Catalytic Converters Don't Save a Market

Article excerpt

"Japan has become a global economic superpower, increasingly able to resist American demands but its political system continues to require foreign pressure to galvanize constructive responses to legitimate criticism."

From Reconcilable Differences? United

States - Japan Economic Conflict

By C. Fred Bergsten and Marcus Noland

(June 1993)

Intent on boosting economic growth, the White House has exerted plenty of gaiatsu -- or foreign pressure -- on Japan to open its markets.

But until Tokyo undergoes a complete overhaul of its regulatory structure, trade agreements such as the June 23 auto deal carry little weight. The pressure merely gets Japan to the bargaining table. Once there, even President Clinton's chief trade bulldog, Mickey Kantor, seems to have more bark than bite.

It was vital for the U.S. to reach an agreement on autos. After all, $37 billion of last year's $65.7 billion trade deficit with Japan was tied to the auto sector.

Unfortunately for President Clinton, however, the agreement will have nary the economic benefits he has been led to believe.

"I don't think the trade agreement is going to have a huge impact on the economy," says David Sloan, North American economist at I.D.E.A., a consulting firm in New York. "There is some prospect of the deficit in autos with Japan coming down, but that is more due to the strength of the yen and, most importantly, the slowdown in U.S. growth rather than this agreement."

That's not to say there won't be any positive economic developments in the United States after this agreement. There will. But at best they will be modest. This year, the U.S. trade deficit with Japan will decline slightly to $55 billion, Sloan expects. Next year, it probably won't slip below $50 billion, he adds.

In terms of the nation's growth rate, the trade agreement will not mean more than 0.1% to 0.2% added to U.S. gross domestic product (GDP). "There may be some increase in exports to Japan, but U.S. exports are so small at the moment that they'd have to surge astronomically before it would make a difference to U.S. growth," Sloan says.

White House cave-in The trade deal is simply not binding enough. Contrary to what Kantor has indicated publicly, the United States wanted fixed, measurable and enforceable commitments from Japan. Kantor repeatedly nipped at counterpart Ryutaro Hashimoto's heels but again, no bite. …