Capital goods and consumer goods are fundamentally not the same. For capital goods, quality is a bigger concern than price. American manufacturers, for better or worse, when it comes to special orders for supplying parts and machinery know that only Japanese manufacturers can be sure to meet delivery dates. Therefore they import capital goods from Japan. If America’s total imports don’t fall, you end up in this situation.

Since the Japan car market was liberalized, Germany’s BMW and Benz have made great efforts and sales have increased. British cars are also selling. But sales of American cars are not increasing. Instead, as with Honda cars, Japanese manufacturers are re-importing cars made in American factories and the number of cars imported by America’s big 3 car makers is not increasing.

Despite that, American manufacturers, in order to sell Mitsubishi and Isuzu as their own brand, are buying about 300,000 cars. They have no interest in selling to Japan but are buying Japanese cars in large quantities and that in itself is clearly a great imbalance.

If America seriously wanted to redress the imbalance, American manufacturers should reduce the amount of Japanese goods they buy. I say this to the American Government at every opportunity. Japan is working hard, but American manufacturers also have to work at it. Why doesn’t the American Government tell its manufacturers to rely less on Japanese goods and make its own?

However, the American Government will say that is against the essence of free markets, while at the same time in negotiations, tell Japan it should enforce a 20% market share of foreign made semi-conductors. They would rather tell Japanese manufacturers to buy their semi-conductors. I ask why Japanese manufacturers should take orders but cannot give orders to US manufacturers.

America and Japan should cooperate and analyze in detail what Japan and America buys each year. Compared to 5 years ago the American population is buying less from Japan but American manufacturers are buying more. If your country’s production relies on another country’s production, no matter how much you criticize their structure, the imbalance won’t be solved.

While pointing at Japan’s structure, a recognition of America’s industrial structure should also be taken into account. I think that is where the Japan-U.S. Structural Impediments Initiative would be productive. Another factor is that if you look at US-Japanese trade relations, the balance of trade indeed shows America in the red. However, if you consider invisible earnings, then the fundamental balance between America and Japan is not an imbalance.

For example, I run the CBS-Sony Record Company with many hit releases from American singers, such as Michael Jackson, to whom we pay royalties. The same is true of movies and many Japanese visit America on vacation. There is a steady stream of invisible cash that flows into America.

Japan also pours in an enormous amount of money in investment and last year Japan’s fundamental balance was minus. The world economy today is not just about the movement of “things”. It is strange to focus on hardware as a problem, and not count the funds generated by “invisible” software.

America’s service industry, called “the third wave” has developed especially, and on the software side is in surplus. Despite that, the current situation between America and Japan is that it is only the hardware—the materials goods that cross borders—that is focused on, called an imbalance, and said to be in need of correcting. (Continued in Volume 16)

( Extract from"Nijuisseki e" (Towards the 21st Century), published by WAC)