U.S.-JAPAN TRADE : U.S. Auto Tariffs Take a Back Seat When You Have East Asia on Board

TOKYO —  U.S. Trade Representative Mickey Kantor’s promise to slap nearly $6 billion in punitive tariffs on Japan’s luxury car exports unless the country rapidly opens up its automotive markets has hardly been driving the Japanese to distraction. In fact, what’s perceived here as America’s trade belligerence is spurring some painfully polite conversations about what has been described as “the world’s most important economic relationship.”

“For many years, America has been Japan’s most important trading partner and customer,” says a senior staff member at Japan’s Ministry of International Trade and Industry. “So it may be appropriate for Japan to ask if America perhaps is too important a trading partner. Like the United States, Japan must carefully consider both its global and regional economic responsibilities and relationships. Today, all of our trade relationships--no matter how important--exist in contexts that did not exist even five years ago. The future, therefore, will not be just an extension of the past.”

The most significant change, the MITI bureaucrat acknowledges, has been the breathtakingly rapid rise of East Asian economies and Japan’s involvement with them. According to International Monetary Fund statistics, Japanese exports to East Asia rose from $85.2 billion in 1990 to more than $130 billion last year. By contrast, Japan’s exports to America grew from $91 billion in 1990 to about $107 billion last year. When one figures in the essential role that Japanese affiliates played in East Asia’s exports of some $205 billion worth of goods to both America and Japan last year, it’s clear that the 1990s are seeing one of the most profound shifts in trade flows in the past 50 years.

“In economic terms, East Asia has become the most important region in the world for Japan,” old Japan hand James C. Abegglen, chairman of Gemini Consulting, insisted in recent comments here. “First, East Asia is now Japan’s largest market. . . . Second, East Asia is where Japan’s companies will make their manufacturing investments. Half of the overseas employees of Japanese are now in East Asia, and 40% of Japan’s manufacturing investments.”

Perhaps even more significantly for Japan’s burst-bubble economy, Abegglen notes, “East Asia is where Japan’s companies enjoy profits on their manufacturing investments. MITI’s annual studies since 1985 show that Japan’s manufacturing investments have made no profit in North America; made, but no longer make, some profit in Western Europe, and do very well in East Asia.”

Follow the money. If you’re a global Japanese enterprise, where do you invest for the economic dynamism, growth and profits of tomorrow? Do you really want to let trade conflicts with the United States take precedence over the development of new trade practices in Asia? The surging East Asian economies--combined with a yen so strong that dollar bills shrink and cower in the exchange markets--have transformed the way Japanese business now looks at the world. East Asia--as much or more than America--is becoming the touchstone of daily business practice.

Four years ago, for example, Setsuya Tabuchi and Yoshihisa Tabuchi (who are not related) resigned in disgrace from the leadership of Nomura, the world’s largest brokerage firm, in part because of the firm’s alleged dealing with the head of the yakuza , Japan’s Mafia.

This past month, the men were officially rehabilitated by Nomura Managing Director Atsushi Saito. “Big Tub” and “Little Tub,” as they are known, were invited back onto Nomura’s board of directors. Why? The Asian connection: The Tabuchis are said to be well connected in Vietnam and China.

“Why don’t we make use of their diplomatic skills in Asia now that we see Asia and China as the most important markets in our strategy?” Saito asked. If Asia doesn’t offer a good business reason, then at least it offers a good excuse. . . . Far more significant, however, is the fact that Japanese companies are now cutting deals with East Asian firms that they would have studiously avoided just three years ago. Just two months ago, Nissan--one of the car companies that would be hurt by America’s proposed tariffs--announced that it would form a joint venture with Samsung, South Korea’s largest chaebol , or industrial group, to manufacture autos. Samsung will pay Nissan about $83 million in fees for the transfer of vehicle development and plant construction technology. What’s more, Nissan will get a 2% slice of the retail price of every vehicle sold.

This goes well beyond the outsourcing of production that sends self-conscious cries about the “hollowing” of Japanese industry ringing though MITI and Japan’s various chambers of commerce. Asian opportunities are forcing Japanese companies to re-evaluate their practices and policies about technology transfer and collaboration with their East Asian suppliers. What’s more, Japan is truly seeing East Asia as a marketplace--not just a source of cheaper production.

The result is that new kinds of products are being explored and designed. New kinds of innovations are emerging for the Asian marketplace, just as Japan’s consumer electronics and automobile companies have successfully tailored products for the U.S. and European marketplaces.

In this context, why should it be surprising that Japan has been so successful in enlisting the support of its East Asian cohorts in publicly opposing America’s unilateral trade sanctions? Ironically--and sadly--instead of isolating Japan by forging alliances with East Asian countries and companies that also have legitimate complaints about Japan’s inappropriate trade practices, the United States has managed to successfully isolate itself in the eyes of East Asia.

The United States remains, of course, overwhelmingly important to Japan’s economic future. But it is disconcerting to see that Japan seems to be a more effective participant in the most dynamic economic region in the world than is America.

Where does a $6-billion tariff on luxury automobiles fit as a tactic to remedy that reality?

Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times. He can be reached at schrage@latimes.com by electronic mail via the Internet.

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