Trend of the economy

Trying to cope with the economic powerhouse of Japan and its flood of exports is creating new tensions between the United States and Europe. Both Americans and Europeans suffer huge trade deficits with Japan and both have industries -- notably autos, steel and consumer electronics -- demanding relief from Japanese competition.

But how does either the US or Europe protect its home industries (if it should at all), without hurting each other in the process?

"No longer," says Sir Roy Denman, the Common Market's top trade official, "are American and European relations with Japan simply bilateral. Whatever one of us does about Japan affects the other."

A burning case in point -- what Sir Roy calls a "major bombshell" -- is Japan's grudging agreement, at US prodding, to ship 140,000 fewer cars to the United States this year than last.

Those cars, in the Europeans' view, are going to go somewhere and they foresee them rolling onto the docks of West European ports.

"In 1980," says Sir Roy, "the 10 members of the European community had an $11 billion trade deficit with Japan. That deficit, on an annual basis, was up 46 percent in the first four months of 1981," with autos leading the way.

As Europeans see it, US restictions of Japanese car imports had the unintended effect of shifting the American trade problem with Japan across the Atlantic.

Common Market members, as a first step, want an agreement limiting imports of Japanese cars into Europe, similar to that obtained by the United States. "So far," says Sir Roy, "the Japanese have not properly responded."

There EC member states -- Britain, France, and Italy (all major producers of small cars) -- curb imports of Japanese autos in various ways.The other seven do not and West Germany (whose luxury segment of the market -- Mercedes- Benz/BMW/Porsche -- is not challeged by Japan) is the least concerned.

Against this background, Japanese Prime Minister Zenko Suzuki is touring Europe, urging European governments not to try to solve their problems of unemployment and economic stagnation by shutting out foreign goods.

It would be, said Mr. Suzuki, "a suicidal act for industrial democracies to get protectionist or try to maintain the balance of payments through curtailment of trade."

Nonetheless, as his tour unfolded, Suzuki pledge to keep car shipments to the Benelux trio -- Belgium, the Netherlands, and Luxemburg -- approximately to the 1980 level and to allow auto exports to West Germany to rise no more than 10 percent above the 1980 mark.

This nibbles away, at least, at an immediate trade problem ruffling Japanese-European relations. But automobiles, TV sets, machine tools, and other items in controversy are symptomatic of underlying causes of tension, rooted in very different economic conditions.

Japanese leaders argue that their islands are more vulnerable to outside events and pressure than either Europe or the US, because Japan must import almost all of its fuel and raw materials and much of its food.

Under these conditions, Japan must export to survive and the whole Japanese economy is geared to producing high-quality goods able to shoulder their way into export markets.

This export drive, Assistant US Secretary of State Robert Hormats says, "comes at a time when both the US and Europe suffer from low rates of productivity growth, high inflation, and lots of people out of work."

Western governments are under great pressure to resist further erosion of jobs in domestic industries buffeted by Japanese imports.

"All this," says Hormats, "is a genuine cause of friction, aggravated by the sense that the Japanese market is insufficiently open to other nations' goods."

When Tokyo wants a foreign product, like American soybeans, no barriers are raised. In other cases, especially advanced technology and a variety of farm goods, Japanese industries are shielded at home from tough foreign competition.

What is lacking, Western officials say, is a tripartite forum, where Japan, Europe, and the US could discuss trade problems as they arise.

Europe and the United States, by contrast, have much experience in negotiating touchy bilateral trade issues, including the use of a telephone "hot line," often invoked by Hormats and Sir Roy, "usually in the middle of the night ," grumbles the latter.

Top American and European officials hope to use next month's economic summit meeting at Ottawa as a vehicle to begin to draw the Japanese into a framework of continuing consultations on trade problems.

"The idea," says Sir Roy, "is not to attack the Japanese at Ottawa, but to tackle the major issues that confront industrial power as whole."

"This year," says Hormats, "will be a major test of American, European, and Japanese ability to cooperate. Otherwise the tendency will be for each to make more and more bilateral arrangements, leading to a kind of creeping bilaterlism in world trade."

That can hurt in unintended ways, as transatlantic tension over Japanese car imports sho ws.