Tariffs 'will double car prices'

Rupert Cornwell and David Usborne report from the US that the Pacific car wars are ready to escalate

The world's two biggest economies moved closer than ever to a trade war last night after American Trade representative Mickey Kantor said the US proposed to double the tariff on 13 models of Japanese luxury cars if Tokyo failed to open its market to American cars by the end of June.

The sheer scale of the punitive tariffs to be imposed - affecting imports worth $5.9 billion a year - is unprecedented. So too is the target - not some relatively obscure electronic item or part, but luxury cars driven by hundreds of thousands of Americans, many of them household names across the country. If the 100 per cent tariffs outlined by Mr Kantor do take effect, perhaps as soon as July, then Toyota, Honda, Nissan, Mazda and Mitsubishi will find their most profitable cars priced out of the US market.

Japan last year exported some 200,000 luxury cars to the US. Under the new regime, the cost of a $30,000 vehicle would double to $60,000. The biggest beneficiaries could well be European competitors at the top end of the market - BMW, Mercedes, Saab, and Volvo.

The hit list has been tailored to avoid Japanese cars manufactured in the US and any threat to the jobs of American factory workers. But there will be domestic labour market repercussions felt by the thousands of people working in dealerships handling Japanese imports - around 700 nationwide for the Toyota Lexus, the Nissan Infiniti and the Honda Acura alone, according to the industry.

Above all, the US is signalling that after two years of fruitless negotiations to broaden access to the Japanese car and car component markets, it has lost patience. Mr Kantor made clear that mere resumption of negotiations would not be enough for Washington to lift the threat. "We can't sweep this under the rug any longer," added President Clinton. "We have to go forward and we are going to do that."

The stage is thus set for several weeks of brinkmanship, presenting the new World Trade Organisation in Geneva the highest possible profile test case to its authority, and one it would doubtless have preferred to avoid. Within 45 days, the US will lodge a broad complaint against Japan's trade practices. Long before that, Tokyo will appeal to the WTO against yesterday's move in Washington, and perhaps impose retaliatory sanctions of its own.

The conventional wisdom is that a deal will be struck, at or shortly after the G-7 summit in Canada between 15-17 June, and both sides never fail to underline the risks of a trade war. But there is no guarantee of settlement.

Whatever the specific rights and wrongs of the case, politics in both countries play a powerful part. An already weak Government in Tokyo can hardly fold its tent now. Even less able to cave in is Mr Clinton, who 24 hours earlier had raised the stakes by warning that if unresolved, trade tensions could undermine the defence and security agreements between the two countries. By getting tough on Japan, he will please organised labour here, a key Democratic constituency in US Presidential elections.

While the Clinton administration has taken care not to target cars manufactured by Japanese plants in the United States, it can do nothing to protect dealerships around the country selling luxury Japanese cars. Liable to be caught in the cross-fire, they are facing disaster if the tariffs go through.

"I would expect sales to be virtually non-existent if the tariffs are applied," commented Bruce Schulman, manager of an Infiniti dealership in Greenwich, Connecticut, that has 25 employees, all of whom face at least temporary lay-off. "This would be extremely unfortunate. Our middle- class employees are going to have to be put of work".

Mr Schulman gloomily predicts that customers will instantly discard the Infiniti, the luxury arm of Nissan, and the other Japanese brands in favour of competing European cars. "They should be dancing in the streets of Bonn today. For those folks, this is just marvellous news", he added.

At Bay Ridge Lexus in the Bronx, in New York City, sales manager Tom Macrum is equally despondent. "It does not take a rocket scientist to see what it will do to us," he said yesterday. His is the only exclusive dealership of Lexus within the city. Mr Macrum is still hoping the tariffs can be avoided, however. "We hope there is going to be a negotiated settlement."