Japan Gets the Message

Cabinet shake-up responds to American anger over trade

Complaints that Japan is flooding world markets with cheap exports are hardly new, but never have they been as vehement as this year. With good reason: partly because Japan's home economy--the third biggest in the world, after the U.S. and the Soviet Union--has shown little growth, its industrialists have launched a spectacularly successful export drive. Despite a rapid climb in the value of the yen, which should raise the price of Japanese goods in world markets, the nation's surplus of exports over imports is heading toward a record $15 billion this year, draining money out of the economies of the U.S. and Western Europe.

Foreign anger has been sharpened because Japanese Premier Takeo Fukuda has been promising for months to slash the trade surplus, yet nothing has happened. Last week something finally did. Faced with the real possibility that the U.S. and Europe would take protectionist moves to block the flow of Japanese goods into their markets, the 72-year-old Fukuda carried out a sweeping reorganization of his government to deal with what he called "the worst economic crisis in Japan's postwar history."

The Premier suddenly fired all but one of his 22 Cabinet ministers, most of whom were political appointees, and named a new team chosen on the basis of merit. A prime goal of the shakeup, Fukuda indicated, was to pump up the domestic economy, which should not only please Japanese consumers and workers but give businessmen more incentive to sell at home rather than abroad. Underscoring Japan's concern about its strained trade relations with the U.S. and Europe, Fukuda also created a new Cabinet post, Minister of External Economic Affairs, and named Nobuhiko Ushiba, 68, a former Ambassador to Washington, to fill it. Ushiba will act as liaison and troubleshooter with Japan's trading partners.

In another move aimed at placating Americans and Europeans, Japan's Ambassador to Geneva last week told a meeting of the General Agreement on Tariffs and Trade that his country is "actively considering" unilaterally reducing tariffs on a broad range of goods, including computers, color films and processed foods. Japan's trading partners have long griped that, while they buy heavily from Japan, Japanese markets are effectively closed to many goods that they want to sell.

Washington officials expressed pleasure at Fukuda's moves, but vowed to keep up the heat on Japan. Breakfasting with reporters, Chief Trade Negotiator Robert Strauss asserted: "We think some adjustments have to be made and made soon." When? "This afternoon," cracked Strauss. He reported that he is getting four to ten phone calls a day from Congressmen worried about foreign competition.

The Nixon and Ford Administrations, which had their own economic troubles with Japan, were generally satisfied with stopgap Japanese restrictions on exports to the U.S. The Carter Administration, to its credit, is taking a different line. Although they have negotiated an "orderly marketing agreement" limiting sales of Japanese color TVs in the U.S., the President and his aides are concentrating not on buying less from Japan but on selling more to it. Strauss wants the Japanese to abolish quotas on agricultural goods and lower tariffs on myriad manufactured products. Says he: "Right now we're getting the worst of it on computers, calculators, film, citrus fruits, meat, certain textiles." He also wants the Japanese to relax or abolish specification and inspection requirements used to keep out foreign goods. Says Strauss: "To get in there, you have to have 119.3% voltage or something like that--something that just isn't made anywhere but in their country."

The U.S. has been beaming that message at Japan for months. In September, Commerce Secretary Juanita Kreps visited Tokyo and warned of growing protectionist sentiment in the U.S. A few weeks later in Washington, Vice President Walter Mondale shocked a group of Japanese politicians. They interpreted Mondale's remarks as constituting a charge that Fukuda had lied when he pledged a reduction in the trade surplus.

The final blow came in November when a U.S. trade delegation headed by Richard Rivers, Strauss's general counsel, visited Tokyo. The Americans demanded that Japan step up its domestic economic growth to 8% a year or so, as an alternative to reliance on exports, and that it set a specific date for converting its trade surplus to a deficit. Fukuda responded with the Cabinet shakeup; his new ministers are already at work hammering out a program that Ushiba will present to Carter aides in Washington sometime this month.

Apart from U.S. pressure, Fukuda has other compelling reasons to push for faster domestic expansion rather than more exports. In the third quarter, Japanese production of goods and services, discounted for inflation, rose at an annual rate of only 4.4%. To a country used to much more rapid growth, that has been a shock. Japanese business firms are failing at the high rate of 1,500 a month, and unemployment, for all the vigor of the export industry, has edged up to 2.1% of the work force. In almost any other country, that would be considered low --but Japanese workers have been accustomed to guaranteed lifetime employment in the companies they joined fresh out of high school. Fukuda has announced two programs of higher spending to push up the economy, with little success so far. Yet the value of the yen, buoyed by the bloated trade surplus, has climbed 20.5% against the U.S. dollar this year and is expected to cut the competitive price advantage of Japanese goods in world markets. That would make the revival of the domestic economy even more urgent. Fukuda's new ministers are already working up a still more expansionary supplemental budget.

Unfortunately, none of this guarantees that the strains between the U.S. and Japan will be eased. The U.S. would like to see the yen rise even a bit more--yet the Bank of Japan has been selling yen heavily in an attempt to keep their value from rising further. The Japanese have made many promises in the past to let in more foreign goods, but have not taken enough action to please the U.S. and Europe. And Fukuda, despite his decisiveness in shaking up his Cabinet, is regarded as an extremely cautious politician. Says one disgruntled former Cabinet member: "Fukuda might have done away with our import duties on cars as a kind of symbolic gesture. Even if we removed the duties, no one would buy those big American cars. Our roads are too small. But Fukuda hasn't even got the guts to take such an obvious step.'' qed

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