So I would like to turn the Chair over to Mr. Neal. Dr. CHOATE. Thank you, Madam Chairwoman. Ms. TOLCHIN. We are doing a new book on national security and trade policy. So I look forward to your hearings. Chair OAKAR. When is it coming out? Ms. TOLCHIN. Probably in 2 years. Unfortunately, books take a long time. Chair OAKAR. Well, if we could get a rough draft before then, we would like to have it. Thank you, Mr. Neal. Mr. Neal [presiding]. It didn't take me long to take over. I've only been here 10 months. It's a great system. You just move right up. [Laughter.] It's very clear that the two of you believe that we ought to take a much more aggressive position, and in fact your suggestions this morning are consistent with the argument that Jim Fallow has made here, and I'm frankly a supporter of the conclusions that you've drawn. We have watched the manufacturing base in my area erode, and in some measure we are responsible for that, but at the same time the playing field simply is not level. What would you specifically recommend in terms of an American response to the Japanese position, for example, that 6 months from now the American people will forget about what was just said and it's on to the next thing? Dr. CHOATE. Well, I think I would do two or three things. I think the first thing that I would do is remind them that public policy in America really moves very much in the way that an earthquake occurs. Great pressures are built up, they are ignored, and then suddenly there is a massive shift in direction. In this century we have seen this happen three times. We saw it happen in 1913 with New Freedoms with Woodrow Wilson, we saw it in 1933 with the New Deal, and in 1981 with the supply side revolution. I think it's going to happen again. The underlying unrest is revealed by polls, in addition to the data that you mentioned, betrays a great underlying uneasiness out there among the American people. I think they are going to demand changes. It really doesn't matter what the opinion leaks say or what the editorial pages say; that shift is going to come. Now the challenge is whether we can make such a shift constructive or destructive. It could go either way. The question is whether we should put into the place the intellectual underpinnings to make these changes in a reciprocal way with other nations. I think those who believe today's pressures will disappear are deluding themselves. They will not. The pressures simply build. The second thing that I would like to say is that it's imperative for our Government to recognize and acknowledge what other countries are telling us. They are telling us that their economic systems are different from ours, that their aspirations are different from our own, and that they are organized very differently from the way we are. It may not make sense for us to be economic missionaries-to attempt to force on every other nation a deregulated, open, American-style economy. We must ask ourselves how to expand trade with Japan, and not how we get the Japanese to adopt the laissez-faire bent of the American market. Put another way, I am one who is convinced that the SSI talks will not only fail, but that they actually will be a cause of greater friction between the United States and Japan. More specifically, we are asking the Japanese to change their distribution system-the distribution system that they have had for hundreds of years, a system that enables them to maintain a very low unemployment rate. Why should they wish to change that? It serves them very well. Rather than worrying about how to force such a fundamental internal change on Japan, we should concern ourselves with getting the Japanese to let in more American goods and buy more American services. To flip it around, what would we do if the Soviets came to us— though Russia's economy certainly is not performing as well as ours, and ours certainly is not performing as well as Japan's-and told us they wanted us to adopt their agricultural system because that system, in America, would benefit Russia; albeit at the expense of Americans. What would our response be? That is almost literally what we are doing to the Japanese. We are asking them to take a system that works very well for them and turn it into one that will work very well for us. They are not going to do it. Why should they? So it seems to me that we've got to proceed on a very different basis, a non-ideological basis, a pragmatic basis that conveys to Japan and to Europe that they are at a point at which they now have equal economic power. With this power comes responsibility. The difficulty that we have with Japan is that, by and large, we enjoy the deference that they show us, and they enjoy the dependence that they have upon us. Our challenge is to build an equal and a reciprocal, responsible relationship. We have let it drift so long that pain is inevitable in this adjustment process. I think our only consolation is that the pain will be less today or tomorrow than it will be if we put it off until 1992, 1993, 1994, or 1995. Mr. NEAL. Dr. Tolchin. Ms. TOLCHIN. One of the myths I was going to talk about and we've been functioning on for a long time is that trade policy and investment policy are different. According to that myth, those policies fall into two different categories. We are the only country that really believes this. Actually I admire the Japanese because they do connect the two in the way their government makes policy. For example, when we finally did drive down some of the barriers for our beef products and citrus products, the first thing that happened was the Japanese investors came over and started to buy up citrus groves in Florida and beef processing plants in the West. So in effect they will be exporting to themselves and losing an opportunity to reduce the trade deficit. I think the Japanese are very strategic about this and I admire it. I also admire the fact that they make the connection between economic stability and national security and the notion that there are some industries that they retain in their national interest. But at the same time there are so many opportunities to reduce those barriers, particularly with regard to investments, that to delay any longer is only to exacerbate what is now increasing friction between the Japanese and the United States as witnessed by the reaction to the two major purchases I talked about earlier. I think part of that reaction-and I have traveled all over the country looking at plants-is the fact that the Americans are finally recognizing that there is not a level playing field, that the Japanese are not playing fair with regard to our products, our goods and services and our investments. American investors have succeeded in Japan, but by and large if it's an industry that the Japanese want to keep, such as high tech, it's very, very difficult for Americans to invest without a majority Japanese partner. This happened recently to Chrysler. The Chrysler Corporation tried to set up a jet leasing concern in Japan, and they were told if they wanted to make this investment they had to have a majority Japanese partner. The United States has the largest welcome mat in the world, and I hope we keep it. At the same time I cannot understand why we are so naive, why we resist forcing down some of those barriers through our trade negotiations. Only recently have our trade negotiators begun to address investment barriers abroad. They are substantial, and removing them would help reduce the trade deficit. Dr. CHOATE. May I just add a comment to that? I think it's important for us to recognize that we must deal with Canada in a very different way, for example, from how we would deal with Brazil, and we must deal with Korea and Japan in very different ways from those used to deal with West Germany. Our efforts must reflect the differences in their political systems, their cultures and the organizational structures of those countries. What we have attempted to do in our policies is to have one program that we apply everywhere. The second point I would make is that I think it's a mistake for us to call the U.S./Japan relationship the most important bilateral relationship in the world. I would argue that we could probably make that same statement about Canada or Mexico; certainly we have a larger economic relationship with Canada than we do with Japan, and Mexico is another serious trading partner of ours, with whom we may soon have a more extensive economic relationship than we do with Japan. We could perhaps also make the same statement with Europe, considering what is happening there today, particularly in Eastern Europe. All this will probably have a major impact upon our relationships with the Soviet Union, which is certainly an important, if not a central relationship. The danger of elevating one relationship over others, of making it the "most important bilateral relationship," bar none, is that the focus of our policymaking becomes singular: To maintain that relationship. What we have seen time and time again is that defense and foreign policy issues have been given a priority over economic issues, and what we find in our diplomacy is that maintaining our relationship with Japan, whatever it may be, effectively becomes a pri ority below which all else falls. This sense of policy priority, time and again, has permitted Japanese diplomacy to make every bilateral economic issue a test of the U.S./Japan "special relationship." We are getting ourselves into a political and intellectual trap that we should break out of very quickly. Mr. NEAL. I want to thank you both. And also as a former college professor, it's always nice to have witnesses that agree with your conclusions. [Laughter.] Dr. CHOATE. And vice versa, Mr. Chairman. Mr. NEAL. The purpose of this session having been accomplished, this subcommittee stands adjourned. [The hearing adjourned at 11 a.m., subject to the call of the Chair.] |