Japan’s Bad Trade


This article originally appeared on The American Conservative

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 constantly evolving regulations to keep the combined share of all non-Japanese automakers to just 4 percent of the Japanese market. The share never varies, whether the yen is strong or weak. (The yen is up nearly 50 percent against the 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-the-left roads, and by extension for Japan’s. They also make countless components and assemblies that have been shut out of Japan for no other reason than that they are not made there.
  3. Even Volkswagen, which sells broadly as many cars around the world as Toyota, has been allocated—that is the right word—just 1 percent of the 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 the people are ethnic Koreans.)

As Pat Choate, a former top executive of TRW Corporation and an expert on the global auto industry, points out, the fact that so little of the truth of the Japanese market has emerged in public in recent years is a message in itself. The fundamental economic issue here is that by pricing high in the protected home market, Japanese automakers can powerfully subsidize their 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 the Japanese industry’s consistently heavy investment in R&D and ever more efficient new production processes. This leaves cartel members free to price abroad at little more than low variable costs (which means they need aim to recover merely the cost of direct labor and immediate inputs such as components).

Read the full article on The American Conservative

Eamonn Fingleton is the author of  In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Dominance.

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