THE PRESS THURSDAY, APRIL 23, 1987. U.S. dispute with Japan

Press, 23 April 1987, Page 20

THE PRESS THURSDAY, APRIL 23, 1987. U.S. dispute with Japan

The 100 per cent tariff that the United States has imposed on SUS3OO million of Japanese exports to the United States is far more than a signal to Japan. It amounts to a punitive trade measure. Nothing like this has occurred Since the early 1970 s when the United States imposed a 10 per cent tariff on imports because of its anger with Japan. That trade dispute was worsened because the United States took a series of actions, including a visit by President Nixon to China and the abandonment of the American guarantee to exchange gold for dollars. Japan was upset because it felt that it should have been consulted first on both matters. In trade terms, the step taken last week was a great deal more severe, although it applies to a limited range of goods. Nothing is more certain than that matters will not stay the way that they are; the moves will intensify or some resolution will be reached. The core of the dispute is the same as it was in the 19705. The United States then found that its former trade surplus with Japan had turned around and was running into a deficit. The United States had begun to grapple both with Japan’s challenge as a manufacturer and its challenge in marketing skills. The bilateral deficit has now risen to SUS6O billion and the total United States trade deficit has come to exceed SUSISO billion. The United States holds that Japan is unfair in the way in which it exports and in the way it protects its own markets. The imposition of the tariffs is to attempt to make Japan change its methods in exporting and importing. The specific complaints and demands are that Japan is subsidising its exports to third markets, that it has not opened up the Japanese market to make it easier to export to Japan, and that Japan should take more exports from developing countries. The present dispute has given rise to international fears of a major trade war. The measures taken so far may fairly be described as trade war measures but they are not widespread. But there is an important difference between what is happening now and what happened in the 1970 s and in times of world depression. The thrust of the American actions at present is to increase world trade and to increase the opportunities for the United States to export more. It is fundamentally an open-market policy. The motivation during the 1970 s was much more protectionist. Although the moves did not come to much, they contained more of the type of protectionist threat that could bring about a

serious world depression. A vitally important aspect of the present situation is that the intention behind the move by the United States is that trade will be freer, not more restricted.

This is not to say that all will necessarily turn out well in the present dispute. The path to protectionism can as easily be paved with good intentions as the path to anywhere else. One of the dangers is that the longer the dispute continues the greater is the possibility that the American demands will increase; that instead of specifics, the dispute will provide a grab-all for everything that the United States sees as wrong with world trade and that the settlement of the dispute will involve nothing less than a complete cure for world trade problems. If the United States Administration manages to keep a tight hold on the dispute, this should not happen. If the politicians take the initiative, there is no saying what could happen.

New Zealand could be affected in a number of ways by the dispute between Japan and the United States. These two countries are two of New Zealand’s largest trading partners and, if the dispute intensified, there must be effects on this' country. A worst-case development would be retaliation by Japan, or that the dispute would linger and, even if protectionism were not the driving force in the beginning, the forces of protectionism would be let loose and the whole world would suffer. Another possible and bad development would be that Japan would stop lending to the United States and this would certainly help to bring about a depression in the United States. The world desperately needs the United States commitment to free trade. No other country makes the pace on that issue. A more optimistic view of the outcome would have the United States at least partly successful in having the Japanese commit themselves to a more open market. This would set the mood for the new General Agreement on Tariffs and Trade negotiations which have begun. No-one is expecting that the United States will drop the tariffs quickly. The Japanese Prime Minister, Mr Nakasone, who will be visiting Washington at the end of the month, will no doubt try to solve the dispute; but even the rapport that exists between President Reagan and Mr Nakasone is unlikely to solve the dispute. However, the Nakasone visit, and efforts, being made to limit the damage, are good signs that the two economic giants are not going to rush headlong into prolonged confrontation.