Courtesy Reuters

Japan: Stimulus or Scapegoat?

Japan is today our largest overseas trade partner and the primary source of competition for American industry. This article, therefore, focuses on Japan and to some extent on the electronics industries-including computers, semiconductors and other industrial and consumer electronics equipment-as typical of the high technology areas where competition with Japanese firms is most intense. Most of the measures which will help to make the American electronics industries more competitive apply equally to all American industry.

Although Japan is the focus, it is important to keep in mind that many of the problems touched on in our trade with Japan apply, sometimes with greater force, to our trade with other nations. Germany, the United Kingdom and France, for example, have all taken strong measures to support their high technology industries. Even before the socialists and nationalization, France was a far tougher market for American electronics companies to penetrate than Japan.

This is not a propitious moment for the multilateral trading system that has contributed so much to economic growth and prosperity since World War II. The alternative of returning to the protectionist Smoot-Hawley tariff era of the 1930s is not a viable choice. The first major country to expand broadly into protective measures is sure to be met with retaliation by its trading partners. A spiraling down of world trade is all too likely to occur, unless those of us who believe in the benefits of the free trading system are willing to work hard to preserve it from the attacks of industries that suffer from imports taking over their markets, and from legislators who quite naturally respond to the pressures of their voters, particularly when unemployment is a major problem.

II

The strength of the Japanese economy, and in particular its electronics industries, is a product of Japanese government policy which has created a consistently favorable climate for Japanese business and taken special measures to help the Japanese electronics industries. Each of these areas needs a careful look.

Japan starts with

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