The Economy: A Costly Trade Victory over Japan

AS he boarded the Spirit of '76 after sharing tea and sympathy with Emperor Hirohito in Alaska last month, President Nixon gave U.S. Ambassador to Tokyo Armin Meyer a laconic description of a large problem. When it comes to trouble between the U.S. and Japan, said the President, "The code word is 'textiles.' "

The code word was still the same last week when U.S. Ambassador-at-Large David Kennedy and Kakuei Tanaka, head of Japan's Ministry of International Trade and Industry (MITI), met in Tokyo to initial an agreement severely restricting Japanese textile sales to the U.S. Exports of synthetic garments and cloth will be permitted to rise only 5% and exports of woolens only 1% annually for the next three years. Even that limit may not be reached, because the pact also contains strict item-by-item regulation of 18 specific categories of products; it allows the Japanese almost no freedom to switch shipments from a slowly selling fabric to one which suddenly becomes in great demand.

The "Enemy." Harsh as the terms seemed, the Japanese had little choice. They were "negotiating" under a Nixon ultimatum: agree by Oct. 15 or the White House would impose mandatory quotas under the U.S. Trading with the Enemy Act. U.S. officials further warned that failure to agree to textile quotas could delay the return of Okinawa to Japanese control. With the same strong-arm threat of mandatory quotas, the U.S. forced similar agreements on South Korea, Taiwan and Hong Kong last week. In return, the U.S. lifted the 10% surcharge on textiles from all countries. Except for steel, goods that are restricted by import quotas are exempt from the surcharge, and under rules of the General Agreement on Tariffs and Trade, a duty removed from products of one country must be removed for all countries.

The agreement will wipe out some jobs, and even though the Tokyo government stands ready to provide $700 million to buy up surplus spindles and outdated machinery, Japanese textile manufacturers are not mollified. Last week they organized rallies throughout Japan eclipsing the anti-import rallies staged earlier in the U.S. MITI experts estimate that Japan's textile sales to the U.S. will drop to $530 million a year, from a recent high rate of some $560 million—to say nothing of the $750 million that might have been reached without restrictions. However drastic, that reduction will not save many jobs in the U.S. textile industry; imports from Japan account for only 2% to 3% of the U.S. textile market.