FEBRUARY 1983 - VOLUME 4 - NUMBER 2
Reagan Hosts His Japanese "Alter-Ego"
An amiable meeting produces few results for their corporate backersby Phil Hill
Last month, Ronald Reagan played host to one of the main admirers and imitators of Reaganomics - Japan's new prime minister Nakasone Yasuhiro. The two conservative leaders apparently got along famously, but were unable to take any concrete steps towards resolving the immediate issues souring relations between the "free world's" two giants.
Nakasone, like Reagan, is a national leader who strongly supports multinational corporations. In Japan, he has pledged to implement a program of low taxes and deep social service cuts in order to finance corporate expansion while moving the government back from the brink of bankruptcy. In Washington, his top priority was ironing out the disputes that have begun to threaten the free trade paradise within which these transnational giants thrive.
Japan's big export surplus is, of course, the major sticking point in economic relations. While very few concrete measures to redress the imbalance were taken, the two leaders reaffirmed their allegiance to the principle of free trade. And Nakasone's eagerness to increase military spending may mean increased defense-related exports to Japan during the rest of the decade.
The main achievement of the talks was ideological. On the eve of the visit, Foreign Minister Abe Shintaro remarked that "strengthening the [U.S.-Japan] alliance" was a major goal of the summit meeting; and thereafter, Nakasone used the previously taboo word "alliance" freely to refer to the relationship.
The shift was significant. Japan has never formally acknowledged itself to be an "ally" of the U.S.; rather, the U.S. was merely pledged to defend Japanese "security" under a pact whose application is confined to the country itself. The Japanese government's position has thus been changed to one that opens the door to military cooperation between the two countries anywhere in the Far East - particularly Korea. And it could mean possible cooperation with the U.S. in the Indian Ocean and the Middle East (see accompanying story on Korea).
Within Japan, recognition of the reality of the alliance is an important step for the ruling Liberal Democratic Party, which is trying to overcome, once and for all, all vestiges of the post-war Japanese tendency towards anti-nuclear pacifism.
As a result, opposition to Nakasone's bold moves has been fierce since his return to Tokyo. Virtually the entire opposition, led by the Socialist Party, strongly denounced the move toward a military alliance, as did the influential Asahi and Mainichi newspapers. Particularly controversial was the interview Nakasone granted the Washington Post on January 18th in which he called for turning Japan into a "bulwark" against Soviet backfire bombers, and an "unsinkable aircraft carrier" for the U.S.
U.S. strategists see the emerging alliance in less poetic - and more concrete - terms. They want Japan to be ready to blockade the Pacific coast of the U.S.S.R. in the event of a superpower crisis anywhere in the world. Under the present security treaty, Japan would stand aloof from any conflict in which it was not directly involved.
In the economic sphere, the U.S. hopes that Japan will start purchasing more American weapons to partially compensate for the large trade imbalance in Japan's favor.
In both these areas, Nakasone's trip was short on concrete results. As a lifelong supporter of an arms buildup, Nakasone has no problem going along with American demands for rearmament. He hoped to mollify American anger over the ever-swelling stream of Toyotas and Sony televisions washing over this country by "giving in" to American demands that Japan buy more U.S. military and agricultural goods. In return, Nakasone asked that the Reagan administration rein in the protectionists here.
The two questions of arms and trade were linked by the fact that any upgrading of the Japanese military would inevitably require buying major weapons systems from U.S. corporations. Just before leaving Japan, Nakasone's cabinet submitted its budget for fiscal 1983, which called for the purchase of Lockheed antisubmarine patrol planes from McDonnell Douglas and F-16 fighter-bombers from General Dynamics. Both figures, however, represented a cut-back of approximately 30% over Defense Agency budget requests, and were therefore a bitter disappointment for both the corporate and government wings of the U.S. military industrial complex.
Upgrading of air power is a high priority in U.S. demands for Japanese remilitarization precisely because airplanes are among the last high-tech products that U.S. firms can still expect to sell in Japan. But in another area of traditional U.S. dominance, computers, the major breakthrough of the summit talks was an announcement that Japan would permit the U.S. to purchase Japanese technology for defense related purposes.
The tariff controversy
In preparation for the tour, Nakasone's government had already tried to dampen criticism on the trade issue by easing barriers which, western business interests say, keep them out of a protected Japanese market. The only substantial tariff reductions - in a list of 75 items - are tobacco products, where the duty has been almost slashed in half. The rest of the reductions are either minimal (from 18.8% to 18% in canned pears) or essentially meaningless, as in the case of a list of industrial machines. Here, the already small tariffs have been eliminated, and Nakasone's cabinet will no doubt claim that the free market will now let the better manufacturer win.
American companies see it differently. On the one hand, they claim that it is very difficult to break into a market dominated by industrial groups (zaikai), where pro ducers buy equipment from related companies rather than shopping around on the open market. Moreover, they claim that the Japanese government in effect subsidizes the machine tool exports in a way that should bring retribution under U.S. law.
One company, Houdaille Industries, Inc., a Florida machine tool maker, has a petition pending before the Commerce Department, demanding that investment tax credits be denied American companies that buy Japanese machine tools for their plants.
The tobacco tariff cut itself demonstrated the power of the Japanese bureaucracy to combat trade liberalization moves. Even as Nakasone was flying to Washington, the management of the government-owned Tobacco and Salt Monopoly moved to nullify the liberalization by simply hiking the price it charges consumers for American cigarettes to offset the effects of the cut. While in Washington, Nakasone seized the opportunity to appear a champion of free trade by personally ordering the action rescinded.
Houdaille was not the only petitioner at the White House demanding that Nakasone be read the riot act. A delegation of business and labor leaders met Reagan on January 17th - the day of Nakasone's arrival - and demanded that a number of measures be agreed to in the summit talks. Chief among them was the extension of auto-import restrictions demanded by United Auto Workers President Douglas Fraser; neither that or any of the other major concessions was endorsed by Nakasone.
In mid-February, U.S. and Japanese trade negotiators were scheduled to meet to discuss the restrictions. William Brock, U.S. trade representative, was expected to ask the Japanese government for a two-year extension of the auto import agreement. Japanese negotiators, however, have been asking that the quotas end in March.
Behind the competition: transnational collaboration between U.S. and Japanese firms.
But complicating the competitive relations between the U.S. and Japan are close ties between Japanese and American multinational corporations in a number of sectors (see chart). In autos, for example, American firms hold shares in four Japanese companies. Close links have been formed between U.S. and Japanese semiconductor and computer firms as well. In addition, much of the postwar Japanese industry was built with the help of U.S. technology. Even the much-touted Japanese style of management was borrowed - and then perfected - from the United States.
On the other hand, Japanese capital and technology have begun to play an important role in the U.S. economy. According to a recent study by the Japanese External Trade Organization, direct Japanese investment in the U.S. increased from a level of $152 million in 1973 to $4.2 billion at the end of 1980 - a 27.6-fold increase. In a number of industries, including auto, electric and oil, American firms have been ordering machinery, robots and other forms of technology from Japan.
General Motors, for example, has been ordering industrial robots from Kawasaki Heavy Industries, high speed machine tools from Mitsubishi Heavy Industries and large metal presses from Hitachi Shipbuilding and Engineering Company. Westinghouse Electric Company has been conducting talks with Mitsubishi Electric Company about building a heavy electric machinery plant in the U.S. that would operate under Japanese management methods. And in the last few years the cities of New York, Philadelphia, Atlanta and Buffalo have ordered Japanese stock for their subway and train systems.
As this issue went to press, General Motors and Toyota Motor Corporation - two of the world's largest automakers - announced an agreement to jointly produce small cars at GM's idle plant in Fremont, California. According to the Wall Street Journal, the plan calls for a total investment of $300 million; 3,000 workers will be employed. GM will contribute its plant and $20 million, while Toyota will invest $150 million. 50% of the car will be made in the U.S., with the Japanese company manufacturing the car's engine and transmission.
Thus in many ways, the U.S.Japan relationship could be described as one of overall collaboration on economic and security issues, with increasing competition between individual companies. agreement-in-principle that Japan take over the defense of a sector of the North Pacific extending 1,000 miles from the Japanese mainland and supplementing the patrols of the U.S. 7th Fleet.
Chugyo would mean a drastic increase in Japanese military expenditures, including the purchase of 40 missileequipped ships, 15 submarines, 75 F-15 jets, and 72 P-3C anti-submarine patrol planes. But the plan was only grudgingly accepted by the Pentagon, because it would not permit the Japanese military to expand fast enough to suit U.S. strategic planners. On the other hand, it has been viewed in Japan as a maximal goal that can be met only under favorable conditions.
This year, conditions in Japan are far from favorable. In fiscal year 1982 (which ends in March, 1983), the country is expected to have a revenue shortfall of some
Defense and Japan's Budget Crisis
In the last few years, serious disagreements have occurred over the extent of Japan's military buildup. In spite of the Japanese government's enthusiasm for rearmament, it has been unable to do enough to satisfy U.S. demands.
How far apart the two countries are can be seen from what has happened to the Medium-Term Procurement Plan (Chugyo), drafted by the Japanese government in response to the 1981 Hawaii meeting of military experts from the two countries.
The Hawaii conference formulated an $15 billion, which will push the deficit up past the $70 billion figure of last year.
The deficit has become the country's number one political issue, and has caused real cutbacks in all domestic government spending.
As a result, Nakasone's latest budget failed to raise defense spending sufficiently to meet the goals of the Chugyo. In particular, Nakasone was forced by pressure from other party and government leaders, who resented some of the other cutbacks, to hold the increase to 6.5% and to make a one-third reduction in the number of U.S. F-15 fighter bombers and P-3C antisubmarine patrol planes to be purchased. The result: defense spending will remain under the traditional limit of 1% of the GNP in 1983.
In 1984, however, already-contracted procurement bills will definitely send the arms spending up past that limit. By doing so, Nakasone will be in the politically vulnerable position of having gone too far for his Japanese constituency without having satisfied the American demands.
The domestic aspects of Nakasone's program are also meeting opposition as stiff as Reagan's. Budget cuts in Japan go under the term "administrative reform," and like Reagan's "welfare cheats," Nakasone has a scapegoat - the railway unions, along with other government employees (other than top and mid-level bureaucrats) who are organized in fairly militant unions affiliated with the opposition Socialist Party. Nakasone hopes to break the power of those unions and to achieve massive cutbacks in the employment levels, pay-scales, grievance privileges of these workers, as well as slashing rail service to remote areas. Moreover, a propaganda campaign is being waged to convince the Japanese public that the "lazy, overpaid" rail workers are to blame for the nation's economic problems, and that, as a remedy, the entire "administrative reform" package should be adopted.
That package is the brainchild of Doko Toshio, the country's most prominent and respected business leader. Symbolic of the energetic tycoons who oversaw the rebuilding of industry in the post-war years, he became president of the largest business federation, the Keidanren. Upon retiring, he was appointed chairman of the Commission on Administrative Reform in 1981. In addition to crushing the unions in the government corporations and in the local government offices, he has recommended a freeze on government workers' pay, a cutback in the farm subsidies that keep the country's large farm population solvent and an across-the-board cut of 5% in social spending. In the primary election campaign that gave him the premiership (see other article), Nakasone ran as the candidate most strongly committed to the goal of implementing Doko's proposals.
Nakasone's problem is that administrative reform steps on a lot of toes besides those of the socialist rail workers. Farmers need their subsidies, small townspeople need their money-losing rail lines, government bureaucrats want pay hikes, and regional business interests depend on pork-barrel government spending projects that are facing the ax. Only the big Japanese multinationals, who depend on world, rather than local, economic conditions for their earnings, support the full range of "reforms" - because they force all the other sectors of the economy to bear the burden of a shrinking economy. Like Reagan, Nakasone and Doko are pledged to prevent a tax increase that would affect big business profits; and like Reagan, they will have a hard time keeping it.
Should Nakasone fail to implement the administrative reform proposals, his cabinet will be in a very precarious position; losses in this year's Upper House election would also undermine his support within the ruling party, as could the ongoing Lockheed bribery scandal.
Nakasone will very likely last at least two years, but if he falls, he will probably be replaced by one of a new generation of politicians, the most prominent of whom is Foreign Minister Abe, an opponent in last year's primary.
Until recently Minister of International Trade and Industry, Abe is - like Nakasone - a strong nationalist. The trade ministry is a stronghold of economic nationalism, and Abe may have been a major factor in Nakasone's firm stand on Washington's trade-related demands.
Phil Hill is the Washington correspondent for East-West Magazine (Honolulu). He has written for Pacific News Service, Jiji Press and Guardian.