Japan's Bad Trade

Article excerpt

Why won t anyone talk about Tokyo's auto protectionism?

Mitt Romney was in his element a few years ago as the Obama administration struggled to rescue the Detroit auto industry. In an eat-your-spinach tone, he ticked off his recommendations for reform. Top management should go, executive dining rooms should be shut, and factory wages slashed. Then there were the industry's "legacy costs": given how drastically Detroit's market share had shrunk in the face of rampant imports, retiree entitlements had come to account for as much as $2,000 per car. Countless retirees would just have to be thrown overboard.

Whatever the merits and demerits of Romney s lengthy list, it contained a notable omission. It made no mention of international trade. This despite the fact that for decades Detroit has been undermined by an egregiously unfair world trade system. As if to rub salt in Detroit's wounds, Romney held up Japanese automakers as a model of quality manufacturing-the same companies which for two generations have been the greatest beneficiaries of rigged markets.

As the Michigan-born son of a top auto executive-and as one of America's most capable experts on how the global economy really works - Romney certainly knew better. But he is hardly alone in buttoning his lip where trade with Japan is concerned. America's entire globalist elite has long realized that Tokyo no longer tolerates frank discussions and is often devastatingly effective in evening the score with anyone rash enough to challenge it.

Yet facts are facts. Here are a few which, though they remain hidden from most Americans, are widely known to media commentators, diplomats, Japan scholars, and of course aspiring presidential candidates:

1. The Japanese government has used a plethora of constandy evolving regulations to keep the combined share of all non-Japanese automakers to just 4 percent of die Japanese market. The share never varies, whedier die yen is strong or weak. (The yen is up nearly 50 percent against die dollar in the last five years.)

2. The Detroit corporations, in common with all major automakers, make many cars in Europe configured for Britain's drive-on-Üie-left roads, and by extension for Japan's. They also make coundess components and assemblies diat have been shut out of Japan for no otiier reason dian that diey are not made there.

3. Even Volkswagen, which sells broadly as many cars around die world as Toyota, has been allocated- diat is die right word- just 1 percent of die Japanese market; by contrast Toyota's share is close to 40 percent. (Volkswagen is lucky, incidentally: Hyundai's share is 0.02 percent and Daewoo's 0.003 percent, and this in a country where close to 1 percent of die people are edinic Koreans.)

As Pat Choate, a former top executive of TRW Corporation and an expert on the global auto industry, points out, die fact diat so little of die trudi of die Japanese market has emerged in public in recent years is a message in itself.

The fundamental economic issue here is diat by pricing high in die protected home market, Japanese automakers can powerfully subsidize dieir prices abroad. The policy is underpinned both by traditional Japanese cartel dynamics and by governmental "guidance." Basically, the Japanese consumer unwittingly foots the bill for much of die Japanese industry's consistentìy heavy investment in R&D and ever more efficient new production processes. This leaves cartel members free to price abroad at little more man low variable costs (which means they need aim to recover merely me cost of direct labor and immediate inputs such as components).

The cartel's profitability is further bolstered by Japan's so-called sha-ken system of car inspection. This is so rigorous that most Japanese drivers trade in their autos every three years. Choate comments: "Japanese autos, of course, last far longer than three years. But to keep up revenues, the industry has a market of captive customers that keep buying new. …

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