B-School Experts Predict U.S.-Japan Trade War

American-Japanese friendship may soon be shattered by trade conflict unless both nations work to reconcile their domestic economic policy, Harvard Business School professors said yesterday.

The two economic superpowers have fundamentally incompatible economic philosophies, the 12 scholars, who recently co-authored a book on American-Japanese relations, told a group of about 30 during a B-School conference.

Yesterday's symposium, "America versus Japan," was based on the book of the same name, the culmination of three years' interdisciplinary research.

"Unless some change is made, we flatly predict a collision [between the two countries]," said Professor of Business Administration Thomas K. McCraw, an economic historian and editor of the book.

Noting political and economic uncertainties, the experts refused to say exactly what form a rupture might take. Assistant Professor of Business Administration Michael G. Rukstad predicted a crisis within the next decade.

McGraw said that while Japanese save more than a quarter of their incomes, U.S. consumers annually spend 5 percent more than they earn. Japan's austerity mentality, a relie from post-WWII poverty, holds the country's standard of living well below what it can afford, he said.

Japan's production-oriented economy regularly out-performs Western economies which place more importance on consumption than investment. By exporting more than they import, the Japanese, experts said, are financing the growing U.S. national debt.

"The American economy is running off the Japanese economy," said Williston Professor of Investment Management M. Colyer Crum.

In order to avert a crippling trade war, the United States and Japan must make concessions to each other's divergent economic values, the professors said.

One solution to the crisis would be for Americans to spend less and Japanese to spend more. "We should tell them to spend more on housing and vacations," said Crum. "We'd love to make them more inefficient."

The panelists were not optimistic about this plan, however. "If you want to seduce them into the good life, it's going to be a hell of a strugle," said Crum.

McCraw said the necessity for change in Japanese society is a question of practical politics. "If you're in an interdependent world economy and you're seen as not only exporting Toyotas but [also] unemployment, other countries say 'to hell with you'," he said.

The authors said they hope that the book, which will be released simultaneously in Japan and the U.S., will increase public awareness of potential disaster. McGraw said, "It's trying to educate the Americans about the Japanese and the Japanese about the Americans, and both about themselves."