Japan's Trade Surplus Falling

SOOTHING THE JAPAN-BASHERS

June 22, 1990

LOST in the amazement over Japanese snatching up Renoir and van Gogh paintings at record-breaking prices is a bigger picture that Japan has become the Land of the Rising Imports. While not many Chryslers are yet to be seen on the streets of Tokyo, nonetheless imports are pouring into an economy that only recently has begun to be led by domestic demand. Last year, imports topped $100 billion for the first time.

Such a statistic is just one cool fact that Japanese leaders are trying to throw at a very hot trade dispute with the United States. Another is that Japan's trade surplus with the rest of the world fell 19 percent last year.

The Ministry of International Trade and Industry (MITI), which has guided Japanese industry to its commanding heights, is trying to spread the good news - in order to prevent any more protectionist walls from rising. On July 9, when leaders of the Group of Seven industrialized democraciesmeet in Houston, Prime Minister Toshiki Kaifu plans to tell them that Japan has lessened its export assault by boosting domestic demand.

``It's important to base trade relationships on these facts,'' says Kazukiyo Higuchi, MITI's director of international trade research.

As the new great ``absorber'' of goods from around the world, Japan's current account surplus as compared to its gross national product has dropped from a high of 4.3 percent just five years ago to 2.0 percent last year.

One reason for that drop was that American exports to Japan rose more than 60 percent since 1986, because of the yen's rising value and better market access. For the same period, the US trade deficit as compared to GNP dropped from 3.2 percent in 1987 to 2.0 percent, Japanese leaders point out.

Numbers vs. emotions

With statistical trends like that, why is there an increase of ``Japan-bashing'' in Washington, the Japanese wonder. They want to slice through the political emotions with hard numbers.

Before this shift in trade started in 1986, the US imported three times as much from Japan as it exported. Now that ratio between the world's two largest economies is only double.

Still, Japan and the US have some catching up to do. During the same period, US trade with the European Community improved from a 2-to-1 to a 1-to-1 ratio of imports to exports.

``But if the trend in trade continues,'' says Mr. Higuchi, ``the ratio for Japan should end up 1-for-1, too.'' He qualifies that to say that the yen's value must not change too much and domestic demand must remain strong.

Indeed, last year total imports into Japan rose 12.5 percent. That growth rate was lower than the hefty rises of 25.3 percent the year before and 18.3 percent in 1987. But the trend in import expansion, says the MITI researcher, ``is here to stay.''

The yen's steep rise in value since 1985 forced Japanese companies to shift their sales more and more to the home market. Steel makers now export only 20 percent of their product, compared to 30 percent five years ago. Last year, exports expanded only 3.9 percent, down from 15.6 percent the year before.

Manufactured imports up

More and more manufactured goods from developing countries, especially newly industrialized nations in Asia, are entering Japan - doubling in value since 1985. No longer is the majority of Japan imports made up of raw materials. Last year, manufactured goods made up over 50 percent of imports for the first time.

Along with this shift in its economic structure, Japan has enjoyed its second longest economic upturn in postwar history. For the past three years, ending with the fiscal year on March 31, the economy grew more than 5 percent per year. In the first quarter of 1990, the annual growth rate topped 10 percent.

``If domestic demand continues to expand, then the pressure to export will be suppressed,'' says Higuchi.

Still, Japanese leaders are frustrated that the bilateral trade imbalance with the US still hovers at about $46 billion to $49 billion a year. To correct the imbalance, the government began to offer tax incentives this year for Japanese companies to import manufactured goods, targeted especially at the US.

Japanese leaders say they are in a race against becoming political targets in US election campaigns for Congress this fall, and in 1992's presidential contest.