Hefty Tariffs on Japanese Cars Planned By U. S. in Escalation of Trade Fight

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Hefty Tariffs on Japanese Cars Planned
By U . S . in Escalation of Trade Fight

By Bob Davis and Helene Cooper


The Wall Street Journal
Page A2
(Copyright (c) 1995, Dow Jones & Co., Inc.)

WASHINGTON -- In a sharp escalation of earlier trade battles with Japan, the U.S. plans to target Japanese luxury cars and possibly minivans with hefty tariffs to price them out of the market.

The auto sanctions, which the U.S. plans to announce by the end of the week, will intensify the decades-old trade fight with Japan. In other trade battles, the U.S. generally levied sanctions on products that weren't as popular with consumers in order to minimize the impact of the fight. This time, though, the U.S. is going after mainstay Japanese consumer products to pressure Japanese producers, bolster President Clinton's reputation for resoluteness, and score points with disaffected blue-collar workers.

Administration officials are plotting a two-part strategy for turning up the pressure this week. Tomorrow, U.S. Trade Representative Mickey Kantor plans to confirm that President Clinton has instructed him to seek sanctions on Japanese goods, but Mr. Kantor probably won't itemize the products involved. The full sanctions list should be published by the end of the week; that announcement, however, might slip into next week, U.S. officials said. By stretching out the announcement, the administration believes it can dominate the news and prepare the public for sanctions that would force consumers to pay more for cars or buy from other suppliers.

Among the autos that may be targeted for sanctions are Toyota Motor Corp.'s Lexus, Honda Motor Co.'s Acura Legend, and Nissan Motor Co.'s Infiniti, as well as minivans such as Toyota's Previa. Industry officials estimate that tariffs on the vehicles will rise from 2.5% to perhaps 20%. Although administration officials won't confirm that level and stress that final decisions haven't yet been made, they say they plan to make the tariffs high enough to kill sales. They estimate that Japanese car makers sell to the U.S. about $4.5 billion of luxury cars a year.

Spokesmen for Japanese auto makers said they had no comment on the sanctions, since the U.S. hasn't made an official announcement. But "we are very much concerned" about the increase in U.S.-Japan trade tension in general, said Honda spokesman Yoichi Harada. Toyota spokesman Stephen Berkov noted that the high-end luxury models mentioned by the U.S. are "obviously high-profit areas" for the Japanese auto maker.

The strategy could backfire in a number of ways. Given the way U.S. trade law works, tariffs won't actually rise for 60 days or so -- perhaps setting off a boom in Acura or Previa sales before the deadline. Moreover, consumers may vent their ire on the U.S. government, not Japan. While beating up on Japan is a popular U.S. trade sport, consumers rarely are forced to consider the consequences. Japanese car makers -- and their U.S. car dealers -- are sure to brand the U.S. action as a Clinton-inspired tax on consumers, reinforcing any consumer anger with the administration. Moreover, the Big Three auto makers may use the sanctions against their Japanese competitors to raise prices on domestic cars.

The planned trade sanctions follow the breakdown of talks last Friday between U.S. and Japanese negotiators. The two nations are squabbling over U.S. access to Japan's spare-parts market, and U.S. insistence that Japanese car makers announce "voluntary plans" for future purchases of U.S.-made auto parts. Japan has said it will appeal any sanctions to the World Trade Organization.

In a 1987 dispute with Japan over semiconductors, the U.S. chose a list of mostly innocuous goods for $300 million of sanctions. Among the imports were grinders, sanders, polishers, rotary drills, electropneumatic hammers, low-performance computers, and color television sets of a size no longer widely made in Japan. Laptop computers were also on the list, but those computers didn't sell widely then and were also made elsewhere.

One principle remains constant in choosing sanctions: The only items chosen are those that consumers can get elsewhere. For instance, the U.S. hasn't any plans to impose sanctions on videocassette recorders, which are made almost exclusively in Japan. Laptop computers aren't expected to make the list now, either, because they're currently in much wider demand.

This time, though, the U.S. is choosing to hit high-profile cars to pressure Japanese car makers to pledge to buy more U.S.-made parts. U.S. negotiators say they believe those manufacturers are willing to deal -- a position denied by Japanese car makers themselves -- but are being held back by Japanese government officials. By targeting the Japanese car industry, U.S. officials believe, those companies will pressure the Japanese government to cut a deal.

Japanese car makers "are losing money in sales to the U.S. anyway," says Gary Hufbauer, a trade analyst at the Institute for International Economics, a Washington think tank. "Now that's a double whammy. So, the [Japanese] companies might compromise."

The Japan strategy is designed to bolster President Clinton's domestic standing, too. If wealthy Infiniti or Lexus buyers carp about the price rise, administration strategists figure, that will only help Mr. Clinton win back disaffected middle-class voters. The symbolism is trickier with minivans, which are emblematic of U.S. suburban life. By targeting those, the Clinton administration would run the risk of upsetting middle-class voters.
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