One way and another, the Japanese government has enough to keep it occupied at the moment without having to contend with the US Administration snapping mindlessly at its heels like an over-excited and silly terrier – and if the rattling of sabres from the Department of Commerce is an example of what President Clinton meant when he said that his Administration’s focus would be away from Europe and towards America’s Pacific neighbours, we can be heartily grateful on this side of the water. That the artificial trade barriers erected by the Japanese are a deep irritant to all their trading partners is beyond question, but the US is far from clean when it comes to protectionism – why should US West Inc be allowed to own 50% of Mercury One-2-One Ltd in the UK when British telecommunications companies are not allowed to hold more than 25% of a US carrier?

Penny parity

And the US Administration’s passion for managed trade, demanding minimum market shares in Japan for targeted products, is a very poor substitute for genuinely free trade, taking no account of genuine requirements and preferences of the customer, or of potential shortcomings among the foreign suppliers, and running the risk of alienating all America’s other trading partners not included in the party. The last thing the fragile economies of the developed world needs right now is a trade war between the US and Japan, not least because the threat of trade war has been enough to send the yen soaring against the dollar, so that it is within a whisker of so-called penny parity, where one yen is worth one US cent. With interest rates already down at 2% in Japan, there is not too much scope to cut further to put downwards pressure on the exchange rate, and while an expensive yen may make our exports to Japan even cheaper, the shellshocked, recession-sodden Japanese aren’t buying much of anything right now – and the twin threats of a high yen and US sanctions on specific Japanese exports will only make the Japanese recession even deeper, drive more of Japan’s manufacturing off-shore, and lead to a breaking down of the social contract that has kept the Japanese populace content since World War II, with unforeseeable but emphatically negative consequences. It’s as if Washington has no inkling of just how severe the recession in Japan really is, but for so many goods, manufacturing in Japan is becoming so uneconomic that when the recession finally eases, many of the plants on short-time working will never move back to full capacity: the work will have to be transferred offshore. The headline-grabbing, soundbite-thinking approach of the US trade negotiators completely ignores the fact that with every year that passes, the world’s developed economies become more and more interdependent, so that applying almost any distortion of trade, such as punitive sanctions, brings the law of unintended consequences into play in spades. Motorola Inc estimates that it may have lost $250m to $300m a year of business as a result of the clumsy Japanese favouring of the less advanced Nippon Telegraph & Telephone Corp cellular network over the digital network built by Motorola’s partner – but that $250m to $300m pales into insignificance when compared with the number of American jobs that depend on price-competitive imports of components from Japan: Cray Research Inc alone buys $100m of crucial chips a year from Japan, and while Japan would not miss that business, Cray would be in deep trouble if the things were priced out of its reach. Japanese investment in the US in

Acapulco

plants making everything from chips to cars is now enormous but suppose, as the US is threatening, it puts punitive tariffs on Japanese cellular telephones? A year ago, the only way the Japanese companies could hold onto their markets would be to establish a plant in the US. Now, with the North American Free Trade Agreement, a plant in Canada, or a plant in Mexico would do just as well. In normal circumstances, Japanese firms would still prefer to site the plant in the US, but if you are a Japanese company with no d

irect connection with, or benefit from, the Motorola network shut-out, suffering a giant kick in the profits from US sanctions, wouldn’t you consider the advantages of Acapulco or Toronto over Seattle? Japan does not want a trade war with the US, and is sufficiently sure of its ground over cellular market access that it is threatening to take the dispute to the General Agreement on Tariffs & Trade, and all the signs are that the weak and shaky coalition government of inexperienced politicians in Tokyo is united on just one thing – a determination not to capitulate to the US over trade this time. Apart from the fact that the US does not really have too much to be proud of in the area of free trade and open markets, with protectionism ready to raise its ugly head in Congress at every opportunity, the Administration shows even less understanding of Japan, the Japanese psyche and Japanese culture than its ignorant predecessors. The recession which threatens to plunge into depression – that followed the pricking of Japan’s Bubble Economy has exposed all the structural weaknesses in the Japanese industrial and commercial infrastructure, and Japanese dominance of any market looks much less total than it did five years ago. Its targeting of mainframes saw it achieve supremacy over US manufacturers just as the mainframe market began to disappear.

Playing the heavy

The US has retaken the lead in advanced semiconductors, and the only microprocessors that Japan can sell internationally are either commodity parts copied from obsolete Intel Corp parts or RISC families that were designed and developed, and are owned and controlled, by US companies. The US automobile industry has responded to and reached an accomodation with the Japanese car makers and no longer needs protection. Nobody is making money making ships or steel these days, and Japan may own the world consumer electronics market for now, but as the world isn’t buying compact disk players or stereos in any number at the moment, that is a bit of a hollow victory, especially as the South Koreans and the Taiwanese are coming up fast and China is not far behind. The cultural barriers to trade raised by Japan are a source of justified irritation on the part of all her trading partners, but trade war and sanctions are emphatically not the way to get them eased: now is the worst possible time in recent years to start playing the heavy with the Japanese when what is required is a much broader and deeper understanding of the country, its culture and its mechanisms than the Commerce Department currently exhibits. Doing one’s homework and embarking on persistent but patient diplomacy may seem like hard work compared with bellowing threats, but it is the only appropriate approach. If the sick world economy is to recover, it needs the Japanese economy to return to health: does the US Administration really believe that its own economy is so strong that it can afford to ignore the sickness in so many economies around it?