CLYDE PRESTOWITZ: VIEWS FROM AN OLD JAPAN TRADE HAWK
Some of the earliest -- and loudest -- calls for tough tactics when dealing with the Japanese on trade issues came from Clyde Prestowitz. These days, though, he's less of a trade hawk. Japan's trade supluses aren't as damaging as they were in the 1980s when Japan was decimating U.S. industry, he argues. And America's hands are tied, he says, because of the new role of the World Trade Organization in mediating global trade disputes. The former U.S. government trade official now heads the Economic Strategies Institute, where he follows a variety of trade issues. He recently spoke with Business Week Senior News Editor Pete Engardio about Japan.
Q: How do you view Japan these days?
A: Japan is doing very poorly. The big change is the debt left over from the bubble. Another thing that has changed is technology, and Japan hasn't been keeping up with the change. I think Japan is struggling with conversion. And if it is heading toward conversion, it is kicking and screaming all the way. I'm sure they will change some of their structures and practices, and will eventually get their act together. But I don't think it will look like an Anglo-Saxon economy."
Q: What should the U.S. do about Japan?
A: I don't think there's anything we can do unilaterally. Ten years ago, we had continual nasty trade frictions. Then, I said we should recognize we are dealing with a different animal and treat it as such. The analogy I made was AT&T. After its deregulation, we knew the telecom market was a cartel, so we actually managed the competition for awhile so that the cartel wouldn't dominate it. The best examples of managed trade with Japan were in semiconductors and cars. The irony is that had we negotiated more of those deals, the Japanese probably would have been better off today.
Q: Do we still need to manage trade with Japan?
A: I'm not sure a big trade deficit with Japan will endanger us as before. The real issue is disruption. A decade ago, their trade practices caused factories here to close. But not now. I'm also not sure there's a lot more we can do. What we've been doing is badgering, saying 'stimulate, stimulate, stimulate.' Politicians [in America] are amazed that their politicians do not grab at the chance to cut taxes. What's being missed here is that the basis to our approach is that we assume the Japanese economy is kind of like our own. Public works spending will likely end up in Yakuza [the Japanese Mob] and LDP pockets. The Japanese understand that standard stimulus won't work. But they don't know what to do, and we don't know what to do.
Q: So there's nothing that can be done?
A: We gave the Chinese a road map for joining the World Trade Organization. Maybe the U.S. and G7 should give the Japanese a road map. Certainly, they should recapitalize banks. But they also need deregulation -- open skies, telecoms, getting rid of postal savings, land reform, etc. And they need to get rid of the cartels.
Q: How sick is the Japanese economy?
A: I think Japan is in serious trouble, and it will take them awhile to get out of it. I don't think they can really get out of the swamp without struggling with deregulation and a restructuring of the economy. I don't mean just Big Bang stuff, but getting government out of all businesses and really breaking up the cartels and quasi-cartels. That will require significant political changes and cause significant pain to vested interests.
What baffles me a little bit is the debt. It is a time bomb, but the crazy thing is that the Japanese could take care of it, but aren't doing anything. It wouldn't surprise me to see the Japanese belabored over this for some time.
Q: Will Japan's problems hurt the rest of the world?
A: It's very difficult for the rest of Asia to recover in a healthy fashion without Japan getting on track. It really is retarding the recovery of the rest of Asia. If some of these time bombs [in Japan] explode, one can imagine it will have a big impact on the U.S. market. [Some economists think Japan and Asia's problems won't hurt the U.S. and Europe and] when Thailand blew up in July, the assumption was that it was just a Thai problem. And when the rest of Southeast Asia blew up, they said it was O.K. because Korea is fine. It just makes me wonder if conventional wisdom is ever right. Who knows what could happen to our markets if Tokyo tanks.
Another big factor is that whatever growth Asia gets will be export-led. And the only reason Japan isn't contracting faster is because of exports. But Latin America is also purusing export led growth, and so is Europe. Do we have the ability to buy all these exports?
RELATED ITEMS
 - MAIN STORY: JAPAN'S REAL CRISIS
- COVER IMAGE: Japan's Real Crisis
- TABLE: Japan's Debt Trap
- TABLE: What Needs To Be Done
- COMMENTARY: WHY AMERICA WON'T BE NEXT
- CHART: One Bubble or Two?
- COMMENTARY: WHY JAPAN WON'T ACT TO SAVE ITSELF
- ONLINE ORIGINAL: THE CRISIS HITS HOME IN HOKKAIDO
- ONLINE ORIGINAL: CLYDE PRESTOWITZ: VIEWS FROM AN OLD JAPAN TRADE HAWK
- ONLINE ORIGINAL: INVEST IN JAPAN? IT'S NOT OUT OF THE QUESTION
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