Slowing the Juggernaut

The U.S. begins to reduce the chronic trade deficit with Japan

As the sleek white vessel nosed into Tokyo harbor last week, the Japanese markings were clearly visible on the superstructure. The crew of the 13,000-ton vessel was Japanese too, from the ship's captain to the deckhands. But emblazoned on the hull in red, white and blue letters was a most un-Japanese name: Boutique America. Below deck the contrast was even greater. The cargo area was an entire department store of U.S. consumer goods, ranging from golf clubs and fishing gear to pots and pans, jewelry, evening dresses and even slabs of sirloin steak. Displayed at specially constructed counters were some 8,000 items of U.S. goods from 145 companies. For the next two months, Boatique America will be a floating U.S. trade fair as it visits 13 different Japanese ports, selling a cornucopia of wares at prices that are bargain-basement by Japanese standards. The goal is not so much to make a quick killing as to introduce American goods to the Japanese people.

For U.S. businessmen and officials accustomed to a flood of manufactured goods coming out of Japan, the Japanese trade tour, organized by the Department of Commerce, is aptly timed. Last week on both sides of the Pacific, there were signs that the chill in Washington-Tokyo relations caused by the U.S.'s chronic and massive trade deficit with Japan was beginning to dissipate. Said Mike Mansfield, U.S. Ambassador to Japan: "It's been a good summer. I haven't heard the word protectionism for months." By contrast, he said, the previous two years had been "among the most difficult in the U.S.-Japanese relationship since the end of World War II." In Washington, even Congress's Joint Economic Committee stopped growling. Texas Senator Lloyd Bentsen, committee chairman, conceded that Japan, under U.S. pressure, had "begun to peel away" the cocoon of import regulations it had spun to protect its domestic industry from foreign competition.

Although the U.S. still has far to go to reach parity with Japan, the new mood was based on encouraging statistics. Says Mansfield: "In the first half of 1979, our exports to Japan were up 46% compared with a year ago. Our imports from Japan were up too, but only by 8.8%." Last year the U.S. ran an $11.6 billion deficit in its trade with Japan; in 1979 the figure is expected to drop to about $9 billion, a 25% decrease.

The chief explanation for the new trend is simply international economics. With Japan's economy continuing to grow at an annual rate of 6.3%, the highest in the industrial world, the demand for imports has increased commensurately. What is more, the booming economy has strengthened the yen in relation to the dollar, making U.S. imports relatively cheaper than they used to be. Among the U.S. bonanzas in Japan so far this year: aircraft sales up 236%, to $368 million; machine tools up 64%, to $61 million; and computers up 40%, to $164 million. Despite the heavy overhead on U.S. goods sold in Japan, especially in distribution costs, some U.S. food items and appliances, such as General Electric irons, are popping up frequently in the land of Sony and Mitsubishi. U.S. exporters are also becoming less intimidated by Japan's bureaucracy and reputation as a virtually closed market. Says Thomas M. Hout, vice president of the Boston Consulting Group: "A lot of U.S. manufacturers have finally made a conscious decision to penetrate the Japanese market."

The trade balance has also been helped by the increased price of Japanese exports, which have jumped 17% in 18 months. Says one U.S. trade official: "When the price of a Toyota goes from $7,000 two years ago to $9,000 today, that's bound to slow sales, no matter how serious the gas crisis or fuel-stingy the car." Indeed, Japanese car sales in the U.S. are expected to grow only 9% this year; in 1978 they were up a startling 51% over the previous year. Imports of Japanese color TV sets dropped 60.8% in the second quarter of 1979 over the same period last year and reached the lowest level in two years. One reason for this shift, however, is that Japanese companies, such as Sanyo and Toshiba, have been building plants in the U.S. Last year, for example, they produced an estimated 1.2 million color sets (compared with the 1.4 million that were imported from Japan and total production in the U.S. of 8.28 million).

Encouraging as the overall figures are, some U.S. legislators who have been wrestling with the trade problem remain worried. Says Representative Charles A. Vanik, the Democratic chairman of the House Subcommittee on Trade: "The Japanese are simply on a technical development plateau and are preparing for their next assault. The real thrusts are still to come." Chemical Bank Economist Roger Shields attributed much of the improvement in trade figures to stockpiling by the Japanese, at U.S. request, of goods they would otherwise have bought in smaller quantities. Said he: "They can't stockpile U.S. products forever. I think trade relations with Japan will be a recurring problem."

Probably. But for many hard-pressed U.S. manufacturers, the slowing down of the Japanese export juggernaut in 1979 is the best news in years.

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