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ing on others it finds inconvenient,
it could topple the entire world
trade structure."
Adding his own grave concerns,
Japan's Prime Minister Yasuhiro
Nakasone said his nation would
make renewed, all-out attempts to
encourage imports and domestic
consumption.
Mr. Nakas'one told a press con–
ference: "The government is mak–
ing efforts to reduce Japan's trade
surplus. We must give ammunition
to President Reagan to prevent a
protectionist trade bill which
cleared the U .S. House of Repre–
sentatives ... from being passed by
the Senate."
Disputes with EC, Canada
At tbe same time, Europe's Com–
mon Market and Canada are
locked in separate trade disputes
with Washington.
T he first arose when the two
Iberian countries, Spain and Portu–
gal, entered the European Commu–
for a long time have been each
other's leading trading partner.
Polltics Above All
Interna! politics plays a big role in
the burgeoning trade crisis. "For
political purposes," bluntly admit–
ted one of the Administration's do–
mestic foes, "the trade issue gives
us a chance to be macho with West
Germany and South Korea. And it
makes the Republicans look kind
of wimpy, frankly ."
President Reagan's opponents,
struggling to find a winnable 1986
Congressional campaign issue, have
elevated the problem of the U.S.
trade deficit out of all proportion to
its real importance.
"The U.S. economy has been ex–
periencing the strongest and possi–
bly longest expansion on record,
with more than eigbt million new
jobs since President Reagan took
office," writes Alan Reynolds in
the May 9
National Review
under
the foreboding title: "A Trade War
Could Wreck It All."
essentially with government living
year-to-year beyond its means, pil–
ing up enormous indebtedness cov–
ered by massive borrowings each
year. The trade deficit is a differ–
ent issue, explains Mr. Reynolds:
"A foreign exporter who trades
goods to U.S. buyers in return for
dollars has only two options for how
to employ those dollars, both of
them
benefi~ial
to the United S tates.
He can use those dollars to buy U .S.
goods, or he can use them to buy
U.S. assets (stocks, bonds or real es–
tate)-that is, to invest in the United
States. In large part this is a tribute
to the current strength of the Amer–
ican economy."
This foreign investment actually
creates jobs. In 1984 alone, direct
Japanese investment created
80,000 jobs in the United States.
lt's amazing to see legislation
moving through the American
Congress to "punish" the Japanese
for their trade surpluses with the
U .S.- whi le at the same time, state
and municipal legislators vie with
nity on January l of this
year. This move threatens,
over a period of time, con–
tinued sales of U .S. grain
products to the two coun–
¡
;\~~~~~~~~~§§~§§~;;;:;;¡¡¡¡;;~each
other to see which ones can
offer the best deals to J apanese
companies to build automo–
tive or electronics assembly
tries.
In response, authorities
in Washingto n have
drawn up a list of quotas
to be placed incremen–
tally on Common Mar–
ket food imports to the
United States. The EC
in turn has said it would
match these measures
with quotas of its own
on ot her U.S . farm
~
=;~~~'==:::::~::::::~~~;:~~~~~~~~plants
in their localities!
This l eaves the
Japanese nothing but
confused. Their world–
wide trade surplus (the
equivalent of US$56 biJ-
products.
The second dispute
erupted in May when
Washington suddenly
imposed a 35 percent
tariff on Can adian
cedar roofing materials.
Iion last year, $50 billion
with the United States)
is not going to disappear
overnight, or q u ick
enough to satisfy R,Oiitical
demands in Washmgton.
It
will rise still further–
perhaps $80 billion this
year - si m pi y be cause
Japan now pays a lot less
for oil, one of its biggest
imported products.
Many believe the Admin-
~
APRIL
1988
istration acted partly to -
~
blunt Congressional criti- .
cism that it wasn't doing enough
With the prospect of
fewer dollars earned from
sales of products to America,
manufacturers in Asia and
Europe are already beginning
to scale back on their produc-
in trade matters. Never theless,
Admittedly,
within days Canada responded most of these are in the service
with tariffs on American books, area, rather than in manufacturing,
magazines and sorne computer where jobs are still being lost to
components.
overseas producers.
The actions jeopardize imple-
The trade deficit is not nearly so
mentation of a free trade agree- serious as the U.S.
budgetary
ment between the two nations, who deficit. The budgetary crisis deals
September 1986
t ive capaci ty. This means
Asían and European customers will
be purchasing fewer raw materials,
synthetic fibers and machine tools,
much of which until now has been
purchased in the United States
wi th previous dollar earnings.
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