SHOWDOWN IN TRADE WITH JAPAN

RELATIONS between the two greatest industrial powers in the non-Communist world, the U.S. and Japan, are becoming increasingly strained. Japan's campaign to regain Okinawa is only a part of the problem. An acrimonious dispute over trade is moving to the point of showdown. The issue will be debated at a joint meeting of the U.S. and Japanese cabinet members in Tokyo this month, and again when Prime Minister Eisaku Sato meets President Nixon in Washington in November. The expanding argument centers on the protectionist policies of both countries, but the U.S. has brought the trouble to a head by pressing for quotas on textile imports.

New Barriers. However it is worked out, the textile controversy will affect the fabric of life in both nations, determining in part whether low-paid textile workers in the U.S. will be thrown out of jobs, whether inflation-weary U.S. consumers will have to pay more for their clothes, and whether the comfortably cooperative structure of Japanese industry will be changed and liberalized. More than that, the fight is likely to affect the future of the international movement toward freer trade.

That movement hit its high-water mark two years ago, when the Kennedy Round of world trade negotiations produced the deepest industrial tariff cuts ever made. Since then, protectionism has been staging a global comeback and has involved the U.S. in disputes with many nations. In Europe, a host of new nontariff barriers have partly offset the cuts in duties. Special taxes on imports last year helped West Germany to record a surplus in trade with the U.S. for the first time.

The U.S. has become increasingly alarmed by the shrinkage of its trade surplus from $7 billion in 1964 to less than $1 billion last year. Washington has reacted by putting up barriers against products as diverse as Mexican tomatoes and European and Japanese steel. Since January, Congressmen have filed 300 bills to restrict imports of lamb, baseball gloves, artificial sweeteners and other products.

While these moves have bruised feelings on all sides, no dispute is quite as emotional or contentious as that between the U.S. and Japan. The Japanese used to buy far more from America than they sold, but last year they sold $1.1 billion more to the U.S. than they bought (see chart, page 72). That was possibly the biggest trade deficit that the U.S. has ever registered with any nation. Altogether, Japan's exports in 1968 rose by 25%, and its shipments to the U.S. accounted for more than two-fifths of the gain. The reason, many aggrieved U.S. businessmen contend, is that Japan has been flooding American markets with goods made at far lower wage rates than any U.S. company could get away with paying. Some $400 million worth of textiles were notable among those exports. Southern Congressmen have set up a rising clamor for quotas to restrain the influx, and the textile issue has become a symbolic one.

Double Injustice. Though the Japanese complain about the injustice of textile quotas, they maintain a closed-door policy at home, shutting out considerable amounts of U.S. goods and capital. Two years ago, a committee of the Organization for Economic Cooperation and Development reported that "no other advanced country confronts the foreign investor with the sort of obstacles presented by Japan."

The Japanese still fear the introduction of many foreign products and ideas. They are particularly worried about the entry of U.S. firms, whose massive capital, modern sales promotion and advertising could upset the harmony and order that are so much a part of the Japanese way of life. Foreign firms might also challenge the cozy arrangements under which Japanese businesses divide up their home markets. As a result, the Japanese have erected a bewildering maze of restrictive regulations. Foreign-owned firms can make wire but not cable, cameras but not lenses, watches or clocks but not both. Imports of 120 items, including such U.S. specialties as computers and leather goods, are either banned or severely limited.

In trade talks last December, the Japanese were so uncooperative that the negotiations almost broke down. Out of dozens of items on the list for discussion, the Japanese agreed to liberalize imports of only chewing gum and pet food. In April, Japan eased restrictions on seven other items, but most were products as insignificant as boiled pig entrails. A veteran U.S. businessman in Japan explained with annoyance: "They said one day, 'Now you can make radios.' But when you read the fine print, it turned out that you couldn't bring in parts. You couldn't even make a crystal set. Then another round of liberalization came and, by God, now you can bring in parts--for a crystal set."

Concealing the Problem. The complaints are understandable, but the wisdom of fighting Japanese protectionism with U.S. protectionism is open to argument. Commerce Secretary Maurice Stans has warned that continued rapid growth of Asian textile imports in the 1970s could wipe out the jobs of 600,000 U.S. textile workers, including many undereducated laborers in Southern towns. On the other hand, efficient U.S. textile companies have managed to prosper in spite of import competition. Burlington Industries, Cannon Mills and J. P. Stevens & Co. have steadily increased sales and profits.

The chief cause of the deterioration in the U.S. trade balance has been inflation, which raises the price of U.S. goods and increases the lure of foreign products. Many a family has stretched its clothing dollars by turning to inexpensive Japanese blouses, shirts and suits. Shutting out imports, trade experts believe, would only perpetrate inefficiencies and inflationary policies.

Chances for a Deal. The Nixon Administration has committed itself so deeply to textile quotas, however, that the issue has become a test of its credibility. During his campaign, Nixon promised Southern voters that he would press for quotas, and now many businessmen believe that he owes them some import protection. The Administration has threatened to take unilateral action if it cannot persuade Japan and other trading partners to accept "voluntary" quotas. U.S. action could involve the revoking of textile-tariff concessions that have been granted in the past, or Congress could legislate quotas. Either way, a worldwide trade war might result, provoking retaliation not only by Japan but also by many other nations against a wide range of U.S. goods.

Fortunately, opportunities still exist for a compromise. Nixon himself has speculated that the U.S. might make concessions in its Okinawa policy if the Japanese accepted textile quotas. The U.S. might also be willing to make the quotas fairly liberal, provided that Japan would open its domestic economy more widely. Indeed, if the U.S. settled for mild textile quotas, the Japanese might permit U.S. auto firms to start joint manufacturing ventures in Japan, as Ford and Chrysler are already negotiating to do. Prime Minister Sato is expected to tell Nixon in Washington that the Japanese auto industry will be opened to outsiders by the autumn of 1971. Sato has urged Japanese business chiefs to make their economy freer for foreign competition, and more and more Japanese leaders realize that a first-class power must do just that.

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