Remember Pearl Harbor (Continued) Jude Wanniski June 21, 1995

In his new book, Temptations of a Superpower, Ronald Steel of U.S.C.’s department of international relations makes a persuasive argument that our foreign-policy Establishment remains trapped in its Cold War perspective. Not only does our $253 billion in military spending exceed the total spent by the rest of the world, without any perceived enemy, the total collapse of Moscow as Public Enemy No. 1 has also left a vacuum. He suggests this vacuum is being filled by a more or less unconscious decision to elevate Tokyo to that rank, inasmuch as Japan is our nation’s foremost commercial rival. We are clearly seeing this in the government’s ferocious assault on Tokyo in the auto parts trade dispute. With President Clinton in the lead, Speaker Gingrich and Majority Leader Dole willing conspirators, the United States is so clearly breaking international law that, by a 2-to-1 margin, editorial opinion in the U.S. is siding with the Japanese! Still, with a broad consensus among our elected officials to back this patently illegal use of force against this major trading partner, we move toward an apparent collision next Wednesday, June 28. 

Equally instructive in support of Ronald Steel’s thesis is today’s editorial page of The New York Times, the voice of the Establishment. In its May 18 editorial, “The $100,000 Lexus,” even the Times gagged on the Clinton sanctions in the auto dispute: “It is hard to imagine the American Government telling General Motors and other American auto manufacturers they cannot produce many of their own parts.” Which, of course, is what we are demanding the Japanese Government do to Japan’s car makers. This morning, though, readers of the Times got a double dose of the Yellow Peril. Its principal commentator on Foreign Affairs, Thomas L. Friedman, contributed a column almost hysterical in its Nipponphobia. In complete ignorance of even the most basic economics, Friedman not only announces that the trade war has begun, but also that it is an historical imperative that the United States declare the war! “What this trade war is about is telling Japan that while the U.S. may accept Japan remaining a secondary military power, it will not tolerate Japan behaving anymore like a secondary economic power. The cold war bargain [which allegedly permits Japan to skirt international standards for economic reciprocity] is null and void. Japan is going to have to start taking responsibility for the global economic system, not just preying on it. And that means it must recognize that its trade barriers, its structural trade surpluses with the rest of the world and its reluctance to stimulate its economy distort the global trading system and are a drag on the whole world. The reason changing Japan requires a trade war is because Japan does not want to change.” Wow! In 1941, these were essentially the arguments leveled by Japan against the United States in rationalizing the attack on Pearl Harbor!

In its lead editorial today, the Times itself joined in, telling of “Tokyo’s Trade Hypocrisy.” The indictment against Japan now includes Eastman Kodak and Federal Express: “In the Kodak case, recently disclosed Japanese documents show in detail how Tokyo helped block the American company in violation of its own laws and policies. Japan has also violated a 1952 aviation accord with the United States by denying an application by Federal Express to fly cargo through Japan to its new hub at Subic Bay...The Clinton Administration announced this week that it was preparing to impose sanctions against Japanese carriers if Japan did not back down. Japan, in turn, threatened to retaliate if America levied sanctions.”

Eastman Kodak and Federal Express have a perfect right to attack the Japanese government for being unfair, if that’s how they reckon to increase sales and profits in Japan. But for either the Times or the U.S. government to declare trade war on Japan on behalf of these two grown-up companies or the auto companies is even more stupid and destructive. For purely mercantilist reasons, we are imperiling their economy and ours, both of which are at the knife-edge of recession. As far as we can tell, from discussions with the Japanese Government, both the Kodak and the FedEx disputes are not nearly as clean-cut as the Times would have us believe. From Japan’s perspective, it looks as if they have been bending over backward to accommodate:

In the Kodak case, the Japanese wonder why Kodak, “a corporate citizen of Japan,” as they put it, has not brought charges against Fuji Film and the government in the Japanese courts -- if, as the Times says, Tokyo violated “its own law and policies.” If it would first lose in the courts, it might then seem more reasonable for Kodak to argue in Washington that it has only 10% of market share in Japan because Fuji has conspired with the government. Yes, Fuji has 70% market share in Japan, but so what? Kodak has about 70% of the U.S. market. Film is film. One reason Fuji does better in Japan is the same reason Kodak does better here. The locals are used to it. Another is that Fuji rebates on volume sales to big users, which is hardly a conspiracy. Agfa, the German producer, had 1% of the market, I was told, and with an aggressive price-cutting campaign upped that number to 5%, probably taking some from Kodak.

In the FedEx case, the Times acknowledges that the 1952 civil aviation accord “gives an unfair advantage to American carriers.” It was practically dictated by General MacArthur. The Times, though, says “the right way to get out of a bad accord is to negotiate a new one.” Japan says it has been asking for such negotiations “for decades,” but has lived with the old accord out of deference to the defense umbrella we provided in the Cold War. The accord calls for bilateral reciprocity, they say. There is a provision covering third country or “beyond” rights, which permit a U.S. carrier to pick up cargo or passengers in Japan and deliver them elsewhere. U.S. carriers now have 156 such Japanese routes for cargo to Japan’s one route here. U.S. carriers now carry 1.4 million passengers “beyond,” while Japanese carriers handle 4,000. FedEx wants commercial rights on 11 new routes, plainly giving “beyond” rights a whole new meaning. 

What our government is attempting to do in this great Superpower Land of Opportunity is equivalent to the Mafia’s “insurance racket.” If Japan wants to do business in our “free market,” it has to buy what we tell it to buy, and if they don’t, they get a rock through the window. It is incredible and a bit frightening to realize that so many Americans I know and respect have joined in this Japan-bashing enterprise. When I ask for some sort of justification for this behavior on our part, I’m usually told that “the people of Japan will benefit” by the opening of their markets. 

This is a fascist, mercantilist argument, which leads to no good. If the Japanese government wants to make it harder for its citizens to buy Buicks than Treasury bills and bonds, that’s hardly our business. They not only have a perfectly good constitution, which General MacArthur also helped write, they also have one of the liveliest democracies in the world, as evidenced by the several governments that have been in and out these last few years. The premise of Tom Friedman’s urgently needed trade war is that the people of Japan are too dumb to elect a government that will cut tax rates and regulations -- to stimulate the economy, cut costs, and raise the living standards of ordinary people. So we have to use our might and muscle and come to their aid. What the heck. Bombs away.