[PEN-L:5164] Trade Sanctions: Some US/Japan Auto Issues

[BHOPE@xxxxxxxxxxxxxxxxxx]

Marc Breslow,

Hopefully this will be helpful for your talk.  Perhaps some Pen-lers can fill
in my gaps, correct my errors, and provide some details.  Good luck!

Barney Hope
bhope@xxxxxxxxxxxxxxxxxx

     Some Perspectives on the US/Japan Auto Trade Issues


I.   The pre WW II expansion of the US auto industry plus the
     destruction of the industrial economies of Japan and Europe
     was viewed by US industrialist (& the US auto industry) as a
     permanent situation.  In Japan and Europe, their dismal
     situation and the international market was viewed as an
     arena for competition.
II.  The US auto industry did not take international auto
     competition seriously in the 50's and 60's.  (Example:  VW,
     Honda)
III. By the 1960's the Europeans and Japanese had small but a
     significant presence in the US market.  (Especially the
     small car, fuel efficient sector)
IV.  With the 70's, oil price shocks, and growing imports, one
     could make the argument that the US industry was seriously
     mismanaged (and had been for some period of time).  The US
     industry produced high price gas guzzlers and low quality
     products.
V.   The VER agreement (1980) between Japan and the US was an act
     of deperation by the US producers.  This argreement was
     really a cartel.  When you cannot or do not want to compete,
     set up a cartel.  (At the time there was American bitterness
     toward the OPEC cartel; there was virtually no criticism
     directed toward the US/Japan auto cartel)
VI.  The VER drove up the prices of Japanese imports and the
     restriction of competition allowed significant increases in
     domestic prices as well.  The cost to consumers was in the
     billions per year for the decade of the 1980's.  (Maybe a
     PEN-Ler has some numbers).  And the cartel-induced price
     increases spilled over into price increases in the used car
     market.
VII. Furthermore, because the industry was so mismanged by the
     time the VER arrived, the industry pleaded their case for
     welfare from Reagan, et.al.  The result was very favorable
     tax provisions in the Economic Recovery and Tax Act of 1981.
     (In the form of a favorable Accelerated Cost Recovery Sytem
     -- depreciation --,the investment tax credit provisions, and
     specious leasing provisions -- 'safe harbor leasing').
     So Am auto comsumers had to pay extra twice:  once when
     buying a car and again on April 15.  Am auto workers paid
     three times:  once for wage concessions, once for and
     "restructing", and again on April 15.  (Make that four times
     if you want to count paying for autoexecutive compensation
     and bonuses)
VIII.     The VER was a critical factor in opening the door for
          implants.By 1990 the US auto executives realized (and I
          think publiclly stated) that the the 1980 VER was a
          mistake because of the implant intrusion.  The
          depreciation of the $ after spring of 85 made implants
          even more attractive.  The Japanese argue that if the
          US would do better at the macro level (like balancing
          the budget in 1984 --one of Reagan's plans in 81,
          remember?), you would not see the $ depreciation from
          1971-1981 and from 1985-95).(Digression:   I attended a
          conference between Thai and Japanese economists in
          Thailand in March of 1986. The Thais were unhappy with
          the Japanese AND the Americans in terms of trade, etc.
          A Thai economist asserted that you would not see
          fundamental correction with the US trade deficit until
          the dollar fell to 130yen/$.  An unheard of level at
          the time!  Well now we're about 85 yen/$ and no trade
          deficit solution in sight.
IX.  And then there was the Bush, et. al. trip to Tokyo in 1992.
     The auto execs were viewed by the Japanese as overpriced
     managers who had failed at managing their industry:  why
     should the Japanese bail them out?  At (about) the same time
     Iococca made the statement that "it is true, we sold our
     customers crap" (WSJ). So after admitting that the Am auto
     industry defauded their customers, why should those same
     customers buy Am autos?  (And why should the Japanese buy
     "crap"?)
X.   The above is somewhat of an outline of a talk I gave at a
     Aoyama Gakuin U. in Tokyo last October.  I was given a
     chance to pick my topic and I chose the auto one because the
     Am auto trade "negotiators" were in town.  At the end of the
     formal talk, I was thanked for presenting something other
     than "Am propaganda". One of the questions in the discussion
     session dealth with what I thought of the numerical quotas
     which were (and are) being pushed by the Americans.  My
     answer took me back to the above remarks:  I emphasized the
     real problems centered in decades of mismangement of the US
     auto industry and mismangement of US macropolicy.  If there
     were problems with the Japanese market being "closed", these
     were secondary (and maybe not even that).  By the way, one
     of the things that popped up in a late night beer 'seminar'
     at Kansai Gaidai U. was that fact that the Am MNC's in Japan
     often pushed the idea of Japanese markets being closed in
     order to deter new Am competition.   Specifically, Protor
     and Gamble does this.
XI.  Then remember that it has only been recently that the US
     auto producers produce a right hand drive vehicle market and
     tried to improve quality.  If the American auto producers
     took things seriously back in the 50's and 60's it would be
     cheaper to set up distribution networks in Japan.  Japanese
     real estate is very expensive.  Are the American producers
     willing to incur the cost?   If so who will pay these costs?
     Customers?  Auto execs?  Stockholders?  US tax payers via
     "Tax Reform?"  Why doesn't Chrysler invest some of its cash
     in Japan instead of increasing dividends, buying its stock,
     and/or attracting greenmailers?
XII. Finally, not all is well with the Japanese economy.  They
     are concerned about the yen appreciation, high domestic
     prices, the competitive challenge from Europe, East and SE
     Asia, the US!, and the hollowing out of their economy.  They
     have their own social problems, political conflicts, and
     earthquakes.  But they seemed determined to ride out their
     "bubble economy" problems and deal with the international ec
     problems too.  The Am push for them to adopt expansionary
     fiscal policy as part of the solution to the Am deficit
     problem will only add to the impressive list of
     infrastructure and public spending projects already planned
     for.  This will improve their productivity and enhance their
     competitiveness in the international economy.  If the US
     thinks that it has problems competing with the Japanese
     economy today, perhaps we ain't seen nothin yet.