Trade Relationship That Exists Research Paper

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[. . .] The Japanese auto makers had sold a total of 2.4 million vehicles in the United States; all of these vehicles were imported. By 1978, the Japanese market share of the U.S. domestic market was 11%, and had jumped to 22% in 1980. The Big Three auto makers (GM, Toyota, and Chrysler) demanded that there be limitations placed upon the Japanese auto makers because of the large trade deficit. In response to the pressure applied by the auto makers, the government signed the Yasukaw-Askew agreement in May of 1980. This agreement basically committed the Japanese government to encourage greater economically viable investment opportunities in the U.S. By Japanese automobile manufacturers and auto parts manufacturers. It is clear that this agreement has been for the most part followed by the Japanese government. By 1993, Japanese manufacturers have invested well over 11 billion dollars into the U.S. economy in the form of manufacturing plants, equipment, and design and research centers in the U.S.

However, Japan's sole investment in the U.S. market in the form of plants and other centers were not enough as the trade deficit continued to grow. As the production of transplants increased by the mid 1980s, U.S. auto part makers became frustrated that Japanese manufacturers were not purchasing from them, but rather from their traditional Japanese companies. The next major agreement came about on this subject. The talks occurred in the latter half of 1986 to 1987, and it was called the Market Oriented Sector Specific Talks (MOSS). The focus was on the existence of Keiretsu relationships between Japanese manufacturers. Keiretsu relationships allude to traditional Japanese manufacturing relationships where Japanese companies remain loyal to each other in order to promote greater cultural identity. The MOSS report concluded that there was not enough strong evidence to make the claims made by the auto parts makers legitimate and therefore no tangible agreements were made. This represented a victory for the Japanese auto makers, and as a result, their sales continued to sky rocket from late 1980s to the 1990s.

The problem by the late 1980s was of course a trade deficit that had completely become one sided. Japan was gaining huge economic grounds within the U.S. And GM sales of midsized cars to economy sized cars had virtually come to a completely stop. As a result, they proposed a liaison committee consisting of a small group of directors with the purpose of devising a way to develop greater business within Japan. The group developed a more cohesive strategy to define the parameters of Japanese participation in the domestic market. They created purchased manuals, published service catalogues, etc. The success of the private sector initiatives to change their strategy and approach with Japanese auto makers the led to many of the interactive cooperation between Japanese and American auto makers such as Toyota and GM (JAMA, npg). The result as was that companies within JAMA and MEMA increased their overall auto parts sales from 2.5 billion 1986 to over 19.8 billion last year. This dramatic rise has much to do with the willingness of the Japanese auto makers to purchase from the U.S. auto parts manufacturers. The number of U.S. suppliers to Japanese factories rose from well below 300 to over 1200 in the current market.

The bilateral agreements made during this time combined with the success of Japanese automakers in the U.S. brought about a period of wealth to the Japanese economy. The period between 1987 to 1991 is commonly referred to as the "bubble economy," where unprecedented economic prosperity occurred. Riding these waves were the Japanese automakers that set all time milestones in terms of profit as well as production. By 1990, Japanese automobile industry had produced a year total of 13.5 million units and a sales volume of 7.78 million units (Hamberson, 120). They became the world's largest manufacturer of automobiles in 1980 already as the industry as a whole produced a total of 11 million units, thus the new highs achieved in 1990 was a golden era for Japanese automaker sales. However, the economy soon fell in 1991; this was due to the asset-inflation that occurred in the bubble economy. With this fall, the domestic market in Japan collapsed, and sales within the domestic market also fell dramatically. The operating profits during this period for the Japanese auto industry fell as a whole and this forced the manufacturers to implement different restructuring measures to change the history of their domestic and international industry. The focus they realized must be placed on the U.S. market, where they could still gain significant ground on the U.S. automakers. Therefore they changed their strategy from attempting to dominate the Japanese market into making a stronger push for the U.S. market. In the period between 1991 to 1994, the Japanese automakers began to construct even more facilities and cooperatives in the U.S. (Misake, npg). Despite the greater resources being sent to the U.S., overall this meant that competition within the auto industry was even worse for U.S. companies in the 1990s.

With the success of American-Japanese cooperatives, there was still confrontation over the trade deficit but Americans were feeling happy that there were more jobs in the economy as well as better automobiles on the market. Therefore the feeling of mutual success was overwhelming between the two superpowers. As a result, President Bush Sr. visited Japan in 1992, in a historic meeting. At that time the trade deficit on auto mobiles had reached its highest point as of that time, 10 billion dollars. Many thought that by the time Japan had fully synchronized into the U.S. manufacturing market, the trade deficit would reach as high as 22 billion. In this historic meeting, President Bush solicited JAMA members to contribute to the U.S. economy and commit to domestic sales. The JAMA members voluntarily quoted numbers that amounted to 19 billion dollars in the next five years. These pledges attested to how much actual trade volume would soon come into the U.S. As a result of the strong sales figures in the early 1990s. As it turned out, this target amount was actually acceded in 1994, when the total purchasing amounted to 19.8 billion dollars (JAMA, npg). An amazing figure when you consider how much auto makers were trading at that current time. Japanese auto makers single-handed got the U.S. auto industry out of the problems that it was suffering during the recession of the late 1980s. There infusion of money helped us achieve dramatic success and helped The Big Three as well, temporarily giving them the ability to cooperatively create factories and launch brands with the Japanese. It seemed in the early 1990s that the relationships developed through private initiatives would pay off handsomely and that despite the trade deficit, Japanese and U.S. automakers would be happy with the results that they have had through joint partnerships.

This however all fell apart due to the growing interest of Ford, GM and Chrysler in the Japanese market. Again the problem of market penetration created conflict between the two sides. Throughout most of the 1980s, The Big Three did not show a large interest in the Japanese market, all attempts up to that point had failed dramatically due to the incompatibility of U.S. vehicles for the Japanese market. However, they decided that the time was ripe for another attempt at balancing the trade deficit. In this vein the president of Ford at the time proposed the "Poling Proposal"; this proposal was intended to place the reduction of the trade surplus solely within Japan's responsibility, arguing that they should reduce the trade surplus within only five years and in equal annual amounts (Indiana University, npg). At this point, U.S. automakers began making serious plans to regain ground in Japan, but these efforts were much less successful than they originally thought. After two years on the market, they appeared to have not learned any of the lessons of their previous attempts. They did not establish their own dealerships, nor build cars to the specifications of the Japanese market. There market share by the end of the two-year experiment stood at 2%, a paltry figure for the three biggest automakers in the world at the time.

The futility of these efforts by The Big Three led to severe resentment within the U.S. market and it had an influence on the government as well. Soon the Clinton administration was demanding that a mutual purchasing plan was adopted to lower the trade deficit between the two companies, there talks soon came down to a simple "numbers game." U.S. automakers would never concede that the reason there efforts fail short of all their goals was precisely because they never took complete effort to create efficient automobiles that could challenge Japanese automakers in their domestic market. At the same time Japan was conducting deep research into hybrid technology that is currently enabling them to become the top producing automaker in the world. The theme of all U.S. automaker assertions is that as… [END OF PREVIEW]

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