Toyota's Balance of Trade With US

PRESIDENT Bush has left Japan with some agreements meant to open Japan's markets to United States products. No doubt the agreements will be widely condemned - in Japan as unnecessarily kowtowing to the US, and in the US when it turns out that the deals aren't improving our balance of trade with Japan.

Now is a good time to ask why this seems to happen over and over again. Many Americans believe that the answer is simple protectionism - that Japan's government is implementing a policy of protecting Japanese industry. However, the hallmark of Japan's government isn't its strength of purpose but its weakness.

Imagine how our federal government would work without a president to set an overall policy - a government in which Congress essentially ran the show, and its committee chairmen gave orders directly to the bureaucracy. That's about how Japan's government works - except that it outdoes even the US Congress in factional infighting, in the endless search for campaign contributions, and in the rigidity of it iron triangle of legislators, bureaucrats, and business interests.

It's no wonder we have trouble getting Japan's government to make and enforce trade agreements that its big companies don't like. That's about as easy as getting Congress to agree on a way to balance the US budget.

Nor is the problem some overarching conspiracy against American products. Sure, US companies with high-quality products have trouble breaking into Japan's markets, but so do many of Japan's own manufacturers. Honda won a big share of the US market just by making an excellent automobile. It did far less well at home, where the big established auto companies use dealer networks and other structural impediments to restrict all competitors, domestic and foreign.

To its credit, the Bush administration is negotiating to eliminate Japan's most obvious structural impediments to compe- tition. But even if these talks are successful (and recent progress has been glacial), they won't stop powerful Japanese companies from lobbying for new competitive restraints. The same is true here; even tax reform and the budget deficit haven't stopped Congress from handing out special tax breaks every year to influential constituents. Like ours, Japan's government will never stop do ing favors for big companies.

So maybe we're negotiating with the wrong people. Maybe we should eliminate the middleman and start dealing directly with Japanese companies themselves.

We could start be requiring each of the big Japanese keiretsu to report its corporate balance of trade with the US. How much did they and their affiliates import into the US and how much did they export from the US? I would bet that the US runs a bigger trade deficit with Toyota (and its affiliates) than with at least 100 nations.

Affiliates and captive suppliers have to be included in the reports to catch companies whose "Made in America" label means "assembled here from Japanese components." The reports should also take into account third-country sales, both to credit companies for their US subsidiaries' exports to Europe and elsewhere and to prevent companies from hiding their overall trade surplus by shifting sales to Thai and Mexican subsidiaries.

Of course the reports would have to be audited. But we already have a cadre of talented Commerce Department professionals with plenty of experience auditing foreign manufacturers, although we're wasting many of them doing audits around the kitchen tables of Colombian farmers accused of dumping flowers in the US market.

How should we use such reports? The results should be public, and the companies ranked based on their contribution to the US trade deficit. That will give the big Japanese companies a chance to compete for our government's favor, not just Japan's. If Honda exports its US-made autos to Japan and in turn gets special access and consideration from the US trade representative, Toyota will take notice. And it may decide to follow suit.

If we need a stick as well as a carrot, there are plenty available. But let's not be too quick to say how we'll punish the worst performers. In trade matters, the fear of retaliation almost always works better than retaliation itself. Still, let me propose this sanction: Make the poorest performer on the corporate balance-of-trade index set aside space outside its US headquarters where each Democratic presidential candidate can film campaign spots. Whether in Japan or in the eyes of the Bush administrati on, becoming known as the Japanese company doing the most to elect a Democrat as president would be the ultimate disgrace.

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