US-Japan trade clash looms as Japan's surplus rises

A "head-on clash between the world's two leading trade partners" is predicted this year as Japan heads for a probable record trade surplus with the United States.

Tokyo has just announced a record $1.76 billion trade surplus with the US for September, surpassing a previous monthly record, $1.35 billion, set in July.

Americans are warning of the approaching storm clouds, and the Japanese are well aware of the danger. But what to do about it?

Now some Japanese are recommending that Japan help ease the problem by giving the US a kind of foreign aid.

The Nikko Research Center, a much respected independent institute concludes, "The way to prevent the spread of protectionism . . . is for the nation enjoying and advantage to assist the nation in distress."

In a lengthy report publicized Oct. 13, the researchers declared that Japan should help the US in developing new growth industries such as semiconductors and computers -- areas where the US has enjoyed a substantial lead in the past but is now being quickly surpassed by joint government-private industry research and development here.

But, aside from such suggestions, the Japanese seem unable to stop making a profit on their international trade.

In a visit to Japan, US Agriculture Secretary John Block has failed to dent Japanese government resistance to buying more American grain, beef, and citrus fruits, according to an Oct. 14 Reuter News Agency report quoting Japanese officials.

This year the Japanese government confidently expected at least a $6 billion deficit in the current account. But the Midas touch has intervened again to make nonsense of the prediction. Instead, a surplus of at least $7 billion now seems certain, with the US and Western Europe contributing handsomely.

The US alone is expected to suffer a deficit with Japan of up to $15 billion this year.

A private US-Japan economic forum, known as the "Wisemen's Group," set up two years ago to study the trade problem, has concluded that even if Japan submitted to every single US demand in removing remaining tariff and nontariff barriers to imports, there would be little significant improvement.

The trade imbalance is structural, the experts decided. America is basically an exporter of raw materials, for which there is limited demand. Japan is a shipper of manufactured, high value goods, for which demand seem endless.

It boils down to this: Japan has more to offer the US consumer than vice-versa.

The Nikko think tank study found still other reasons why US manufacturing industries have lost their international competitive edge while Japanese industries have been sharpening theirs.

A slowdown in investment in new equipment, management policies aiming at shortterm returns on investment, decline in competition between companies, deteriorating labor quality, poor labor relations, and neglect of exports were all mentioned as major factors in American business stagnation.

Also mentioned were social and cultural factors like the declining work ethic resulting from changes in personal values and excessive social welfare. Also involved are declining quality of education, increase in crime, and a deterioration in social discipline, according to the report.

Some of the problems would have to be tackled by company managements, said the Nikko report, although a stronger government role was urged in curbing inflation, easing excessive regulations, fostering new industries and streamlining or eliminating "lame duck" sectors.

And where does Japan fit in?

The Nikko study suggested stepped-up Japanese investment in US-based production, raising the US content of production in Japanese owned firms, together with joint production ventures.

Technology transfers could include giving American companies advanced Japanese production know-how under license, providing expertise for the modernization of production lines and improvement of productivity and product quality, as well as efforts to transplant "Japanes-style management."

The report accepted temporary curbs on Japanese exports, but argued, "In the long run this would merely hamper American efforts for industrial revitalization.

Basically, the research center sees its proposal as a private industry effort with little necessity of government intervention, apart from establishing sensible overall economic policies that will make the "helping hand" program work.

The report admitted a Japanese advance into the US could have some adverse impact on domestic Japanese production and employment. Thus, careful handling of local union sensibilities would be vital. But it pointed to the cooperation of Japanese auto industry workers in "correctly grasping world industrial trends ," by making little fuss over government-arranged export curbs on automobiles earlier this year.