[Moderator's Note: The following message was originally posted to the Dead Fukuzawa Society discussion group. The question was deemed likely to interest many SSJ-FORUM members, so Professor Campbell's permission was secured to post it here.]

Date: Sat, 12 Aug 1995
From: "John C. Campbell"

I have a possibly naive bibliographic question. It is commonly asserted, most recently by John Judis in the Washington Post ("Clinton's Trade Retreat,"
reprinted in the 8/7-13 Weekly Edition), that Japanese industry has commonly kept domestic prices high via trade barriers, cartels etc, so that high profits at home could support export drives (revenues for investment to become competivitive in products, and subsidies for aggressive price cutting).

I am wondering if there are systematic studies to assess this proposition--its extent and its importance. Certainly there is good evidence it has happened in some industries: the old color TV cartel, camera film as analyzed by Kodak, no doubt several other cases with good industry-specific analysis. On the other hand, it does not seem to be true across the board.

That is, not long ago there were widespread accusations that Japanese firms were making profits in the United States but avoiding taxes on them by manipulating transfer prices and so forth. Auto and auto parts were the most cited industries, as I remember, and of course that makes sense for the 1980s because, with the American quota, profits here should have been enormous at least for vehicles. Anecdotal evidence suggests that Toyota in particular was using those profits to subsidize severe price competition in the Japanese domestic market.

My interest right now is not whether these accusations of tax avoidance are true. I do think that the plausibility of the argument rests on an impression that Japanese firms were making profits in the U.S. That impression could have been wrong, of course--that is what I am asking.

Are the published data on an industry-by-industry basis adequate for testing the proposition that domestic profits have subsidized overseas penetration? Even ballpark figures would be enough, maybe separated into five-year time periods or something, to get some sense of how important this was to competitiveness in different eras for several industries. Are there any studies like that? If the data aren't adequate, are there other ways to get at this issue in a broad way?

By the way, I am less interested at the moment in arguments about whether such factors cause the Japanese trade surplus or not.