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
[EMAIL PROTECTED]
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.
