“WHAT’S GOOD FOR THE COUNTRY IS GOOD FOR
General Motors, and vice versa” goes an oft-misquoted saying by legendary GM President Charles Wilson. These days, what’s good for a country–in this case, Japan–is bad for General Motors.
At least that’s the contention of Mustafa Mohatarem, chief economist for GM, the world’s largest automaker. As the Michigan juggernaut battles a litany of woes–from exorbitant health-care and pension costs to a bond rating bordering on junk–Mohatarem has employed a laser-like focus on an obscure topic: the manipulation by Japan of its currency, the yen.
Speaking by phone from his office in Detroit, Mohatarem described the complex situation in layman’s terms. “[The Japanese] borrow or print yen and use those to buy dollars,” he said. “That raises the value of the dollar and lowers the value of the yen.”
That, in turn, gives Japan a manufacturing advantage. Some might say that’s smart business on Japan’s part, but countries are not allowed to manipulate the value of their currency, according to agreements inked with the World Trade Organization and the International Monetary Fund. Considering that Japan’s foreign currency reserves jumped to $840 billion in July 2005 from $345 billion five years earlier, Mohatarem believes there’s a strong case to be made for manipulation.
In testimony provided before the House Ways and Means Committee in August 2005, Mohatarem said the yen’s true value is around 90 to 100 yen to the dollar. At that time, the yen was worth about 112 to the dollar. The benefit this gives Japanese auto manufacturers such as Toyota and Nissan, Mohatarem noted, is huge.
What to do? The United States could file a formal complaint to the WTO and, if the body agreed with the allegations, the U.S. would be allowed to take retaliatory measures. Though Mohatarem has sounded the alarm, the response in Washington has been tepid. The main problem: The U.S. Treasury, who along with the country’s trade representative would be the entity filing the complaint, is actually benefiting from Japan’s moves. “Japan is making it easier for [the Treasury] to finance the U.S. budget deficit,” Mohatarem said. “The question is, can you put enough political pressure on the Treasury to have them try to make a change?”
Though the U.S. government and the media have focused on the trade deficit with China, which far surpasses the one with Japan, Mohatarem pointed out that the U.S. auto industry’s deficit with Japan (about $44 billion in 2004) is, in fact, the biggest for any industry sector. He said the mainstream media’s inability to explain Japan’s currency manipulation in simple terms has hampered prospects for change.
“The full-year windfall provided by the Japanese government’s currency policy could likely be a check for $2 billion written to Japan’s automakers.” Mohatarem testified to the House Ways and Means Committee.
A decade ago, things were much rosier. After a history of trade imbalance in autos between Japan and the U.S., the countries reached a five-year agreement that opened the Japan market in far greater measure to U.S. manufacturers and eliminated some economic practices that had hindered American sales. But as detailed in a 2005 article in Motor Age, Mohatarem believes Japan started manipulating the value of the yen soon after the agreement to make U.S. imports prohibitively expensive in Japan. By 2004, while Japan exported about 1.7 million vehicles here, the country imported only 15,000 from the U.S.
After joining GM as an economist in 1982, Mohatarem has spent the lion’s share of his career focusing on trade issues. In 1987, he became corporation’s director of trade and competitive analysis. He was the front man for GM during negotiations that resulted in the 1993 North American Free Trade Agreement (NAFTA) and the U.S. Canada Free Trade Agreement, among others. Today, aside from staying abreast of economic policies around the world and helping to design GM’s response to them, Mohatarem represents the firm on trade-policy issues.
Mohatarem said he took a leadership role on the currency issue because GM’s competition comes primarily from Japanese companies. Its importance, he argues, cannot be underestimated: He sees health care costs for GM’s 166,000 U.S. employees (317,000 worldwide) as the company’s top problem, but right behind is the weakening of the yen.
The auto executive is “cautiously optimistic” the U.S. might act to force a change in Japan’s policy in 2006, but he admits he was also optimistic in 2005 and saw no progress. And he emphasized that although the car industry takes the brunt of the impact on the yen/dollar imbroglio, the issue is broad in scope.
Said Mohatarem: “The important message is there is a lot of discussion about the future of manufacturing in the U.S., but what isn’t brought up is that currency policy is a big factor in how manufacturing will end up.”
David Sweet is a managing editor of two newspapers in suburban Chicago and writes a sports column for MSNBC. com. He wrote about sports and entertainment in the Fall 2005 Denison Magazine.