Showdown: Japan v. Europe

Londoners tooling along the Thames in their Toyotas, Parisians strolling by the Seine listening to their Sonys--innocent signs, it would seem, of the healthy bustle of global commerce. But to European officials worried by sluggish growth and high unemployment in their home economies, the omnipresence of Japanese products is a clear and present danger to production and jobs. In 1970 countries in the European Community bought $300 million worth of goods more than they sold in trade with Japan. In 1975 the trade deficit was more than $3 billion, and in '76, reckons the nine-nation group, it will exceed $4 billion. For the past two months, the Europeans have been pushing the Japanese hard to reduce the imbalance, but not enough has yet been accomplished to remove the threat of a trade war between the non-Communist world's second and third mightiest economies.

The Japanese and European economies are by nature competitive rather than complementary, since their manufacturers make the same types of products--but the Japanese place a greater stress on foreign sales. Since World War II, aided by a supremely motivated work force and a gigantic worldwide marketing-intelligence network, the Japanese have made exports the cutting edge of industrial growth. Kinji Yajima, an economist at the Tokyo Institute of Technology, says frankly: "The very efficiency of this Japanese machine makes it ruthless."

At the same time, Japan has a deep-seated psychological aversion to importing. Many European imports are considered luxurious indulgences, and are priced accordingly. A fifth of Johnny Walker Black can cost $25.50 (v. $11.90 in Manhattan); imported Italian shoes for men easily run to $110. Common Market members also charge that their efforts to sell to Japan are hamstrung by nontariff barriers to trade. For example, European auto manufacturers (who export a mere 26,000 cars to Japan, v. the 400,000 the Japanese ship to the Nine) complain about a cumbersome maze of customs procedures, pollution and safey requirements, and baffling testing regulations.

Responding to continuing cries from the West, the Japanese were already taking some steps to reduce their trade surplus before the latest dustup. For instance, in 1977 as in '76, Tokyo will limit steel exports to the Community to 1.4 million tons. But at Common Market headquarters in Brussels, these steps have been viewed as too little, too late. In November, over lunch in Brussels, European Commissioner Finn Olav Gundelach warned Japanese Deputy Foreign Minister Bunroku Yoshino that Japan would have to submit a comprehensive plan to right the trade imbalance or face retaliation. The Europeans, for example, could slap extra import duties on Japanese goods that they suspect are being "dumped"--that is, sold in Europe at lower prices than in Japan.

Big Grab. On Thanksgiving Day, Tokyo replied. It proposed to hold Japanese auto exports to Britain to 10% or less of the British market, to increase quotas on imports of European skimmed milk, butter and cheese into Japan, and to line up more Japanese importers of processed meats and retailers of imported tobacco. Most encouraging to the Europeans, the Japanese also agreed to negotiations on shipbuilding, the sorest issue of all. In the first nine months of 1976, Japan grabbed 86% of all shipbuilding contracts awarded in industrialized countries. European shipbuilders claim that the Japanese can underbid them by 30% to 40% because the Japanese yards get hidden government subsidies.

The shipbuilding talks opened in early December, but quickly deadlocked. The Japanese offered to restrict themselves to building 6.5 million of the 12 million tons of vessels that world shipping lines are expected to order for delivery in 1980. The Europeans demanded that the Japanese trim down to 4 million tons--and, as a first step, split all tonnage ordered in 1977 and '78 fifty-fifty with European yards. The Japanese refused, and clung to that position in talks last week with a European delegation that visited Tokyo. The Europeans, in response, have set two new deadlines: Japan must offer an acceptable compromise on shipbuilding by mid-January, and must detail an overall plan to reduce its trade surplus before the next Common Market summit meeting in February.

The talks from here on will be watched with anxiety by the whole industrialized world. The global economy is still afflicted with a slowdown that could turn into recession (TIME, Nov. 29); it needs a growing volume of trade to help end the doldrums. A trade war between Japan and Europe is one of the last things it can afford.

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