WE are currently on the verge of a trade war with Japan. This conflict is the direct result of 40 years of failed trade policies and the inability or unwillingness of Japan to open up its domestic markets. Over the past decade, the United States merchandise trade deficit with Japan has ballooned to record proportions, with no relief in sight. It is now time to move beyond the failed "managed trade" negotiations of the past and push toward a new policy that will take advantage of the comparative economic strengths of both countries.
In 1987, then US Ambassador to Japan Mike Mansfield called for the establishment of a US-Japan free trade agreement to depoliticize trade issues and improve the economic relationship between two of the world's economic superpowers. This "bold" idea immediately captured the attention of businesses and politicians around the globe. Leaders in both countries called for studies on the advantages and disadvantages of free trade discussions.
Unfortunately, free trade momentum quickly evaporated into the fog of protectionist rhetoric and political one-upmanship. Congress rejected the concept of free and fair trade, preferring instead to wallow in the degenerative status quo.
Recent congressional trade legislation has continued to rely on confrontation and retaliation, as represented by the 1988 Omnibus Trade Act and the so-called Trade Expansion Act of 1992.
The future calls for a new vision of trade freedom. Domestic and global conditions that made US-Japan free trade negotiations somewhat tepid in the 1980s have now been dramatically transformed. Efforts to produce a multilateral trade agreement in Uruguay (as part of GATT) have largely failed, and global trade has begun a rapid devolution into regional trading blocs.
Europe, Asia, and the Americas have each developed a regional-exclusive trading relationship which, if unchecked, threatens to destroy international trading diversity and economic interdependence. Establishing permanent free trade with Japan is necessary to maintain our economic ties to one of the globe's strongest developing regions.
For the US, the primary benefit of free trade with Japan is unlimited access to a relatively untapped market of 124 million Japanese consumers. While Japan has the third largest economy in the world, Japanese private consumption ranks near the bottom in the industrialized world, according to a 1991 Organization for Economic Cooperation and Development (OECD) survey. In fact, Japan spends only 8 percent of its total gross national product on imports, a percentage far below the 19 percent average among maj or OECD countries. For years, the Japanese government has artificially suppressed its market.
This tiny island state has a hard enough time providing its citizens with their most basic needs. Yet their government's insistence on keeping foreign exports out has created artificial scarcities that do little more than raise prices for Japanese consumers. A free trade agreement allowing unlimited access to Japan's markets would be a bonanza for US exporters.
New jobs and new opportunities would be created in such high-value industries as construction goods, financial services, semiconductors, and software. Chrysler Chairman Lee Iaccoca estimated that without Japan's import restrictions, his company would sell upwards of 25,000 Jeeps and sport utility vehicles there per year, as opposed to Chrysler's current sales of 1,000 Jeeps. Farm experts estimate that access to Japan's agricultural market would spur a similar dramatic increase in American exports of wine s, rice, citrus, and specialty crops. American insurance and financial firms would also benefit greatly.
A major criticism levied against a free trade agreement with Japan is the potential loss of American jobs to increased competition from Japanese companies. But Japan already has de facto unlimited access to the US market. Free trade would not grant the Japanese any additional significant advantages in the US market.
The recently completed North American Free Trade Agreement (NAFTA) creates the largest free trade zone in the world. NAFTA contains tough rules of origin that impose higher tariffs on goods manufactured outside of North America, putting Japanese products at a competitive disadvantage.
In addition, after NAFTA is ratified by the Congress, the administration plans to initiate free trade discussions with Chile. These discussions may ultimately lead to a free trade zone stretching from Canada to Argentina. Without granting meaningful access to its own domestic markets, Japan risks being excluded from the most lucrative market in the world.
Now is the time to break free of the bureaucratic maze of memorandums, numerical quotas, and tariff retaliations that has characterized congressional trade action in the past. Now is the time to give American exporters the opportunity to compete abroad. In 1988, the New York Times described Ambassador Mansfield's proposal as "an idea searching for its time to come."
The search is over.