Another Look at Trade
Another Look at Trade
There will be a trade bill, and like all protectionist
legislation before, it will do much more harm than good. At
worst (and there are numerous historical precedents for this) the
new trade bill could start a downward global economic spiral
resulting in war.
Before Congress plunges our country into a restrictive trade
abyss, let's look at some surprising facts:
1. We treat Japan, and its supposedly nefarious, mercantilist
ways, as the problem. It's not; we are having
difficulties everywhere. Although our negative trade balance was
$59 billion with Japan last year, it was also a staggering $33
billion with the European Economic Community. Likewise, we
chalked up a deficit of $30 billion with the Four Tigers (South
Korea, Taiwan, Singapore and Hong Kong), $23 billion with Canada
and $9 billion with Brazil and Mexico.
2. There are other ways of looking at U.S.-Japanese commerce.
Business consultant Kenichi Ohmae presents an original view in
his book Beyond National Borders. In 1984 (the situation is now
somewhat worse) Ohmae observes that the average Japanese spent
$583, or 6 percent of his or her disposable income, on American
goods, while the average American spent only $298, or 2 percent,
on Japanese goods.
These per capita numbers included not only officially tallied
manufacturing exports and imports, but the equally important
sales by U.S. subsidiaries in Japan (corrected for percent of
ownership) and by Japanese subsidiaries in the U.S.(such as the Honda
and Nissan operations). In 1984, Japan exported $57 billion to
the U.S., and its subsidiaries in U.S. sold $13 billion, for a
grand total of $70 billion. U.S. managed only $26 billion in
exports back to Japan, but our top subsidiaries raked up $44
billion in sales, for an exact same total of $70 billion. (Ohmae
adds that his numbers are conservative. For instance, they don't
account for formidable flow of royalties that come to the U.S. in
return for technology licensed to Japan.) Within these numbers
there is also a challenge to the stereotypical image of Japanese
shipping us high-tech goods, while we send back leaf tobacco. In
fact, the share of our exports to Japan that are manufactured
goods went from 30 percent in 1977 to more than 50 percent today.
U.S. Senate staff economist Robert Mottice, after making a
similar analysis, reaches kindred conclusions regarding all of
our trading partners. He does not factor in subsidiary sales, but
does look at the per capita impact of exports in manufacturing
alone. Take the Canadians. The average American spends 1.74
percent of his or her per capita income on Canadian goods; the
average Canadian spends a whopping 14.26 percent on U.S. goods.
Or take Taiwan, whose goods absorb 0.44 percent of our per capita
income, while our products absorb 7.82 percent of theirs. In
Germany, whose per capita income has outstripped ours by a wide
margin for a long time, the two figures are 0.53 percent, versus
1.45 percent of their income absorbed by our goods. In this
perspective, we Americans should feel a little less picked on.
3. In electronics, an industry said to be a key to our future,
we retain a 70 percent share of the world computer market. Our
share of the world semiconductor market, causing so much tooth
gnashing lately, is still a vibrant 57 percent, when you take
into account the production (for their own consumption) by IBM,
AT&T and the like. The Japanese, by contrast, hold just a 15
percent share of the world semiconductor market.
4. What if all our dreams came true? That is, what if the
Japanese acceded to all of our requests to open their markets?
Estimates, of course, vary, but most economists argue that we
would only reduce our trade deficit with Japan by some $5
billion, or 10 percent. For instance, if Japan relaxed import
restrictions on 22 types of agricultural products, that would
contribute just $1 billion to our trade balance there. Better
access to Japan's semiconductor market would add just about the
5. Japan has been isolated for centuries. Its market-opening
progress in absolute standards is not up to snuff, and Japan
must, even insiders say, become a more mature player in the
global economy. Still, Japan's pace of market opening, even in
finance, is extraordinary relative to the past.
Moreover, some of our market-cracking barriers are self made;
that is, others are doing better than we. For instance, our
exports to Japan rose by just 12.6 percent in 1986 despite the 20
percent decline in the dollar against the yen (and an over 60
percent decline since 1985). European exports soared by 57.3
percent -- and the yen appreciated eight times faster vis-a-vis
U.S. currency, compared with appreciation relative to European
currencies. (Most experts attribute the dramatic rise to Europe's
export of higher value products, such as upscale automobiles,
whereas U.S. product quality is not so trusted by the Japanese.)
Exports to Japan by South Korea, Taiwan and Hong Kong rose 29, 39
and 40 percent, respectively.
Taken together these figures should give pause to our Capitol
Hill lawmakers. Trade is a complex issue, with subtle
interdependencies growing at an exponential rate. One should
tinker with trade flows cautiously to say the least.
(c) 1987 TPG Communications.
All rights reserved.