Page Two

In 1985 the United States imported from Japan products worth $40 billion more than the products it exported to Japan. Despite international efforts to equalize trade between the countries, in 1986 the U.S. trade deficit with Japan grew to $58 billion!

Why is there such a growing trade imbalance? How does it affect you? Why can the consequences be dangerous? What is the lasting solution to the problem? The following “Awake!” articles consider such questions.

Trade War​—How It Affects You

AN AMERICAN missionary in Japan received $2,000 from his mother in November 1985 for a vacation trip back home the next summer. Had he exchanged the money right away, he would have received 400,000 yen, at the rate of 200 yen to a dollar. Instead, he decided to wait until he was ready to purchase his plane ticket in July 1986. By then the exchange rate was down to 160 yen to a dollar, making his money worth only 320,000 yen. He lost 80,000 yen (about $500, U.S.) just by holding his money for seven months. What would have been enough for airfare for him and his wife turned out to be far short.

International travelers are not the only ones affected by the shrinking of the U.S. dollar. If you have purchased any goods imported from Japan or Western Europe lately, you have probably felt the pinch too. Surveys show that imported cars, cameras, watches, even wines and cheeses, have gone up anywhere from 10 to 20 percent in price in the last year. A quality Japanese camera selling for $400 in October 1985, for example, sold for $450 in June 1986, a jump of 12.5 percent. “Additional exchange rate fluctuations will probably result in more price increases than we’ve seen from what’s happened so far,” says a U.S. financial analyst.

Higher consumer prices constitute but one side of the picture. Industries in Japan and West Germany are hard pressed by this economic turnabout. Even though the price of that same camera jumped from $400 to $450 in U.S. currency in a few months, it actually fell from 98,000 yen to 78,000 yen in Japanese currency. Thus, it was reported that one of the biggest electrical manufacturers in Japan loses $30 million each time the value of the dollar goes down one yen. The effect is similar in the auto, steel, textile, and other export-dependent trades.

To remain competitive the industrial giants resorted to heavy cost-cutting and reduced-profit margins. Smaller companies unable to bear the loss went bankrupt. The Mainichi Shimbun, Tokyo’s leading newspaper, reported that 292 firms went under between October 1985 and August 1986. As a result, Japanese workers last year received the smallest wage increase in 31 years​—an average of 4.5 percent. And unemployment reached 2.9 percent of the work force, the highest since 1953. It is feared that the rate “may worsen to 7%-8%,” according to the chairman of the Japan Federation of Employers’ Associations.

Result of Trade Imbalance

But why did the dollar shrink? Simply put, it was due to trade war in the very competitive world of international business. Some nations manage to export more goods than they import, resulting in a trade surplus. Canada, for example, has an annual trade surplus of $18.6 billion, and Japan exported goods worth $82.7 billion more than the goods it imported in 1986.

On the other hand, countries like the United States now import far more goods than they export. It is easy to see what this situation does to a country’s economy. The resulting trade deficit creates serious unemployment problems and deals a blow to its economic stability.

Realizing that the economy of the world depends largely on the soundness of the U.S. economy, finance ministers and banking magnates of the five leading industrial nations met in September 1985 and agreed to depreciate the U.S. dollar against the major currencies of the world. The idea was that with the value of the dollar lower, goods from the United States would be cheaper and more competitive in other countries. This would boost U.S. exports. At home, demand for imported goods would decline, as these would now carry higher price tags. The net result, theoretically, would be to reduce the U.S. trade deficit.

Since the launching of the plan, the value of the U.S. dollar has fallen about 20 percent against the mark, the yen, the franc, and other major currencies. But has this turned the tide as far as the trade imbalance is concerned? “Despite the adjustments in exchange rates, the bilateral trade deficit will not be reduced this year,” said Malcolm Baldridge, U.S. secretary of commerce, in a speech to Japan’s business and government leaders last year.

Indeed, imported goods continue to be as attractive to U.S. consumers as ever. Reports show that about as many Japanese autos, for example, were imported by the United States in 1986 as in 1985. Since the price per auto went up, but the total number imported remained about the same, the net effect was that the dollar value of imports continued to go up rather than come down. The U.S. trade deficit jumped from a total of $118 billion in 1985 to a record $175 billion in 1986, about a third of this huge deficit being in trade with Japan!

What is happening in Japan and the United States is also happening in other places. The trade war affects all of us. What is its cause? What can be done about it? And is there a lasting solution?

[Picture on page 3]

Why did the cost of a quality Japanese camera increase from $400 to $450 in U.S. currency within a few months?

What Is Causing the Problem?

“THE countries are embroiled in a geopolitical game of chicken,” reported The New York Times early this year. The United States had allowed its dollar to slip further against the Japanese yen and the German mark on account of the still-rising trade deficit. Thus the Times report continued: “Each is trying to force the others to make changes in domestic policies . . . [to] help bring trade into better balance.”

Why has the shrinking of the dollar not brought about the hoped-for improvement in international trade relations? What causes the United States to continue tallying up such a large trade deficit? And why have countries like Japan and West Germany continued to enjoy rising trade surpluses against the United States in spite of the rising value of their currencies?

These are questions to which leading economists around the world are trying hard to find answers. In any case, it is clear that there is more to solving the world’s trade woes than tinkering with the value of the dollar. Meanwhile, charges and countercharges between the trading partners have reached a politically and economically explosive pitch.

Mounting Trade Friction

Many people in the United States, for example, feel that while the United States has opened its markets to foreign trade, other countries​—Japan and, to a lesser degree, West Germany and others—​have not reciprocated. Instead, they say, these countries use unfair trade practices to promote exports and protect their own markets from imports. As a result, they feel, U.S. jobs are lost and livelihoods ruined. This has caused considerable friction, even animosity, between the United States and her trading partners.

Then there is the complaint that Japanese companies pay their workers such low wages, compared with their U.S. counterparts, that they can afford to undersell their competitors overseas. On the other hand, to break into the Japanese market, foreign companies must deal with the traditional and private trade customs, the complicated distribution and tax systems, the quality standards, the language barrier, the Japanese sense of likes and dislikes, and the reluctance to accept foreign goods. All of this, say the foreign businessmen, leaves them at a great disadvantage.

Such grievances were epitomized by the U.S. secretary of commerce, Malcolm Baldridge, when he declared in a speech to a body of leading Japanese businessmen in Tokyo: “Japan cannot continue to live with its trading partners on the basis of ever-increasing exports and slow or static imports. By almost any measure, Japan has great power in the world economy but has not taken the responsibility that comes with that power.”

The Countercharges

The Japanese businessman, on the other hand, points to the quick-return mentality of his U.S. counterpart. Whereas a Japanese is willing to follow a long-term view, the U.S. businessman has to make immediate profit to satisfy his stockholders. For example, in 1970 both U.S. and Japanese companies embarked on expensive research on how to put into production the idea of using a laser to play recordings of music and to reproduce pictures. Soon, the U.S. companies dropped out for lack of results. A Japanese company, however, pushed on and became a major force in the billion-dollar digital compact disc business.

An important factor in the trade imbalance, according to the Japanese, is that their society is savings oriented, whereas the U.S. society is consumption oriented. On the average, the Japanese save four times as much as the Americans, and their total savings surpass 30 percent of their gross national product.

Typically, the Japanese feel that their competitive edge lies, not in lower production cost, but in higher productivity and better management. An American observer notes that “worker productivity at the five biggest American steel companies, for example, is almost a third lower than at their Japanese counterparts. That means that even if the wages in the two countries were equal, American steelmakers still could not compete with the Japanese in a truly free market. And neither, for that matter, could American auto-makers.”

As for the charge that they resist the importing of foreign goods, many Japanese feel that this is simply not true. They claim that they have always welcomed imported goods provided the foreign manufacturers have adapted their products to the Japanese taste. For example, one U.S. toy maker redesigned a doll, giving it a more modest figure, shorter legs, and dark-brown eyes. It sold by the millions. Similarly, a U.S. soft-drink company gained 60 percent of the soft-drink market in Japan by making its drink sweeter​—just what the Japanese wanted. Foreign companies that employ such marketing strategies have been immensely successful.

Some in Japan even feel that the whole matter of trade deficit is blown out of proportion by the United States to take the blame off their own poor performance. Since Japan has only half the population of the United States, they point out, the Japanese will probably never consume as many U.S. goods as Americans consume Japanese goods. Furthermore, they feel that the figures often quoted are misleading because they do not include value of goods and services sold by U.S. owned or controlled companies in Japan. One consulting firm reports that there are 3,000 such businesses in Japan and that in 1984 the top 300 of them sold 44 billion dollars’ worth of products in Japan.

This shifting of U.S. business overseas to take advantage of cheap labor aggravates the trade imbalance. More and more, TVs, computers, cars, and other products with U.S. brand names are being made in Japan, Mexico, Taiwan, and elsewhere, and they are being sold on the U.S. market. This translates not only into U.S. jobs lost, say the Japanese, but also into inflated “import” figures.

So it seems that each side has legitimate reasons to complain about the other or to justify its own actions. However, while such charges and countercharges continue to fly, there is little sign that the trade war, or the trade imbalance, is abating. Perhaps the nations are just looking at the symptoms. The real cause of the tense trade relations lies deeper.

The Real Cause?

Suppose more merchandise flowed from one state to another within the United States or from one prefecture to another in Japan. Would that cause a trade war or an economic crisis? No. This is because consumers do not care where the products come from as long as they get quality with low price. What, then, makes the difference when it comes to international trade?

“Economic nationalism” is the way Asahi Shimbun, a major Japanese newspaper, puts it. Rather than being concerned about the world economic health, each nation is primarily concerned with its own welfare. “The Japanese perception that only locally made products are quality . . . is deep and fundamental,” observed the head of American Telephone and Telegraph International in Tokyo. The same can be said of the Americans, the Germans, the British, and just about any other people. The nations are divided in more ways than one.

Actually, the trade woes and the shrinking dollar are but symptoms of a system plagued with war, violence, nationalism, selfish ambition, and, above all, hopelessness. Is there anyone who can rid the world of these formidable barriers and restore health not only to the world’s economy but also to every aspect of our lives?

[Picture on page 7]

Could higher productivity by Japanese workers be contributing to the trade deficit with Japan?

Is There a Lasting Solution?

PRIME MINISTERS and presidents have talked about it. Business leaders and banking heads have tried their hand. Executives of giant corporations have done what they could. But what is the present state of international trade?

From Washington, D.C., comes this report by the Secretary of the Treasury, James Baker: “While projections suggest some reductions in those [trade] imbalances in 1987, they may well increase again in 1988 and remain at politically and economically unacceptable levels.”

From Seoul, South Korea, is this news item: “Anti-American sentiment has been rising among dissidents and students in South Korea, partly because of what they see as American protectionist moves against Korean products. . . . The United States was trying to sacrifice Korea to help to cut its trade deficit.”

Concerning Europe, we have this report: “The 12-nation European Community [EC], the world’s biggest trading bloc, . . . says Japanese companies are trying to make up for lost sales in the United States by exporting more to Europe . . . [Member nations of EC] are worried about more unemployment as a result of imports, and they are threatening fresh curbs against Japan.”

Clearly, even though the political leaders and financial ministers of the world have tried hard, their ideas have not worked. Trade relations between the nations continue to worsen, and the rounds of accusations are reaching the point of ignition.