No Guarantees


When George Bush threw up at a state dinner in Tokyo last January, he inadvertently expressed the appropriate response to the special pleadings of America's Big Three automakers. Unfortunately, it was Japanese Prime Minister Kiichi Miyazawa, rather than Chrysler chairman Lee Iacocca, who bore the brunt of the president's nausea.

Though a public-relations disaster, Bush's trip, by highlighting the hypocrisy of Iacocca et al., may yet have a positive impact on trade policy. It's difficult to see how anyone who followed the story could have failed to see the mendacity of these self-proclaimed free-trade advocates: We're not protectionists, they said, but we may not be able to stop Congress from slapping more tariffs on Japanese imports unless trade relations improve.

There is room for improvement. Like the United States, Japan maintains various trade barriers, including some in the auto industry. But the sort of improvement the Big Three have in mind is evident from their response to Japanese concessions.

Among other things, the Japanese government agreed to offer low-interest loans and tax incentives to U.S. firms doing business in Japan. Japanese car companies said they would buy more foreign-made auto parts and try to double the number of U.S. cars sold in Japan each year. American automakers objected not to the nature of these commitments but to their size. They like the idea of special assistance and guaranteed sales.

You might think that the Big Three would be embarrassed by the implication of this approach—that American manufacturers cannot compete without affirmative action. But like arrogant beggars, the heads of America's car companies consider a handout a matter of right rather than charity. "We didn't ask them to make concessions," insisted G.M. chairman Robert C. Stempel. "We're not asking that they give us anything. We're just asking to compete."

Of course, they're asking for much more than that: They're asking—really, demanding—to compete without risk. When asked why they don't open manufacturing plants in Japan, why they don't set up their own distribution systems, why until recently they couldn't even produce a car with the steering wheel on the right side to accommodate Japanese drivers, U.S. automakers always give the same response: Too risky. We can't make those kinds of investments until we have enough sales volume to justify them.

"It would be nice to have factories here, but you go where you are wanted," Iaccoca said. "Obviously, if the market really starts to grow, you would like your own distribution system," Stempel said, "but we are not considering that now."

Japanese automakers think their U.S. counterparts have it exactly backwards: You build sales by making investments up front, by adapting your product to the new market, by taking a chance. The evidence suggests that this approach works. Such companies as Applied Materials, Schick, and Coca-Cola have pursued it successfully in Japan. And Japanese companies have used it to capture one-third of the U.S. car market. By contrast, American companies make less than 1 percent of the cars sold in Japan.

It's not credible to attribute this huge difference entirely to exclusionary trade practices, as the Big Three implicitly do. While some Japanese policies discourage private car ownership and raise the prices of foreign vehicles, they cannot account for the virtual absence of American cars from the Japanese marketplace. They certainly cannot explain why European car-makers are much more successful in Japan than their U.S. competitors, or why the Big Three are losing ground to the Japanese at home.

Indeed, complaints about Japanese protectionism from American car-makers are notably short on specifics. Taking a cue from U.S. civil-rights law, the Big Three prefer simply to assume that any statistical disparity is due to unfair discrimination. They try to justify this assumption, if at all, by citing the improved quality of American cars. But these speeches are aimed at politicians and policy makers rather than consumers. And that, in a nutshell, is the problem.