[Congressional Record Volume 141, Number 97 (Wednesday, June 14, 1995)]
[Extensions of Remarks]
[Pages E1233-E1234]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                THE PRESIDENT IS CORRECT REGARDING JAPAN

                                 ______


                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                         Tuesday, June 13, 1995
  Mr. FRANK of Massachusetts. Mr. Speaker, President Clinton deserves 
great credit for his insistence that the Japanese stop being so 
restrictive regarding products from overseas. The great imbalance in 
trade between the United States and Japan is significantly exacerbated 
by restrictive Japanese practices, and President Clinton is to be 
congratulated for his unwillingness to simply allow business as usual--
which for us in Japan has meant very little business.
  For most of the post war period, the United States has put our 
geostrategic interests ahead of our own legitimate economic needs in 
dealing with our wealthy allies. That was appropriate when these allies 
where struggling to emerge from the doldrums of the post war period, 
and when we all confronted a powerful Soviet Union. Today, it is 
entirely legitimate for the President of the United States to be 
assertive about legitimate American economic interests vis-a-vis these 
wealthy nations. The response for many in the foreign policy 
establishment has been critical of the President for this legitimate 
defense of America's interest, and many economists have also--
reflexively in my judgment--criticized the President for insisting that 
Japan follow rules which allow free competition within that country 
from overseas products.
  In the New York Times on June 10, Lawrence Chimerine and James 
Fallows made a very strong case for the kind of action the President 
has taken. These two distinguished scholars know a great deal about 
American/Japanese economic relations, and think their strong support 
for the President's position should be printed here because of the 
great light it sheds on this controversy.
                        Japan Deserves a Tariff

               (By Lawrence Chimerine and James Fallows)

       Washington.--Although European and Asian governments have 
     complained about the Clinton Administration's regrettable but 
     justified proposal to place tariffs of 100 percent on 13 
     Japanese-made cars, most agree that Japanese trade barriers 
     threaten the world trading system.
       Debate in America on the issue has been more primitive. 
     Many free-market economists, some pundits and lobbyists for 
     Japanese and for some European interests question whether 
     there is even a problem to be solved.
       Mercifully, most have spared us the old argument that 
     simply driving down the value of the dollar will eliminate 
     trade imbalances. The dollar has lost two-thirds of its value 
     against the yen in the last decade, yet trade between Japan 
     and the United States has been remarkably unchanged, even 
     though American products are much cheaper.
       But we are hearing equally tired assertions, which rest on 
     a misleading appearance of economic sophistication. The 
     principal claim is that Americans import too much and save 
     too little and that the Japanese do the reverse. But this 
     supposed insight into the trade imbalance does not tell us 
     which is the cause and which is the effect.
       Most economists take it for granted that our low savings 
     rate causes chronic, large trade deficits, because when we 
     spend too heavily, we inevitably buy huge quantities of 
     foreign goods. Yet it is just as proper to argue the 
     reverse--that the large trade deficits caused by artificial 
     barriers to American exports help create the low savings 
     rate. This happens because reduced exports to, say, Japan 
     mean smaller payrolls and profits at home. With less money 
     earned, less is saved. And less is paid in taxes, driving up 
     the Federal deficit and further depressing savings (because 
     the Government borrows to finance the deficit).
       The existence of formidable Japanese trade barriers is 
     indisputable. Studies by the Economic Strategy Institute and 
     other research groups estimate that if Japan's markets 
     behaved like those of other industrialized countries, Japan 
     would import up to $200 billion more in goods each year than 
     it now does; of this, almost $50 billion would come from the 
     United States.
       The United States should raise its savings rate to limit 
     reliance on foreign capital and to encourage productive 
     investment--the key to vigorous long-term growth. But even if 
     we do, we are likely to have a trade problem with Japan 
     unless Japan changes. South Korea and Singapore, whose 
     savings rates are even higher than Japan's also have large 
     trade deficits with Japan.
       Another faulty assertion in the debate over imposing a 
     punitive tariff on Japan is that we're only hurting 
     ourselves. Some claim we should keep our markets open 
     regardless of what anyone else does because any other course 
     would hurt American consumers.
       They ask, Why should we punish ourselves by paying more for 
     a Lexus or an Infiniti? And they say, if the Japanese or 
     other Asians want to penalize their own people by running a 
     closed economy, that's their problem. We'll enjoy the benefit 
     of bargain-priced goods.
       But Americans need jobs and income to buy even bargain-
     priced goods. Countries that combine closed markets with 
     aggressive exporting to the United States effectively cut the 
     number of good American jobs and thus consumer income. Closed 
     foreign markets also inhibit our producers from investing, 
     supporting research and development and creating new jobs.
       A third argument against the tariff on Japanese luxury cars 
     is that American car companies brought their problems on 
     themselves by being lazy and greedy and not making cars 
     suitable for Japan's left-side driving. This is the oldest 
     red herring of all. Our auto producers make millions of 
     right-hand-drive models for other left-side markets like 
     Britain's.
       The real issue is the cartel-like structure that ties 
     Japanese parts makers, auto companies and dealers together in 
     networks that are hard for outsiders to penetrate, no matter 
     how attractive their products are.
       In the auto parts business, there is no question of ``wrong 
     side'' spark plugs, microcontrollers or piston rings. At 
     current exchange rates, many American-made auto parts sell 
     for one-third the price of Japanese-made items. American-made 
     parts are of such high quality that the nation has an auto-
     parts trade surplus with Europe, where they are heavily used 
     by BMW, Mercedes and other demanding manufacturers.
       Nonetheless, American parts have captured only 2 percent of 
     the Japanese market. And Japanese-owned auto assembly plants 
     in the United States use at most only 50 to 60 percent 
     American-made parts.
       Finally, the silliest assertion is that the 
     Administration's tariff might lead countries 
     [[Page E1234]] to embrace managed trade--government 
     manipulation of international commerce for national 
     advantage. In raising this warning, the Europeans and 
     Japanese are being hypocritical--and they know it.
       The Europeans know it because their trade with Japan has 
     long been managed in a Draconian way. Ever wonder why there 
     are virtually no Japanese cars in France or Italy? It isn't 
     because the Japanese are not trying hard enough or have the 
     wrong steering wheels. It is because Europeans sharply limit 
     the number of Japanese cars they will let in each year.
       The Japanese know it because their own diplomats and 
     foreign aid specialists advise the Thais, Russians, 
     Indonesians and anyone else who will listen that careful 
     controls on trade and capital are the best way to preserve an 
     industrial base.
       America's economy has its own mass of trade regulations and 
     subsidies. But its markets are the most open of all the big 
     industrialized countries. Japan's are the least open.
       Ever freer trade over the last four decades has helped much 
     of the world prosper. If there is a threat to the continued 
     progress of this movement, it comes from those who pretend 
     that problems with free trade--especially those created by 
     the chronic American-Japanese trade imbalance--do not exist.
       The Administration is at least trying to deal with this 
     problem, which, if unaddressed, will destroy 
     American support for free trade in general. If those who are 
     most concerned about saving the world trade system don't like 
     the Clinton solution, let them come up with a better and more 
     realistic approach.
     

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