Would anyone pay $120,000 for a luxury Japanese automobile that could have been bought a few months earlier for $60,000?
It seems unlikely, but that's what may result if the Clinton administration makes good on its threat Tuesday to slap Japan with punitive tariffs on $5.9 billion worth of Japanese luxury imports.The fight revolves around expanding sales of U.S. cars and parts in Japan.
The 100 percent tariffs would double the price of 13 Japanese luxury marques, ranging in price from $25,000 to more than $50,000. They include the Acura NSX and Legend, the Infiniti Q45 and J30, the Lexus LS400, SC400, SC300 and GS300, the Mazda RX7 and 929, the Mitsubishi Spyder, Nissan 300ZX and Toyota Supra.
None of the affected models is assembled in the United States, and neither are several less expensive Japanese cars, such as the Honda Accord.
Dealerships nationwide warned that such punitive tariffs could force them out of business, meaning lost jobs for thousands of U.S. workers who sell the cars.
Utah auto magnate Larry H. Mil-ler is not so sure. Miller's stable of dealerships includes three of the affected imports: Lexus, Mazda (in Arizona) and Toyota. Asked if he thought buyers would pay $100,000-plus for a top-of-the-line Lexus LS400 that now sells for an average of $60,000, he did not dismiss the possibility.
"You never know. The sanctions would certainly have a major impact, but whether they would put us out of business is unknown. There would be a strong (negative) effect on people who can barely afford to buy a Lexus now, but other people would pay it anyway. Ego's a funny thing. There are those in the luxury car segment who buy a car simply because it is expensive - but it would have to have a strong sales pitch to justify it," said Miller.
Jerry Hayes, president of the Utah Automobile Dealers Association, said he and the affected dealers will meet with the staff of Sen. Orrin Hatch, R-Utah, on May 23 to protest the threatened sanctions.
"The sanctions will seriously impact our dealers," said Hayes. "The federal government already has a luxury tax on cars that is very unfair. They've taken it (the luxury tax) off of jewelry, furs and small aircraft but not cars. We're opposed to that luxury tax, let alone a 100 percent tariff."
Ironically, the sanctions could initially have a highly stimulating effect on the sales of Japanese luxury marques as buyers flock into showrooms to beat the sanctions deadline. Miller agreed that is a distinct possibility but noted that it wouldn't help in the long run.
"We only have 50 to 60 cars on hand. If they all flushed out of the system as a reaction to this, we would be sitting over there selling high-level used cars."
Is President Clinton simply bluffing to force Japan into opening its markets to U.S. exports? Miller said he hopes that's the case.
"I think his intention is to force the issue. But he is dealing with stubborn people on the other side. If both sides plant their feet, they both might do something stupid, even though I can't imagine thembeing foolish enough to risk an all-out trade war. But either way, we have to take it very seriously."
The record $5.9 billion in U.S. trade sanctions would not take effect until June 28, following a period of public comment. The seven-week delay also gives negotiators on both sides a chance to resolve the issue short of sanctions.
It also gives Clinton time to raise the issue personally with Japanese Prime Minister Tomiichi Murayama at the annual economic summit of the world's seven richest industrial countries, June 15-17, in Halifax, Nova Scotia.
In a statement Tuesday the president said, "We can't anymore deny this or sweep it under the rug. We have to go forward, and we are going to do that."
U.S. Trade Representative Mickey Kantor said Tuesday the final target list was unlikely to be reduced much from the preliminary $5.9 billion list.
The United States is seeking an extension of so-called voluntary plans by Japanese automakers to boost their purchases of American-made parts, an increase in Japanese dealerships stocking American cars and a relaxation of safety rules that are seen as a barrier to the sale of U.S.-made auto parts in Japanese repair shops.
The biggest sticking point in the negotiations has been the demand for extension of the so-called voluntary parts-purchasing plans, which the Japanese government has blasted as a smoke screen for numerical targets that Japanese companies will have to meet.
Greg Mastel, a trade specialist at the Economic Strategy Institute in Washington, predicted that in the end, the Japanese car companies will accept the extension of the parts-purchasing plans rather than risk losing the lucrative U.S. luxury car market. He said for that reason, the administration was employing a very savvy negotiating strategy.
"Sanctions on Japanese luxury cars would be devastating to the Japanese car companies. They know how serious they would be to their profitability," Mastel said.
In Tokyo, Japan said it would ask the World Trade Organization to block the U.S. move. That response contrasted with previous disputes in which Japan has often yielded to U.S. pressure at the last minute.
"The U.S. government conducts its trade policy in a coercive manner completely beyond our comprehension - it's simply unacceptable," said Toyota Executive Vice President Masaharu Tanaka.
"We hope the U.S. will drop the sanctions and let the WTO reaffirm the meaning of fair, international trade rules," he said.
Miller said he is skeptical that Japanese consumers will ever embrace U.S. cars even if all trade barriers are dropped. He said U.S. cars are bigger and not noted for their fuel economy - both crucial issues in Japan.
"You think we have traffic and parking problems in this country?" he said. "There are places in Japan where you can't buy a car unless you can prove you have a place to park it."
Miller said the conflict is "consistent with Clinton's lack of direction" in foreign trade policy. "They have knee-jerk reactions. I can't imagine they have studied this out. I get different stories from both sides, and I can't honestly say the Japanese are keeping our products out. Right now it's very confusing."
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ADDITIONAL INFORMATION
Sticker shock
The 13 Japanese luxury autos targeted for 100 percent punitive tariffs are:
Honda Acura Legend
Honda Acura 3.2 TL
Toyota Lexus LS400
Toyota Lexus SC400
Toyota Lexus SC300
Toyota Lexus GS300
Toyota Lexus ES300
Nissan Infiniti Q45
Nissan Infiniti J30
Nissan Infiniti I30
Mazda 929
Mazda Millenia
Mitsubishi Diamante