An economic Pearl Harbor?

THE DECEMBER 7 anniversary, coming amidst signs of economic weakness in the U.S., has renewed fears of Japan's unstoppable economic expansion" at the expense of an America that, in the words of a recent New York Times op-ed piece, "cannot cope with Japanese power or fathom Japanese intentions." The author, Karel van Wolferen, warns that "believers in the wonders of natural' free-market forces must understand the unnaturalness' of the arrangements in the Japanese political economy . . ."

Mr. van Wolferen is not alone. Many erstwhile free-traders believe that efforts to lower Japan's formal import barriers are pointless: Japan's governmental-industrial complex will prevent even the most efficient foreign firm from penetrating the domestic market. The only agreements that will work under such conditions are those that manage trade--granting American manufacturers a specific share of the Japanese market, while limiting Japanese exports to this country.

But the facts don't support this view. While Japanese cars, VCRs, and camcorders are ubiquitous, in fact Japanese bought more U.S. products last year-$395 per person--than Americans bought Japanese products-$359 per person. In 1990 Japan imported $49 billion of U.S. goods-second only to Canada's $84 billion, and far ahead of our next largest market, Mexico, at $28 billion. More importantly, Japan devotes a larger share of its GNP to the purchase of imports from the U.S. (1.7 per cent) than we devote of our GNP to the purchase of imports from Japan (1.6 per cent).

Since peaking in 1987, Japan's trade surplus with the U. S. has fallen by $15.3 billion, or 27 per cent. U.S. exports to Japan grew 33.4 per cent in 1988, 18.2 per cent in 1989, and another 9.2 per cent in 1990-faster than the growth of exports to the rest of the world. Nor is it a case of Japanese buying our raw materials, and selling us the finished products. Nearly two-thirds of U.S. exports to Japan are manufactured goods-chemicals, aluminum, aircraft, scientific instruments, computers, and many other products. About half of these-30 per cent of all U.S. exports to Japan-are considered "high tech" by the Commerce Department.

By many criteria the economic interdependence has benefited the U. S. more than Japan. Some 350,000 Americans currently work for Japanese-owned companies. Some of them--Firestone and Columbia Pictures come to mind--were in serious financial trouble before the Japanese invested in them. Japanese auto companies now produce more than 1.7 million cars and trucks in the U.S. each year, many of which are exported to Japan. And the Japanese technology and management skills acquired via joint ventures with Japanese steel companies virtually rescued the U.S. industry in the early 1980s, when one-fifth of America's steel-producing capacity was in Chapter 11. Although smaller than it once was, the American steel industry is again internationally competitive.

Attempts to keep Japanese products out of the U.S. have hurt us more than they've helped. Since 1984, for example, steel-import restrictions have saved an estimated 17,000 jobs in the steel industry. But industries that use steel, like producers of farm and construction equipment, have lost 54,200 jobs as a result of the higher cost of steel, according to a study by the St. Louis-based Center for the Study of American Business. More recently, a 63 per cent tariff on Japanese computer screens forced the American-based computer manufacturers that use the component either to cease production or, in one case, to move operations to Japan.

If standard of living is the criterion by which an economic regime is judged, furthermore, Japan Inc. has not done well at all. Although Japan's per-capita GNP is slightly above our own, prices of most goods are far higher in Japan. In terms of real purchasing power, the Japanese consumer is only 60 per cent as well off as his American counterpart.

-- ED RUBENSTEIN

COPYRIGHT 1991 National Review, Inc.
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