When the dust settles; compromise likely in Japan trade war

After the smoke fades and the shrill shouting dies down, look for a compromise in the U.S. Japan automotive talks as the June 28 deadline for action approaches. The U.S. wants Japan to open its domestic auto parts market and is threatening 100% tariffs on 13 Japanese luxury import models. If the U.S. imposes those sanctions, Japan is considering retaliatory action that might include tariffs on $9.3 billion worth of U.S. agricultural products.

Some say the dispute amounts to little more than posturing -- and with good reason. That's how the battle has played out numerous times over the past 15 years. The U.S. insists on relief, the Japanese say no dice, and when high noon approaches they cut a deal.

Possible scenarios:

* A pact is reached before the June 28 deadline with Japan agreeing to open its domestic auto parts market and promising to get more American cars into Japanese dealerships.

* Both sides agree to let the newly formed World Trade Organization settle the dispute. Bilateral trade sanctions between the two economic superpowers would make the WTO about as relevant as the League of Nations.

* And though most doubt it will ever happen, the U.S. could impose the tariffs, prompting Japan to retaliate and thus ignite a trade war.

The dispute is white hot because there's more at stake than is easily discernible. Sure it's an economic war, but it's also politically charged, to say the least.

The two biggest shooters on each side are running for office -- President Bill Clinton is trying to head off the GOP in next year's election by showing he's tough on trade. MITI minister and chief negotiator, Ryutaro Hashimoto, wants to unseat Japan's Prime Minister, Tomiichi Murayama, in elections that could be called by the end of this year.

By taking a hard line with the U.S., Mr. Hashimoto is scoring points at home, where Mr. Murayama is battling a soft economy, a strong yen and a slipping automotive industry.

The tap root of the dispute was planted 60 years ago. That's when Ford's plan to expand its Japanese auto assembly operation was denied. A series of statutes was then enacted to protect Japan's auto industry from outside competition. Now, the U.S. seems serious about reversing that trend, and it has some big bullets to shoot.

U.S. sanctions, as proposed, threaten the existence of Acura, Infiniti and Lexus in this country. If all three decide not to pass along the duty to customers -- and Honda says it won't -- the usually hugely profitable luxury marques would become liabilities to their parent companies. It's a strategy that neither Nissan Motor Co. Ltd. (Infiniti), Toyota Motor Corp. (Lexus) nor Honda Motor Co. Ltd. (Acura) can keep up for long.

Most think BMW AG and Mercedes-Benz AG would win big if their chief competitors were gone from the market or priced out of it. But Mercedes says not so fast. Its data shows three out of five buyers who shop $25,000 and up Japanese cars would opt for Big Three models if Acura, Infiniti and Lexus weren't around.

And even if sanctions went into play at the end of this month, BMW and Mercedes couldn't take immediate advantage. BMW, Jaguar, Porsche and Volvo all say they have no plans to increase their allocations or their prices.

Besides, with model changeovers for next year due to begin this summer, there's little they can do. Protracted sanctions, however, obviously would tempt them to raise prices on '96 models.

There would be no big winners if the Japanese luxury brands disappear. In the short run, however, Acura, Infiniti and Lexus dealers are reaping extra profits because buyers are rushing to their showrooms trying to beat the tariff. Each has about a two-month supply of cars.

In the long run, consumers of the 200,000 Japanese luxury cars sold in the U.S. each year would splinter between the 40 or so models produced by the Big Three and the Europeans.

The losers, says Richard C. Thomas, executive vice president of Honda's U.S. sales arm, would be the 22,000 employees who work at 600 Acura, Infiniti and Lexus dealerships. Japanese automakers also would lose their $2.5 billion investment to set up their luxury divisions, and local economies would lose a $1 billion annual payroll.

A U.S./Japan trade war is unlikely because the Japanese have few weapons to fight with. So there's reason to believe they'll ultimately open the door to their domestic auto market just a little bit more. And though it won't be as wide as he wants, President Clinton will gladly accept the offer as a victory.