4,257 37.6 1, 534 13.6 2, 345 20.7 367 3.2 11, 316 36.8 10, 533 11.5 23, 141 25.3 4, 282 23.0 50, 988 16.2 107, 036 33.9 3,625 4.7 91, 430 315, 569 1970. 1 Food and live animals: Live animals; meat and meat preparations; dairy products and eggs; fish 2 Beverages and tobacco: Beverages; and tobacco and tobacco manufactures. 3 Crude materials, inedible, except fuels: Hides, skins and fur skins, undressed; oil-seeds, oil nuts 4 Mineral fuels, lubricants and related materials: Coal, coke and briquettes; petroleum and petro- 5 Animal and vegetable oils and fats: Animal oils and fats; fixed vegetable oils and fats; and animal and vegetable oils and fats, processed. 6 Chemicals: Chemical elements and compounds; crude chemicals from coal, petroleum and gas; dyeing, tanning and coloring materials; medicinal and pharmaceutical products; perfume materials, toilet & cleansing preparations; fertilizers, manufactured, explosives and pyrotechnic products; plastic materials, etc.; and chemical materials and products, not elsewhere specified. 7 Manufactured goods classified chiefly by material: leather, leather manufactures, not elsewhere 8 Machinery and transport equipment: Machinery, other than electric; electrical machinery, ap- 9 Miscellaneous manufactured articles: Sanitary, plumbing, heating and lighting fixtures; furniture; Source: Compiled from official statistics (trade series C) of the Organization for Economic Cooperation and Development by the USITC. Fifth, the failure to increase exports to Japan may also reflect a certain lack of attention to the entire Pacific market. Unbeknownst to most Americans, the Pacific Basin (even excluding trade "South of the Border") has become one of our largest areas of trade, as the following table shows. Yet the United States remains largely concerned with the older, traditional markets, and in our opinion, has not focused adequately on the dynamic economies and opportunities of the Far East and Asia. Further, failure to compete in Japan's home market gives her industries a "free ride" domestically, and makes it more difficult to compete with her businessmen in other Asian markets and the United States. Finally, the following table on the relative economic performance of Japan and the United States may help explain part of our trade problems with Japan. COMPARATIVE ECONOMIC DATA FOR JAPAN AND THE UNITED STATES, 1975–79 Notes: p=preliminary estimate; NA=not available; percentage changes are computed on a year-to-year basis. Source: Based on International Monetary Fund, International Financial Statistics, and U.S. Department of Commerce, International Economic Indicators. Contained in "Anti-Inflation Policies in Japan," by Dick Nanto, CRS, Library of Congress, May 20, 1980, Rept. No. 80-100E. Japan's economic success, shown in these growth figures, has been phenomenal. As MITI notes: Today Japan accounts for 10 percent of GNP of the world, even though Japan has only 3 percent of the world's population and 0.3 percent of the world's land. Though on a stock basis Japan is still behind industrialized countries, on a flow basis, its per-capita national income has reached 90 percent of that of the United States, exceeding the average of the EC countries.1 1 Source: "The Vision of MITI Policies in 1980s," March 17, 1980, p. 4. THE YEN/DOLLAR ROLLERCOASTER: CONTRIBUTOR то TRADE TENSIONS For some time, the yen/dollar relationship has been severely unbalanced. In Japan the cost of dollar goods (imports) has been artificially high, and in the United States the cost of yen products (exports) has been unusually low. As the "Economic Report of the President" 2 politely stated: The substantial depreciation of the yen is perhaps the most striking aspect of exchange market developments during 1979. Some portion of the decline may represent a reversal from the overshooting during the yen's previous period of appreciation, but the reversal went beyond that... Changes in long-term trade volume in response to exchange rate changes are large, however, and the actual depreciation of the yen may have exceeded the requirements of the adjustment process. Bank of Japan Governor Haruro Mayekawa this spring more bluntly called the yen's swing "totally inexplicable in terms of economic reasoning". 3 Since the end of fixed exchange rates, the yen has been described as a currency that ricochets from one extreme to another-it seldom shows moderation in its relation to the dollar. The yen's swings have been dramatic and rapid. For example, on October 31, 1978, the yen appreciated to a level of 176 to the dollar. By April 6, 1980, the yen equalled 264 to the dollar, but as of late-August, its exchange rate has recovered to about 225 to the dollar. The yen's recent volatility can also be seen by the following data: SWING BETWEEN LOW AND HIGH IN AVERAGE MONTHLY DOLLAR RATES Source: Frank A. Southard & William McC. Martin, "The International Monetary System in Transition," the Atlantic Council of the United States, Washington, D.C., May 1980 (p. 44). The impact on trade of such changes in exchange rates can dwarf all other tariff and non-tariff barrier issues. Exchange rate changes clearly have an enormous impact on the size of our bilateral trade deficits and on the competitiveness of particular products. For ex CEA, January 1980 (p. 175). 3 Nihon Keizai, May 20 1980 (p. 11). Another way of looking at it, of course, is that the dollar depreciated. ample, a leading U.S. steel analyst recently noted the rollercoaster changes in the competititveness of U.S. versus Japanese products: In early 1977, Japanese steelmaking costs were judged to be about 17 percent below the U.S. level; in the fall of 1978 the figure was +8 percent; just a few months ago (when the yen weakened to 260/dollar versus 220/dollar at present) the figure was about -23 percent; while the current figure appears to be about -13 percent.5 It takes a considerable period of time before these currency relationships are reflected in major changes in export and import orders. As a result, we predict that this year and early next year our trade deficit with Japan will balloon as the impact of past currency maladjustments is finally reflected in trade statistics. 6 Since these yen/dollar fluctuations contribute substantially to increases and decreases in our bilateral trade deficits, they can exacerbate the trade tensions between the two countries. It has been proposed that the two countries' economists meet more frequently to discuss exchange rate patterns and disturbances in the hope that this would permit earlier and more effective yen/dollar defense measures. The international stabilization of a currency vis-avis domestic economic policies can be very difficult, complex, or ineffective. Still, given the impact of excessive fluctuations of the two currencies relative to each other, we urge that more attention be given to understanding and moderating these swings. 5 Peter F. Marcus and Karlis M. Kirsis, "The Steel Strategist," Paine Webber Mitchell Hutchins Inc., June 1980 (p. 1). The yen's excessive "cheapening" has also resulted in enormous profits for Japanese exporters to the U.S. For example, it has been re ported that Japanese autos can be sold with a small profit at ¥190/$1. When the exchange ratio is ¥250/$1, there is an extra ¥60 profit per dollar of auto sale. This may help explain the resistance of Japanese auto firms to calls for export restraint and/or investment in the U.S. For example, an article in Nihon Keizai of July 1, 1980 reported on the profits of Toyo Kogyo: "A drastic improvement in the company's export profitability offered a great contribution to Toyo Kogyo's coffers in the first half of the current one-year period. "The company's gross profits in the April 1980 period ran up to ¥92.2 billion, up more than ¥23.2 billion over the corresponding period a year ago. "A highly placed executive of Toyo Kogyo stated that the company easily made up for the ¥1 billion cost increases with ¥9 billion extra profits. These were brought about by stepped-up production and ¥15 billion benefits resulting from the generally bearish movements of the yen." [Emphsis added.] • We understand that econometric studies exist predicting an increase in the bilateral deficit to an annual rate of about $15-$16 billion by the beginning of next year. We have not been able to confirm these studies. Chapter III: Status of Bilateral Trade Problems: Some Progress/Some Failures/Some More To Do As the Task Force report of January 2, 1979, stressed, one way to reduce the unacceptable trade imbalances is for Japan to buy more from the United States. The earlier report listed a number of trade barriers, however, which blocked the sale of competitive American products, and thus increased our bilateral trade deficit. This report reviews past problems, discussess the progress to date, and cites remaining areas requiring attention. A description of major, recent bilateral trade agreements follows: STRAUSS-USHIBA JOINT STATEMENT, JANUARY 13, 1978 The Strauss-Ushiba Joint Statement sought to develop common policies to facilitate adequate adjustment to changing global and United States-Japan economic relationships. The following moves were agreed upon as necessary to avert increasing unemployment and protectionism: (1) major steps to achieve high levels of noninflationary, economic growth by both nations; (2) bilateral renunciation of accumulating a large current account surplus; (3) conclusion of the Tokyo Round of the Multilateral Trade Negotiations (MTN); (4) achievement of deeper-than-formula tariff reduction on pertinent items to achieve comparable average levels of bound tariffs; (5) the increase of imports of manufactures by Japan (including references to specific commodity problems); (6) additional development assistance by both nations; and (7) continuation of efforts to resolve economic and trade problems. See appendix C for the full text of this key agreement. SUCCESSFUL CONCLUSION OF TOKYO ROUND MULTILATERAL The latest Multilateral Trade Negotiations, which were initiated in Tokyo in September 1973, were concluded in April 1979 at the GATT headquarters in Geneva, Switzerland. The United States and Japan are participants in all the major agreements of the MTN. The Congress implemented U.S. participation in July 1979, and the Diet gave final approval in April 1980. As our Committee's report (H. Rept. 96-317) on the MTN notes: The Tokyo Round of Multilateral Trade Negotiations is the most ambitious trade negotiation ever attempted. Its results are far reaching in terms of reducing trade barriers and establishing new rules of conduct for international trade. Increased discipline over the use of trade distorting subsidies and dumping practices, of discriminatory product standards and of government procurement restrictions will encourage an expansion of world trade on a more fair basis, and provide a greater potential for U.S. exports. Each multilateral agreement plus the Texts Concerning a Framework for the Conduct of World Trade provide a greater understanding of the rights and obligations of all trading nations and establish improved dispute settlement procedures. A new international set of rules for customs valuation and for import licensing will simplify procedures for traders and elimimate restrictive practices. (11) |