Ignorant armies - U.S.-Japan trade dispute

National Review, June 26, 1995

IN 1892, Representative John De Witt Warner warned Americans against ``the protectionist habit of keeping such close watch of foreign nations as to forget the interest of the masses of one's own people.'' Bad habits die hard: A century later, the Clinton Administration is alleging that unfair Japanese practices reduce Americans' economic welfare, and proposing to retaliate by reducing it still more.

Japanese markets for autos and auto parts are closed. Yet, as Ramesh Ponnuru argues in The Mystery of Japanese Growth, published by the American Enterprise Institute and the London-based Centre for Policy Studies, Japan is not the island of protectionism in a sea of free trade that its critics allege. Japan-based managing executives of GM, Chrysler, and Ford have said that they consider the automotive market open, and Japanese imports of American-made cars have risen substantially in recent years. American trade negotiators complain that Japanese carmakers' exclusive dealerships make it hard for U.S. companies to break into the Japanese market. Japanese manufacturers retort that they have instructed their dealerships to take any import franchise they choose, and that the only openly exclusive distribution system in Japan is the one maintained by Ford. In any case, the dealership issue is largely beside the point: the Big Three already have twice as many outlets in Japan as all the European automakers combined, yet sell fewer cars -- perhaps because of the lack of right-hand-drive models. The Big Three's half-hearted efforts raise the suspicion that they have less interest in cracking the Japanese market than in convincing the U.S. Government to grant them more control of the American market. U.S. Trade Representative Mickey Kantor plans to bring his flimsy case against Japan to the World Trade Organization later this month. In the meantime, President Clinton has decided to impose a 100 per cent tariff on Japanese luxury cars. This tariff is supposedly intended to bludgeon Japan into ``opening'' the market for autos and auto parts. Truly opening markets to the world, however, would offer opportunities to European as well as American companies. Moreover, a free market cannot guarantee that the Japanese will buy as many American cars and car parts as the Administration wants. Since the Administration's goals are incompatible with an open market, it has pressed instead for an affirmative-action program for the Big Three. And just as racial and sexual quotas come packaged as ``goals and timetables,'' so this plan resorts to euphemism: the Japanese government is to establish a ``voluntary goal'' that, by 1998, 200,000 American cars will be sold each year. (Vehicles made in America by American workers for Japanese-owned companies will not count.) A similar ``voluntary plan'' will apply to auto parts. Finally, the Japanese government is to force auto manufacturers to sell Big Three products through their own dealerships. If Japan acceded to these demands, the world would take a giant step toward managed trade. But Japan will probably not give in, and the WTO will probably hold that the punitive tariffs on luxury vehicles are an impermissible breach of global trading rules. This decision will leave Mr. Clinton with two unpalatable alternatives. If he abides by the ruling and drops the tariffs, Pat Buchanan and Ross Perot will howl that the WTO has infringed American sovereignty. If he defies the WTO and keeps the tariffs, he will have set a precedent that other nations will be sure to follow. Routine defiance of the WTO will destroy its usefulness in preventing anti-American protectionism abroad and subvert an institution Clinton has labored mightily to create. In addition, Clinton will have escalated the quarrel with Japan to the level of a trade war: some autoworkers in Michigan might cheer him on, but the hundreds of thousands of American employees of Japanese auto companies, many located in California, will resent his favoritism toward the Big Three. America's perennial trade tiffs with Japan are geopolitically obtuse. This year's scuffle will not drive Japan and the U.S. apart. But Clinton and Kantor are playing with fire: a Japan that went its own way would destabilize all of East Asia, to the detriment of American interests in peace and commerce. Strategic and economic wisdom counsel against trade brinkmanship. There's only one way to win this trade war: send the soldiers home and let consumers declare victory.