For Japan, the Big Trade Test is Now : Tokyo Shows Signs of Cold Feet on Tolerating Imports

The moment of truth is at hand for the Japanese. And, while it’s too soon for hard and fast judgments, they seem in danger of flunking the test. The world’s most successful exporting nation is showing unmistakable signs of reluctance to accept the real-life consequences of measures aimed at narrowing its enormous trade surplus with America.

As everybody knows, the United States is suffering the worst balance-of-trade crisis in its history. Last year we purchased almost $150 billion more in goods and services from other countries than we managed to sell. Japan alone accounted for close to one-third of that huge deficit.

The results are not entirely bad for the United States. Imports of high quality and relatively cheap cars, cameras, microwave ovens and video recorders have helped hold down inflation in this country.

But the cost includes abandoned factories, multitudes of displaced workers, the decimation of communities with shrinking payrolls and a drift toward putting control over America’s economic future into the hands of foreign creditors whose national self-interest may be different from ours.

To a major degree we brought all this on ourselves by failing to work hard enough, by paying too little attention to quality, by insufficient efforts to develop and maintain overseas markets and by failing to control a massive federal budget deficit.

It is also true, however, that the playing field is not exactly level. As a practical matter the Japanese have welcomed imports only of items that they don’t make themselves. More important, Japanese exporters benefit from a government-aided market-targeting setup that enables them to systematically undersell world competitors in product lines chosen for favorable treatment.

The Japanese ultimately responded to U.S. complaints by opening the door wider to imports of American cigarettes and telecommunications gear, among other things, and by conducting a campaign to persuade Japanese consumers that buying foreign products is not un-Japanese.

As one cabinet member told a group of leading Japanese businessmen lately, “Without expanded imports, there can be no healthy development for the Japanese economy from now on.”

The truth is, however, that even a wide-open Japanese market would make only a modest dent in the U.S. trade deficit with Japan. The greater need has been for measures to bring the dollar down to realistic levels, and to pump up Japan’s domestic economy in order to reduce the compulsive over-reliance of Japanese industry on foreign sales.

Certainly the Japanese citizen-consumer deserves a break. Although Japan is a world economic heavyweight, only 34% of Japanese communities have modern sewer systems. Half the road system is unpaved. Housing is inadequate. The average wage is about two-thirds the American level.

Prime Minister Yasuhiro Nakasone has accepted in principle the need for channeling more resources into the domestic economy. The need now is for substantive action, including major increases in public spending and hefty tax cuts to put more money into consumer pockets.

Meanwhile, to its credit, Japan has lived up to the Sept. 22 agreement with the United States, West Germany, Great Britain and France to help bring down the international value of the dollar. But a political backlash is having an effect.

Until recently an overvalued dollar put U.S. industry at an enormous disadvantage by making foreign goods cheaper in America and U.S. goods more expensive outside our borders. The purpose of the September decision was to turn things around--to make U.S. goods more competitive and Japanese and European goods less competitive.

Since September, Japanese banking authorities have stage-managed a 30% gain in the value of the yen versus the dollar. Although the effect so far has been modest, cries of pain are coming from Japanese exporters. And the government is listening.

Most experts believe that the U.S. economy will begin to enjoy major benefits from the cheaper dollar later this year. But a lot depends on whether U.S. manufacturers move to recapture lost market shares by holding down their own prices, or merely grab the opportunity to fatten profits.

So far sales of Japanese-made autos and other products are holding up despite the higher price tags that already are being posted. But the big manufacturers are complaining about a shrinkage of profits. And small exporters of chinaware and similar items claim that their existence is threatened.

The trauma being felt by Japanese producers is nothing compared to the pain suffered by their U.S. counterparts in recent years. Common sense tells you that the unacceptably huge Japanese trade surplus can’t be significantly reduced without some people getting hurt.

The ruling Liberal Democratic Party is nonetheless sensitive to the rumbles of alarm. In response the government implemented a new law making low-interest loans available to small firms whose export businesses have been damaged by the rising yen. More important, when the dollar fell last week to a postwar low exchange rate of 174.9, the Bank of Japan intervened to keep it from falling any further.

The Japanese vigorously deny U.S. congressional accusations that these actions are protectionist. As a government spokesman told the parliament, the yen’s appreciation had “gone too far, too fast . . . a 30% appreciation in five months is too big.”

Some U.S. economists, concerned that a too-precipitous fall in the dollar could trigger inflation and higher interest rates in this country, agree. Still, if the Tokyo government is going to be this sensitive to minor damage to Japanese export interests, you have to despair of its ever tolerating the really big adjustments needed in Japan’s trade balance.

Japanese business and political leaders must understand--as some of them obviously do--that if Japan’s laudable effort to deal with the trade surplus problem bogs down, President Reagan will find it impossible to fend off congressionally mandated restrictions on imports.

No doubt this is the message that Reagan will have for Nakasone when the Japanese leader visits Washington in mid-April.