What Is Causing the Problem?

“THE countries are embroiled in a geopolitical game of chicken,” reported The New York Times early this year. The United States had allowed its dollar to slip further against the Japanese yen and the German mark on account of the still-rising trade deficit. Thus the Times report continued: “Each is trying to force the others to make changes in domestic policies . . . [to] help bring trade into better balance.”

Why has the shrinking of the dollar not brought about the hoped-for improvement in international trade relations? What causes the United States to continue tallying up such a large trade deficit? And why have countries like Japan and West Germany continued to enjoy rising trade surpluses against the United States in spite of the rising value of their currencies?

These are questions to which leading economists around the world are trying hard to find answers. In any case, it is clear that there is more to solving the world’s trade woes than tinkering with the value of the dollar. Meanwhile, charges and countercharges between the trading partners have reached a politically and economically explosive pitch.

Mounting Trade Friction

Many people in the United States, for example, feel that while the United States has opened its markets to foreign trade, other countries​—Japan and, to a lesser degree, West Germany and others—​have not reciprocated. Instead, they say, these countries use unfair trade practices to promote exports and protect their own markets from imports. As a result, they feel, U.S. jobs are lost and livelihoods ruined. This has caused considerable friction, even animosity, between the United States and her trading partners.

Then there is the complaint that Japanese companies pay their workers such low wages, compared with their U.S. counterparts, that they can afford to undersell their competitors overseas. On the other hand, to break into the Japanese market, foreign companies must deal with the traditional and private trade customs, the complicated distribution and tax systems, the quality standards, the language barrier, the Japanese sense of likes and dislikes, and the reluctance to accept foreign goods. All of this, say the foreign businessmen, leaves them at a great disadvantage.

Such grievances were epitomized by the U.S. secretary of commerce, Malcolm Baldridge, when he declared in a speech to a body of leading Japanese businessmen in Tokyo: “Japan cannot continue to live with its trading partners on the basis of ever-increasing exports and slow or static imports. By almost any measure, Japan has great power in the world economy but has not taken the responsibility that comes with that power.”

The Countercharges

The Japanese businessman, on the other hand, points to the quick-return mentality of his U.S. counterpart. Whereas a Japanese is willing to follow a long-term view, the U.S. businessman has to make immediate profit to satisfy his stockholders. For example, in 1970 both U.S. and Japanese companies embarked on expensive research on how to put into production the idea of using a laser to play recordings of music and to reproduce pictures. Soon, the U.S. companies dropped out for lack of results. A Japanese company, however, pushed on and became a major force in the billion-dollar digital compact disc business.

An important factor in the trade imbalance, according to the Japanese, is that their society is savings oriented, whereas the U.S. society is consumption oriented. On the average, the Japanese save four times as much as the Americans, and their total savings surpass 30 percent of their gross national product.

Typically, the Japanese feel that their competitive edge lies, not in lower production cost, but in higher productivity and better management. An American observer notes that “worker productivity at the five biggest American steel companies, for example, is almost a third lower than at their Japanese counterparts. That means that even if the wages in the two countries were equal, American steelmakers still could not compete with the Japanese in a truly free market. And neither, for that matter, could American auto-makers.”

As for the charge that they resist the importing of foreign goods, many Japanese feel that this is simply not true. They claim that they have always welcomed imported goods provided the foreign manufacturers have adapted their products to the Japanese taste. For example, one U.S. toy maker redesigned a doll, giving it a more modest figure, shorter legs, and dark-brown eyes. It sold by the millions. Similarly, a U.S. soft-drink company gained 60 percent of the soft-drink market in Japan by making its drink sweeter​—just what the Japanese wanted. Foreign companies that employ such marketing strategies have been immensely successful.

Some in Japan even feel that the whole matter of trade deficit is blown out of proportion by the United States to take the blame off their own poor performance. Since Japan has only half the population of the United States, they point out, the Japanese will probably never consume as many U.S. goods as Americans consume Japanese goods. Furthermore, they feel that the figures often quoted are misleading because they do not include value of goods and services sold by U.S. owned or controlled companies in Japan. One consulting firm reports that there are 3,000 such businesses in Japan and that in 1984 the top 300 of them sold 44 billion dollars’ worth of products in Japan.

This shifting of U.S. business overseas to take advantage of cheap labor aggravates the trade imbalance. More and more, TVs, computers, cars, and other products with U.S. brand names are being made in Japan, Mexico, Taiwan, and elsewhere, and they are being sold on the U.S. market. This translates not only into U.S. jobs lost, say the Japanese, but also into inflated “import” figures.

So it seems that each side has legitimate reasons to complain about the other or to justify its own actions. However, while such charges and countercharges continue to fly, there is little sign that the trade war, or the trade imbalance, is abating. Perhaps the nations are just looking at the symptoms. The real cause of the tense trade relations lies deeper.

The Real Cause?

Suppose more merchandise flowed from one state to another within the United States or from one prefecture to another in Japan. Would that cause a trade war or an economic crisis? No. This is because consumers do not care where the products come from as long as they get quality with low price. What, then, makes the difference when it comes to international trade?

“Economic nationalism” is the way Asahi Shimbun, a major Japanese newspaper, puts it. Rather than being concerned about the world economic health, each nation is primarily concerned with its own welfare. “The Japanese perception that only locally made products are quality . . . is deep and fundamental,” observed the head of American Telephone and Telegraph International in Tokyo. The same can be said of the Americans, the Germans, the British, and just about any other people. The nations are divided in more ways than one.

Actually, the trade woes and the shrinking dollar are but symptoms of a system plagued with war, violence, nationalism, selfish ambition, and, above all, hopelessness. Is there anyone who can rid the world of these formidable barriers and restore health not only to the world’s economy but also to every aspect of our lives?

[Picture on page 7]

Could higher productivity by Japanese workers be contributing to the trade deficit with Japan?