Are the Japanese in the future going to use their relatively new-found economic power wisely? Lots of people around the world - and certainly not just the Americans - are asking this important question these days.
Power, of course, is being capable of making others act according to your wishes perhaps for their own as well as your benefit. But using power wisely obviously means making concessions, so they will like it or at least accept it more or less willingly and without bitterness. And in affairs of state, the easiest way to achieve that desired condition is to refrain from pressing one's advantage to the ultimate end no matter the consequences.The problem is that serious conflicts are bound to arise when two sides in an economic dispute fail to agree as to how extensive is the other's strength. Furthermore, because the balance of economic power can shift more easily (and more quickly) today than ever before, the potential for market tensions has greatly increased.
Japan, for example, now enjoys a predominant position as the second most important global economy. However, there appears to be a continuing reluctance in Tokyo to accept that along with this tremendous strength goes added responsibilities, especially toward the United States and the countries of the Common Market. It is worth noting, for instance, that two-way tradebetween the United States and Japan last year amounted to $95 billion, making the United States by far the biggest market for Japanese manufacturers. In turn, Japan is the largest market for U.S. exports, except for Canada. But the result was a bilateral surplus for the Japanese in 1985 of slightly under $50 billion - a whopping figure. In the case of the European Community, Japan's trade surplus last year was less than half that of the nation's growing gap with the United States. But it has doubled in only eight years, reaching an all-time high of $12.9 billion by last December.
Over the past six years, despite a series of so-called market-opening packages, voluntary restraints and drastic yen/dollar exchange rate adjustments, Japanese imports from all sources dropped by 7 percent (from $140 billion to only $130 billion). At the same time, the nation's exports soared by 35 percent.
As for Japan's trade with the United States, the country's imports during the past year alone fell by 5 percent even while the two nations were continually discussing ways to expand access to Japanese markets for foreign products. From another aspect, the Japanese also had a net long-term capital outflow of $64.5 billion last year. More than half of that, or $33.2 billion, was invested in the United States. Admittedly, much of that investment was in Treasury bills, greatly assisting Washington in financing the country's monumental budget deficit.
Yet there is no sign of any slowing down. Many analysts agree with the estimate that this growth will continue at an annual rate of about 14.2 percent up until the turn of the century. Direct U.S. investment in Japan also is substantial, amounting to nearly $9 billion as of the end of last year.
Estimates for the current year, it turns out, show that Japan most probably will rack up a surplus in trade with the United States by the end of the year of $70 billion or more. As for the EC, Japan's trade surplus may well exceed $20 billion this year. This likelihood clearly alarms the Europeans.
These statistics and their implications are overwhelming. There can be no doubt but that this situation poses a very serious burden for the entire world trading system. Eventually, given the resulting spur to protectionist forces, this could lead to a total breakdown in the very same system. Japan bashing aside, it is now obvious to many economists outside Japan that the nation more properly should be contributing to world economic growth by becoming a net importer for a time instead of benefiting so handsomely in the short term from steady global ex pansion as a net exporter of such tremendous proportions.
Apparent helplessness on the part of the so far unresponsive Japanese can be partly explained by domestic politics, of course. But it should also be pointed out that they appear somehow to be psychologically unable to use their economic power, even in order to protect their rightful long-term interests. Whether this stems from self-applied blinders is another matter. Yet only a few Japanese (in both political and business circles) seem prepared to recognize that Japan today stands at a dangerous crossroads - and must hurriedly deal with its chronic annual trade surpluses if the country is to assume its rightful place as a major econom ic force.
Mike Mansfield, the highly astute U.S. ambassador to Tokyo, only recently stressed Japan must expedite efforts to carry out the practical recommendations of the Maekawa Commission in order to substantially reduce the nation's massive trade and current account surpluses, at least to levels more consistent with international harmony. This means abandoning chauvinism and providing much more open access to the Japanese market for foreign goods, striving for a stable and even stronger yen and making major structural adjustments in the national economy - all to produce a truly domestic-led economic expansion in the not too distant future.
Haruo Maekawa, former Bank of Japan governor who headed the advisory panel producing the recommendations for Prime Minister Yasuhiro Nakasone, is wise enough to see the severe dangers of maintaining the present Japanese economic structure (which is so export reliant) despite the political costs involved in changing it. Only last month he warned in this regard that Japan maybe headed straight toward an unheard-of current account surplus this year of between $70 billion and $80 billion, for instance.
Although he didn't say so in just so many words, it would appear that nothing less than the survival of the West's free trading system as we know it could be directly involved at this point. Since the stakes are obviously much too high, a confrontation of this magnitude between Japan and the Western powers absolutely must be avoided.