(3 of 6)
The surtax will have an impact throughout Europe. The effect will be especially pronounced in West Germany, whose floating Deutsche Mark has risen by 7% since May in relation to the dollar. Though only 9% of all West German exported goods go to the U.S., they tend to be concentrated in key industries—autos, machine tools and chemicals. The surtax will have an even more damaging effect in Japan, which sends 30% of its exports to the U.S. These may be cut by as much as $1.4 billion, out of a total of $7.2 billion. Last week a near panic swept through the Japanese financial world. The Tokyo Stock Exchange average plunged a full 20% before a minor technical rally brought it up again at week's end. Said Hideo Shi-nojima, president of Mitsubishi Chemical Co.: "We had not expected such a drastic measure as the 10% surtax. In effect it means the yen has already been revalued so far as Japan's trade with the U.S. is concerned."
If this trade is badly impeded, more people than the Japanese will be hurt. Australia sells about $700 million worth of iron ore and wool to Japan's export-oriented factories. Australians stand to suffer if the Japanese are forced to reduce their shipments of steel, autos and textiles to the U.S. The maritime nations—Norway in particular—will also lose. Norwegian shipowners hold close to $4 billion in long-term international shipping contracts, with the prices fixed in dollars. If the dollar is devalued by, say, 10%, they could lose as much as $400 million.
"Not Again." The Japanese found more to complain about than just the surtax. In July, the government of Prime Minister Eisaku Sato was stunned when the Administration gave the Japanese leader only three minutes' advance notice of President Nixon's Peking announcement. Last week, because of a foul-up in finding an interpreter, Washington allowed Sato only a ten-minute warning of its latest bombshell. After Secretary of State William Rogers broke the news to him by phone, the shaken Prime Minister simply shook his head and muttered: "Not again."
A major purpose of the surtax is to force the Japanese to increase the value of the yen. The exchange rate of 360 yen to the dollar, set when the Japanese economy was struggling to recover from war and inflation, does not reflect Japan's startling economic growth since then. As a result, Japanese businessmen are now able to sell exports to the U.S. at extremely low prices. Confirming their worst fears, Under Secretary of the Treasury Paul A. Volcker has hinted that the surtax might be lifted gradually as governments revalued their currencies upward against the dollar. Caught between the surcharge and revaluation, a weary Sato sent a mission to Washington to learn the terms under which the surcharge might be lifted. But by week's end, seeing that no other government had taken the initiative in revaluing, the Japanese settled back to wait and see.