Auto trade war threat to dollar 'threatens dollar'

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The Independent Online
The threat of a trade war between the US and Japan looms larger today following the weekend breakdown of bilateral talks on automotive exports. And the prospect that the US will seek to impose trade sanctions raised new fears for the dollar.

President Clinton met US Trade Representative Mickey Kantor last night to consider plans for a package of sanctions. These included 100 per cent tariffs on billions of dollars worth of Japanese imports, particularly luxury cars and replacement parts.

The American automotive industry has been hard hit by Japanese imports in recent years, but has been able to make little or no headway in exports to Japan.

Initially, Japanese imports concentrated on the smaller models known as "compact" and "sub-compact" where the Big Three domestic manufacturers were weak. But the competition now extends to all but the largest cars, vans and recreational vehicles.

US officials say that the Japanese impose many kinds of technical and regulatory barriers on imports, for example by requiring foreign vehicles to undergo special inspections.

They also accuse Japanese manufacturers of cold-shouldering foreign component suppliers and have been pressing the Japanese to make clear commitments to US sourcing.

In the year to March, Japan's overall trade surplus with the US was $56.66bn, of which the automotive industry alone accounted for $36.7bn.

The two sides were locked in negotiations for several weeks, but after talks in Vancouver broke down at the weekend, Japan's trade and industry minister Ryutaro Hashimoto said yesterday that Japan would appeal to the World Trade Organisation to counter any such sanctions.

He said Japan would continue its own efforts to expand opportunities for foreign car and components makers to sell their products in Japan, including government support for foreign car showrooms in Japan's major cities.

The WTO has recently replaced GATT as the regulatory body for international trade.

Its dispute procedure, involving a panel of "wise men" to investigate and recommend solutions, will be triggered if the two sides fail to reach agreement within the next 60 days.

On Wall Street, dealers and analysts said the prospect of record-breaking sanctions against Japanese imports is likely to prompt fresh attacks on the dollar, probably pressuring it toward its post-war low of 79.75.

Tom Moore, chief dealer at American Express, said: "It will probably be a very nervous Monday in the currency market.There is probably going to be a big sell-off in the dollar."

"The dollar is in for a difficult time," said David Jones, the chief economist at Aubrey G Lanston. "The failure of these talks suggests that the chronic US trade deficit is likely to continue."