Business case

Protection) Japanese-Style American producers regularly complain that the Japanese market is particularly tough to crack. Public officials in the United States in- sist that the enormous trade deficit with Japan-$26 billion in the first four months of 1998-must be reduced.

The Japanese, for their part, c1aÌm that

they have greatly reduced their tariffs in re- cent years; the average tariff level of Japan is in fact below that of the United States. If Japanese tariffs are not especially high, why is it so diffcult for U.S. businesses to penetrate

the Japanese market?

One area in which Japan does have stiff import restrictions is on agricultural products. Quotas on imports of meat and fruit create large price differences between the Japanese market and the American markn-$20 a pound for steak and $35 for melons in Tokyo, for example. Overall, food is three times more expensive and clothes two times more expen- sive than in the United States.

The main obstacles to selling more Amer- ican products in Japan, however, are not for- mal trade barriers; one of them is Japanese

government red tape. For instance, documen- tation and testing of American cars sold in Japan add as much as $500 to the price of each car. Testing for the safety of U.s. health

care products is required in Japan, even if similar tests have already been performed for the same products marketed in the United States.

To protect the way of life of small retaÌl- ers, the Japanese also have "big store laws" that make it very diffcult to build large de- partment stores. Not only does this keep

prices high because of the inability to take ad- vantage of the great economies of scale in

America's love aHair with the automobile is becoming a lasting romance with imported Japanese cars.

high-volume retailing, but it also imposes dif- ficulties on foreign manufacturers of con- sumer goods. Sony and Canon can sell thou- sands of televisions and cameras in the U ni ted States through one or two massive sales agree-

ments with Wal-Mart or Sears. Foreign pro- ducers cannot do this in Japan because they need to reach agreements with thousands of

independent retailers.

Chapter 15 International Trade

Still another problem for foreigners in penetrating the Japanese market is the exis- tence of tightly linked organizations of Japan- ese firms-the keiretzu-that produce a final product and most of the intermediate prod- ucts needed to produce it. The biggest keìretzu are those that produce motor vehicles

(for example, Toyota, Honda, and Nissan) and consumer electronics (for example, Sony, Hitachi, and Sanyo). Member firms of an au- tomobile keìretzu produce steel, glass, tires, paint, and upholstery. The keiretzu will in- clude a bank to provide financing and a ship- ping company to carry the cars overseas. For- eign suppliers of intermediate products have no chance of selling them to the tightly inte- grated Japanese firms. Even the smaller Japan-

ese producers are frozen out of their own do- mestic markets in this way. As a result, some of them are now entering into joint produc- tion and marketing arrangements with Ameri- can and other foreign firms-taking advantage of trade Ii beralization pressures on the J apan- ese government-in order to gain an entry into their own country)s markets!

Other Japanese policies are directly fo- ciised on helping their industries at the ex- pense of their consumers. For example, the

shaken (pronounced "shah-khan") system is a policy designed to impose extremely tough automobile inspections on all cars in Japan. Once a car becomes 5 or 6 years old, it can cost a car owner hundreds of dollars to pass the annual safety inspection. While it docs lead to marginally safer cars on Japan's roads,

it also provides an incentive for car ownCfS to buy new cars more frequently, thus helping the Japanese auto industry.

All these policies and practices contradict the notion that the purpose of trade is to en- hance consumer well-being. This is because while an improved standard of living is the ac- cepted basis for free trade in the United States, it is not so in all countries. In Japan (and South Koreã.), for example, people be-

lieve that the purpose of trade is to improve

the nation's economic strength and its share of world markets. Consumption and con- sumer well-being do not have the importance that they do in the United States. Incrcased

consumption also subtracts from saving, and saving is necessary to finance thc capital in- vestment neccssary for industrial growth. (This is anothcr reason for our trade dcticit with Japan: Americans like to spcnd and Japanese like to savc. As a rcsult they put money into U.S. bonds and stocks and we use the money to buy Japanese imports.)

From the Japancse perspective, the world does not remembcr the great consumers, it re- members thc great producers. Japanese trade policies reflect their ideology. Consumers may suffer in terms of higher prices and less con-

sumption, but this is consistent with their na- tional economic goals. American busincsses

complain that Japanese policies make for an "uneven playing field." The Japanese response is that theirs is simply a policy decision de- signed to strengthen domestic inL! Llstries at the expense of their consumcrs.

1. What types of nontariff barriers, other than quotas, restrict imports into Japan? Can you think of any similar barriers that re- strct imports into the United States?

2. Would U.S. farmcrs and ranchers be able to export morc to J apm if the J apancse ap- plied tariffs rather than quotas to imports of agricultural products? What are the as- sumptions underlying your answer?

3. Do YOll think that the United States should

adopt J apanese-stylc policies that arc de- signed to promote production at the ex- pense of consumers' well-being? Could the average American household do with fewer consumer goods?

The Snidy of Economics