Japan take in restricting its exports to America.
The Japanese also feel that concentrating on merchandise trade alone is misleading. In addition to automobiles, steel, raw materials, machinery, and the like, nations purchase a wide variety of services from each other. This invisible trade includes such things as travel abroad and income from foreign investments. When these are included, a different picture of a nation’s position in world trade often emerges. In 1981, for example, the United States had a deficit of almost $28 billion in its global merchandise trade, but enjoyed a surplus in invisible trade of $32 billion, including a $3 billion surplus with Japan. Thus, the United States had an overall surplus of $4 billion. Japan’s situation was just the reverse. It enjoyed a merchandise trade surplus of $20 billion and a services deficit of $14 billion, leaving it with a surplus of $6 billion.
Some American critics attribute much of Japan’s economic success to the government’s industrial policies and the subsidies which are a part of those policies. The Japanese respond by pointing out that government intervention in its economy is far less than that practiced in many Western nations. The government’s industrial policy provides the private business community in Japan with forecasts of emerging industries which show promise of future success on the world market. The government then provides the infrastructure necessary to encourage the development of these promising industries. In this way Japan is simply attempting to improve its economy under an open market system rather than a government controlled economy. To support this view, they point out that government expenditures in Japan, as a percent of GNP, are the same as in the United States (roughly 33 percent) and are lower than that for most European nations- approximately 45 percent in England, France and West Germany. In addition, no private companies have been nationalized in Japan while government ownership of major industries is a common practice in many European nations.
The Japanese feel that all nations follow some form of industrial policy because the market mechanism cannot deal effectively with problems like pollution control, energy conservation and technological development. In the United States, for example, the federal government plays an influential role in such high tech areas as semiconductors, machine tools, and computers. Private industry in these areas are subsidized by the technological advances which result from programs funded by the Defense Department and NASA. In addition, the tax incentives which exist in the United States for equipment investment and expenditures on research and development are quite similar to those in Japan. The Japanese therefore feel that criticisms of their government’s industrial policy are far too simplistic and sweeping and that Japan’s actions must be viewed in their proper international perspective.
Japan’s Protectionist Measures
Many Western nations have accused Japan of trying to improve its economy by expanding its export trade abroad while at the same time protecting its domestic industries with high tariffs. The Japanese readily admit that they have more trade barriers than would exist in an ideal free market economy. However, once Japan’s trade practices are compared to those of other Western nations, the Japanese market is far less protectionist than the critics claim. The average tariff imposed on goods imported to Japan is approximately the same as those imposed in the United States and is typically less than those prevailing in the European Economic Community (Common Market).
In addition the Japanese quickly remind foreigners of the many reductions in trade barriers which the government has accomplished in recent years. Many of these have been the result of negotiations with other nations under the General Agreement on Tariffs and Trade (GATT) which was established in 1947 to encourage a worldwide reduction in trade barriers. It is disturbing to the Japanese when the United States ignores the internationally sanctioned rules established under GATT and makes direct demands on Japan to open its markets to American goods or reduce Japanese exports to the United States. In 1981, for example, the U.S. government demanded that Japan voluntarily reduce its exports of automobiles to 1,680,000 or face even tougher restrictions imposed by Congress. One study estimated that this “voluntary” reduction increased the price of a Japanese car to the American consumer by $1,900. This type of tactic is completely outside the framework of GATT.
Joint ventures in the United States between Japanese and American firms are a recent attempt to ease the trade frictions between the two countries. The United States hopes such ventures will result in jobs for Americans and will reduce the trade deficit. Japan hopes they will reduce the anti-Japanese sentiment in the United States. Along with many benefits, these ventures have also caused some problems. When Toyota and General Motors signed an agreement that would reopen an automobile plant in Fremont, California, the stage was set for a confrontation between the United Auto Workers and the Japanese managers of the plant. The UAW insisted its laidoff members be given priority in hiring workers for the plant. Toyota felt it was under no obligation to agree to such a practice. To further complicate matters was the fact that before the plant had closed, its workers had operated under a national UAW agreement that is 251 pages long. The UAW had 30 committeemen on the floor of the Fremont plant whose sole job was to see that the agreement was administered properly. Such a practice contrasts sharply with the way the Japanese manage their own plants. Finding acceptable compromises to problems like these is essential if these joint ventures are to be successful.
From the Japanese point of view, they are the ones who have made all the trade concessions in recent years while Americans represent themselves as being the advocates of free trade. About the only trade barriers which are admitted to by the American press are those in the steel and automobile industries and they are justified on the grounds of protecting American workers. Few Americans are aware that the United States has over 900 pages of tariffs and quotas. Coverage ranges from a wide variety of agricultural products to such specific items as cigar bands, kites, toothpicks and clothespins. For this reason, many Japanese feel that the United States is not, in reality, the free trader it often claims to be.
The Agricultural Sector
Japan is frequently criticized by Western nations for its policies designed to protect Japanese farmers. Many in the United States feel the trade imbalance between the two countries could be greatly reduced if Japan would only open its doors to agricultural exports from America. They argue this would also benefit Japanese consumers by lowering the cost of food (particularly beef). Many Japanese realize this but are all too aware of the difficulties of enacting such a change. Many members of the Japanese Diet owe their political future to the farm vote. In addition, there are strong sentiments within Japan to support the agricultural sector so that the country does not become dependent upon foreign sources for its food supply. America’s restrictions on soybean exports during the early 70s is commonly cited as an example of what may happen if Japan becomes dependent upon foreigners for its food supply.
The Japanese counter a charge of protectionism by explaining that problems associated with governmental support of agriculture are not unique to Japan. Most nations provide assistance for their farmers in a variety of ways; tariffs, quotas, price supports and tax subsidies to name a few. In September, 1982, for example, the Common Market governments paid their wheat farmers $5.27 a bushel, plus 79¢ for transportation costs. Because this was almost twice the world price, the Common Market provided an additional subsidy of $2.53 per bushel for exported wheat in the hopes it could then compete on the world market. Farmers in the United States receive government assistance in the form of price supports and Executive Marketing Orders which allow producers to reduce the supply of a product in an effort to increase its price. American sugar growers, for example, received a support price of 18¢ per pound when the world price was 9¢. The amount of citrus fruit that reaches American consumers is determined by a board controlled by the growers. Trade restrictions keep Australian beef out of the United States.
Whenever possible, the Japanese government condemns the rise in protectionist feelings which have occurred around the world in recent years. By giving in to these pressures, each nation contributes to a reduction in world trade. This will inevitably hurt the world economy and therefore adversely affect the economies of all nations. As an alternative, Japan’s government calls for a reduction of trade barriers between nations through GATT and encourages international cooperation leading to free trade, investment, exchange of technology, and joint research and development projects.
Trade friction between the two countries has spilled over into the area of national defense. There is a growing feeling in the United States that Japan should increase its defense spending but not to the extent where it would become a regional military power. Many Americans argue that the Japanese have been able to expand their economy because they have not had to divert resources into building up their own military. However, few Americans are aware of the efforts of the Japanese government in recent years to increase defense spending. This has not been easy. The peace treaty signed after World War II clearly states that Japan is opposed to the concept of war and will not build up its own military. It has no Army, Navy, or Air Force. It must rely instead on its Self Defense Force which has expanded in recent years. Another factor contributing to this problem is the limit of 1 percent of GNP placed on defense spending by the Diet. This reflects the strong anti-military feelings which still exist in Japan. The situation is made even more difficult because the government is trying to cut back on its spending in an effort to reduce the deficit while facing considerable pressure to stimulate the economy by expanding public works programs.