UNITED STATES EXPORTS TO JAPAN

Since a third of Japan’s imports come from the United States, we might expect them to be broadly representative, in composition, of total Japanese imports—as, indeed, they are. Japan buys from the United States chiefly foodstuffs, raw cotton, coal, petroleum, machinery, and metal products (see Table VIII-3). Japan’s billion-dollar shopping bill in the United States was distributed mainly over these items. Why, when they can sell us only half as much as they buy from us, do the Japanese continue to purchase such quantities of American goods? In the late forties and early fifties there were two reasons: greater availability of supplies and lower prices in the United States. Later, when world raw material prices receded and we lost some of our earlier price advantage, we resorted to surplus commodity disposal arrangements, quoting lower-than-market prices, permitting payment in yen, and even lending the yen for Japanese economic development. Cotton and wheat are the best examples.

In the case of cotton, in 1951, when the inflationary impact of the Korean War had raised world commodity prices, United States quotations were lower than others. By 1956, however, when other producers—Pakistan, Mexico, and Brazil—could compete on a price basis, as the following table reveals, the United States, in order to dispose of its cotton, arranged special disposal deals at concessions of 5 to 7 cents a pound.

American cotton manufacturers have complained bitterly in recent years that the government has been selling cotton to Japanese manufacturers at prices up to 10 cents a pound less than those paid by American buyers. Moreover, a series of revolving credits from the United States Export-Import Bank, amounting to approximately $60 million a year, has enabled Japan to buy American cotton on convenient payment terms.

In the case of foodstuffs, while American prices have generally been above those of major producers, as the table below indicates, shortages in the late forties and early fifties (especially in Asia, where populations were far larger than prewar but food output lagged behind until 1952-53),⁶ enabled the United States to sell readily.

RICE AND WHEAT PRICES OF MAJOR PRODUCERS
(U.S. dollars)

Source: International Financial Statistics, International Monetary Fund, Vol. X, No. 6, June 1957, p. 39.

Beginning in 1954 the United States sought to dispose of surplus commodities abroad by agreement. The first United States-Japan sales agreement was signed on March 8, 1954 under Section 550 of the Mutual Security Act of 1951. It provided for sales of United States surpluses, primarily wheat, valued at $50 million. The second, signed May 31, 1955, was under Public Law 480 (Agricultural Trade Development and Assistance Act of 1954), and provided for sales valued at $85 million. The third, signed February 10, 1956, was also under Public Law 480 and provided for $65.8 million of commodity sales.

In each case the yen sales proceeds were divided into two categories. The first, representing 75 percent of the total, was loaned to the Japanese for economic development purposes. The remaining 25 percent was spent in Japan by the United States for a variety of purposes.⁷ Early in 1957 the Japanese announced that they had decided to stop the purchase of United States surplus farm products. Among the reasons given for this step were Japan’s bumper harvests and a desire to purchase more wheat from Australia in order to open up that country’s market to Japan’s industrial products.⁸ This step was in keeping with Japan’s desire, where possible, to shift purchases from the dollar to the sterling area. Later in the year, however, there was a change of attitude, and Japan borrowed $115 million from the U.S. Export-Import Bank to purchase agricultural commodities. These purchases will be paid for in dollars, however, and not in yen as would be the case under Public Law 480.

One of the consequences of lack of convertibility is that any surplus Japan realizes in its trade with the sterling area cannot be used to make up its dollar deficit. Japan has tended to buy more from the dollar area but sell more to the sterling area, and it is for this reason that it wishes to shift purchases to the sterling area.

Japan has been the best single foreign customer for American farm products. During the four-year period, 1952-55, it purchased agricultural commodities from the United States in excess of $1.6 billion. Its closest competitors, as customers for United States farm products, were the United Kingdom, which took some $1.3 billion; Canada, $1.2 billion; and West Germany, $1.0 billion. In 1956 Japan purchased $179 million of raw cotton from the United States, one-third of its total cotton imports.⁹ Every fourth bale of cotton exported from the United States goes to Japan. Over the five years 1952-56 Japan bought more than 4 million bales of cotton, more than the combined exports to our two next best customers, France and the United Kingdom. One-sixth of the wheat the United States exports goes to Japan, as does 40 percent of the rice we sell abroad, 29 percent of United States soybean exports, 30 percent of United States raw hide and skin shipments, 23 percent of barley exports, 20 percent of inedible tallow, and 20 percent of dry milk. Yet, except on a giveaway basis, the American farmer cannot long hope to retain this important market, unless (a) world currency convertibility is restored, or (b) Japan is allowed to sell more in the United States than it has in the past.

JAPANESE EXPORTS TO THE UNITED STATES

From the tremendous outcry raised by United States textile producers, the average American could hardly help having the impression that Japan has been flooding the American market with hundreds of millions of dollars’ worth of cotton textiles. Actually, in the postwar period, Japan has made a very real attempt to diversify its exports to the United States (see Table VIII-4). Its shipments of cotton textiles have been only 2 percent of total United States cotton textile production, and United States textile exports have far surpassed textile imports. In 1956 Japan’s exports of cotton manufactures to the United States (including everything from cotton fibers to cotton dishrags, as well as apparel, especially blouses) amounted to only 15 percent (1955, 14 percent) of total Japanese exports to the United States.

TABLE VIII-4. U.S. IMPORTS FROM JAPAN, PRINCIPAL COMMODITIES, 1954-1956

Source: U.S. Department of Commerce, International Economic Analysis Division.

Surprisingly, then, all the commotion involved $60 million worth of imports in 1955 and $84 million in 1956, out of total United States imports of $11.4 billion in 1955 and $12.7 billion in 1956—0.5 and 0.6 percent respectively. Clearly the cotton textile issue was magnified out of all proportion to the economic dimensions involved. As Table VIII-5 reveals, wool and silk manufactures shipped by Japan to the United States together exceeded cotton manufactures in 1956 and yet raised no outcry.

TABLE VIII-5. U.S. IMPORTS FOR CONSUMPTION FROM JAPAN, 1952-1956

Source: U.S. Department of Commerce, International Economic Analysis Division

The marked diversification of Japan’s exports is apparent from the wide variety of products shown in Table VIII-5. They include tuna fish and crab meat, cotton textiles, burlap, wool and silk products, ceramics, porcelains, pearls, toys, jewelry, sewing machines, chinaware, bicycles, cameras, optical goods, plywood, and many other articles. Furthermore the Japanese have wisely begun to aim for the United States quality market, realizing that this is a more lucrative and permanent market than that for cheap and shoddy goods.¹⁰

THE COTTON TEXTILE CONTROVERSY: PRO AND CON

The pain induced by Japanese textile imports is much like a needle prick. The intensity of the hurt is out of all proportion to the size of the puncture. Only a few segments of the American textile industry have felt the full and direct impact of Japanese shipments—makers of velveteens and ginghams, and cotton blouses—but the rest of the industry, perhaps in anticipation, raised its voice in protest. And the chorus was swelled by organizations ranging from the Clothespin Manufacturers of America to the Tuna Fishermen’s Wives Emergency Committee.

Broadly, the complaint against Japanese cotton shipments is that they constitute unfair competition. This view was tersely voiced by Representative Harrison of Virginia at a Congressional hearing:

Is it fair to say that that industry [cotton textiles], because it cannot meet existing competition, is inefficiently managed and cannot meet fair competition, when, as a matter of fact, the Japanese are allowed to buy American cotton cheaper than the American manufacturer can buy it, and he is taxed to make up the difference, and the Japanese have a factory built for them with American money, and that American competitor is taxed to pay that, and the American competitor has to pay a minimum wage of $1 an hour and the Japanese pay about 17 cents an hour?¹¹

Unfortunately, three particular sectors of the American cotton industry—ginghams, velveteens, and cotton blouses—were hit suddenly by a large volume of Japanese shipments in a short period. In 1952 cotton manufactures accounted for $11.8 million or 5 percent of Japan’s sales in the United States. In 1956 they amounted to $83.9 million, or 15 percent of U.S. imports from Japan. Cotton cloth imports, which had amounted to only $343,000 in 1952, rose to $30,428,000 in 1956. Imports of velveteens rose tenfold between 1952 and 1956, from 624,000 square yards in 1952 to 6,898,000 in 1956. Imports of cotton blouses and shirts rose from less than $100,000 in 1952 to $29,439,000 in 1956.¹² In the case of cotton blouses, Fortune reported:

Typical was the much-publicized $1 blouse incident. In 1954 the Japanese sold some 189,000 dozen cotton blouses and shirts to the United States. Then a handful of American importers awoke to the fact that Japanese blouses could be retailed for as little as $1, underselling domestic makers by as much as $2. The American importers made hurried trips to Japan with fresh American designs and precious dollars. In 1955 an estimated three million dozen blouses poured across the Pacific and United States manufacturers and labor leaders poured into Washington.¹³

In the case of velveteens, in an escape clause investigation, the United States Tariff Commission found that (a) sales of domestic plain-back velveteens dropped from 3.5 million square yards in 1953 to 1.5 million in 1955, while imports from Japan rose from 600,000 to 1.6 million square yards over the same period, and (b) sales of twill-backed velveteens produced in the United States dropped from 3.3 million square yards in 1953 to 2.7 million in 1955, while over the same period imports rose from 1.9 million to 7.0 million square yards.¹⁴ Accordingly the Commission recommended a doubling of the duty under the escape clause, but President Eisenhower, on January 22, 1957, rejected the proposal on the ground that the Japanese had voluntarily agreed to restrict shipments to the United States. On January 29, 1957 the Tariff Commission discontinued its investigation of gingham imports.

In another escape clause investigation,¹⁵ of cotton pillowcases, the Commission, by a 3-2 vote, found that “cotton pillowcases are not being imported into the United States in such increased quantities, either actual or relative, as to cause or threaten serious injury to the domestic industry producing like or directly competitive articles.” This was a case largely involving Japan, as the following figures taken from the U.S. Tariff Commission’s report¹⁶ indicate:

U.S. IMPORTS OF COTTON SHEETS AND PILLOWCASES, 1953-1955

A solution was reached when the Japanese imposed “voluntary” quotas on shipments of cotton textiles to the United States, despite the fact that in 1955—the year in which the outcry started—Japanese cotton textile exports to the United States amounted to only 1.8 percent of United States domestic consumption.

In December 1955, as a result of United States pressure, the Japanese Textile Export Council adopted quota ceilings of 150 million square yards of cotton fabrics and 2.5 million dozen cotton blouses to be exported to the United States in 1956. Both figures were below the level of exports to the United States in the latter half of 1955. Exports to the United States in 1956 totaled 143 million square yards of cotton cloth. Quotas were imposed on a wide range of textiles, as had been done in 1937. Similar restrictions were placed on sewing machines, canned and frozen tuna fish, plywood, and other products.

Early in 1957 the Japanese announced a cotton export control program providing for an overall annual quota ceiling of 235 million square yards on all types of cotton textile exports to the United States, effective January 1, 1957 for a five-year period subject to an annual review. Within this overall limit, subquotas were set as follows:¹⁷

a Export limit for each of the first two years only.

The overall quota of 235 million square yards compares with Japan’s actual exports to the U.S. of 270 million square yards in 1955 and 290 million square yards in 1956. The 1957-61 annual cotton cloth quota of 113 million square yards compares to the 1956 quota of 150 million square yards and actual imports from Japan in 1956 of 143 million square yards. The figures for velveteens and ginghams represent 50 percent reductions from the 1956 quotas established by Japan. As the Wall Street Journal put it: “The ‘voluntary’ quotas by Japan culminate months-long efforts by United States officials to get the nation to restrict her cotton textile shipments here in many categories.”¹⁸

A Japanese manufacturer’s reaction was: “Japan has been shut out of the fishing grounds where there are plenty of fish and given more freedom in fishing grounds where there are few fish.”

The bitterness of the Japanese over these “voluntary” quotas is apparent when they point to the fact that American cotton mills were operating at full capacity in 1956 while Japanese mills were partly idle, and that Japan buys twice as much raw cotton from the United States as it is permitted to sell cotton cloth to the United States.¹⁹

The Oriental Economist observed pointedly:

Japan buys from the U.S. double as much as it sells to that country as indicated by trade between the two countries in 1956 which registered Japanese imports at about $1,000 million and exports at $500 million. The United States is predominantly rich enough to fare well without restricting imports from other countries. If, therefore, the United States is really desirous of promoting world economy, she should be magnanimous enough to open her market wide for purchases from overseas in order to put an end to the world-wide dollar shortage. World economic prosperity is the key to world peace.²⁰

In May 1956 the United States Tariff Commission reported to the United States Senate Finance Committee that imports “are not offering serious competition to most segments of the domestic textile industry.” The Commission stated that “an exceedingly small part of the domestic consumption of cotton manufactures is supplied by imports, and Japan accounts for only a part of such imports.” The Commission pointed out that:

(1) “The United States exports cotton manufactures to a far greater extent than it imports them” and even exports some to Japan.

(2) Japanese exports to Canada, the largest market for United States textiles, rose from just under $1 million in 1954 to $4.6 million in 1955. But during the same period United States textile exports to Canada rose from $56.1 million to $61.4 million.

(3) At present the ratio of United States textile imports to textile exports is “very much lower” than it was before World War II, though this ratio has risen in the last few years.

(4) The United States textile export situation is very real evidence that “the competitive position of many segments of the domestic textile industry vis-a-vis foreign producers is relatively strong.”

(5) “It is clear that textile manufacturers in Japan do not have an across-the-board competitive advantage over the United States.”²¹

In reviewing American foreign economic policy in 1956, a special committee of the American Bankers Association declared:

Whatever the advantages or disadvantages of this particular instance of trade restrictions, the arrangement to control Japan’s cotton-textile sales in this country by means of a quota points up an issue of significance for future trade policy. Domestic interests seeking protection from foreign competition appear to be directing their efforts more and more to securing relief by means of quotas rather than increases in tariff rates. Quotas, whether imposed unilaterally or by mutual agreement, are thought to interfere more with the efficient working of the international market mechanism than tariffs do. Moreover, quotas involve a greater degree of bureaucratic regulation and are more conducive to discrimination. The United States has argued against use of quantitative measures by other countries to restrict purchases of American goods. The increasing pressure for the use of quotas not only weakens this position but poses a fundamental question for the future of United States trade policy.²²

The controversy over textiles, tariffs, and quotas should not, however, be allowed to obscure the very essential assistance which the United States has rendered Japan in helping to restore its position in world markets. In a Treaty of Friendship, Commerce, and Navigation, signed April 2,1953, both countries affirmed their adherence to the principle of nondiscriminatory treatment of trade and shipping. In 1955, largely at American insistence, Japan was admitted to membership in the General Agreement on Tariffs and Trade, and the United States not only negotiated tariff concessions with Japan but used its own tariff concessions to third countries to secure more favorable treatment for Japan. Two trade agreements, one in 1955 and the other in 1956, were concluded between the United States and Japan within the framework of GATT.²³ Although it is not generally realized, the U.S. Export-Import Bank has provided significant help to Japan. Its 24 loans to Japan amount to $613 million. This compares with nine loans amounting to $90 million which have been extended by the International Bank for Reconstruction and Development.

While the Japanese are not unaware of these favorable factors, they are concerned at the rising protectionist sentiment in the United States. The Foreign Trade White Paper declared:

We should not overlook the fact that the favorable trend on Japan’s export to the U.S.A. has been supported by the tariff reduction made by the U.S.A. in 1956 as well as by the improvement of the quality of Japanese goods and the active demand for our merchandise influenced by the popularization of Japanese taste in that country, but, on the other hand, the restriction on our principal goods was more rigorous in 1956. . . .

At the end of 1956 the U.S. made an investigation to confirm the rumor of Japan’s dumping export of canned tuna, and after three months’ inquiry, it was proved a canard. As for Japanese plywood, the concerned parties in that country have a tendency to import restriction of Japanese plywood. This is clearly shown by the quantitative restriction bill on import of plywood which was submitted to U.S. Congress in March 1957. . . .

Japan largely depends on U.S.A. for the supply of various goods; the imports from the U.S.A. accounted for one-third of the whole import of Japan in 1955 and 1956. The increase of our import from the U.S.A. accounted for 40% of the whole 1956 import increase. In other words, the U.S.A. is the most important source of food and industrial materials to Japan.²⁴

One paragraph in the report of the United States Trade Mission to Japan reads:

As one Japanese businessman put it in a discussion with the trade mission, “We Japanese do not now pray to the United States, ‘Give us this day our daily bread,’ but ‘Give us this day an opportunity to earn our livelihood.’ ” This spirit is one which should be welcome to the American people, and one which we should encourage.²⁵

Generally speaking, except for textiles, tuna, and plywood, the United States has not discouraged Japan from seeking to increase its exports to the United States. With continued diversification of exports to America and with continued upgrading to aim at the quality market, there would appear to be considerable room for increased Japanese sales in the United States. Should protectionist sentiment here, however, reassert its former dominance, Japan would be driven to seek other sources of supply. The recently concluded trade agreement with Australia is a straw in the wind. It may enable Japan to sell a good deal more in Australia and, as a result, to switch some of its wheat purchases from the United States to Australia. The most serious consequence of excluding Japanese products from the American market would be to drive Japan to seek more extensive trade arrangements with Communist China.²⁶

The arithmetic of the situation is very simple. Japan buys one billion dollars’ worth of goods from us. It pays for half with the special procurement dollars we make available. The other half is paid for by the goods Japan sells us. If we cut the special procurement in half and, by increasing trade barriers, also cut Japan’s sales to us in half, it will be able to earn only $500 million and therefore to buy only $500 million from us. The other $500 million of goods it formerly obtained from us will have to be purchased elsewhere. Since they are essential, needed goods, Japan will seek to buy them from countries which will take its goods in exchange. In the absence of currency convertibility Japan’s latent dollar shortage looms large.

Looking at the total picture of Japanese-American trade, one can only agree with the observation that: “It would be strange indeed if we should lose the friendship of 90 million Japanese and gain exclusive control of the domestic market for cotton dishrags.”²⁷

* These were waived by Japan in the reparations agreement signed in 1958.