CLINTON’S ADVISERS, AS WELL AS HOSOKAWA’S, are at pains to paint the trade disagreement as a dramatic departure from the past. Clinton wants to be seen fulfilling his campaign pledge to take a tougher line with Japan, while the politically fragile Hosokawa government can only benefit from seeming more independent of Uncle Sam. But the reality is far less epic. Neither Washington nor Tokyo has any interest in curtailing a bilateral trade that reached $155 billion last year. Nor does Clinton want to embarrass the reform-minded Hosokawa, whom the administration sees as the best hope of deregulating Japan’s economy and reshaping its political system. A trade war is simply not on.
So how did the two countries get caught up in a battle neither wishes to fight? A lopsided trade balance in Japan’s favor has irritated Americans for years, of course, and U.S. business chronically complains about the difficulties of exporting to Japan. The current clash dates to 1992, when President George Bush visited Tokyo. Bush, desperately fighting for re-election, demanded goals for imports of U.S. goods. Japan acceded, in principle. Then, last summer, Tokyo and the Clinton administration went a step further, agreeing to find “objective criteria” that would lead to “tangible progress.” Clinton’s trade representative, Micky Kantor, quickly redefined that to mean “measured results, such as market-share targets for U.S. auto parts, medical equipment and electronics. The Japanese flatly rejected anything of the sort.
The talks have been at an impasse ever since. Although U.S. negotiators were determined not to paper over the differences when Hosokawa visited Washington, many of them still expected the traditional rules of U.S.-Japan diplomacy to prevail: at the last minute, Hosokawa would pull a concession out of his pocket, allowing everyone to declare victory. But Hosokawa, whose coalition last year drove Japan’s Liberal Democratic Party from power after nearly 40 years, made no effort to follow the LDP tradition of being conciliatory. When he refused to bend, the Americans were caught unprepared. Says a former U.S. trade negotiator, “These guys had no fallback plan.”
The administration’s public-relations effort also tripped up. Over the course of a few days, Clinton’s major target moved from “measured results” on car parts to Japan’s overall trade surplus and then to cellular phones. That confusion over goals was mirrored within the White House. Sources tell NEWSWEEK that there was a clear division between advisers such as Kantor and Secretary of State Warren Christopher, who favored a focus on specific Japanese trade barriers, and those such as Treasury Secretary Lloyd Bentsen, who wanted to emphasize Japan’s overall trade surpluses. Nor were all the Clintonites gung-ho about striking back at the Japanese. Labor Secretary Robert Reich and chief economic adviser Laura D’Andrea Tyson, both known publicly as saber rattlers, warned internally against loose talk of retaliation.
Washington is painfully aware that its insistence on numerical targets doesn’t play well abroad. Even Japanese who favor a more open economy are upset by U.S. proposals, which would have to be enforced by the very Japanese bureaucracies Washington has criticized for years. “We’re without allies in Japan on this issue,” says Michael Armacost, U.S. ambassador in Tokyo until last year. It hasn’t brought much political payoff at home, either. With U.S. unemployment falling and manufacturers’ order books full, Japan has ceased to be a hotbutton topic. Congressional offices report little mail. “There’s not much on-the-street resonance,” says a Senate aide.
After a week of angry bluster, then, U.S. and Japanese negotiators find themselves on familiar terrain. Hosokawa, who is under intense pressure to revive Japan’s moribund economy and reform the electoral system, wants to sweep trade off the table, and he needs close ties with the United States to counterbalance an ascendant China and a nuclear North Korea. Clinton, who knows U.S. exports to Japan won’t pick up until the Japanese economy starts to grow, recognizes the dangers of promising more than trade policy can deliver. Though the talk may sound tougher, both sides are acting pretty much as they always have: after pouting and posturing, it’s time to deal.
THE ECONOMIST, WHICH FANCIES ITSELF the magazine for international intellectuals, is surpassingly silly on the subject of Japan. As trade talks broke down, the magazine wrote that “Japan’s trade is not as anomalous as Japanphobes make out.” And who are those awful “Japanphobes” guilty of portraying Japan’s trade as unbalanced?
Try Ichiro Ozawa, by many accounts the most powerful politician in Japan. Ozawa wrote recently that it was about time Japan became a “normal country.” By that he meant a country that defends itself, respects its consumers and balances its trade. Of course, Japan’s huge trade surplus is “anomalous.” The good news is that except for a few Economist-style apologists, the world is beginning to recognize it.
Call it the New Clarity. For all of the hand-wringing last week about a trade war, the failed summit between Clinton and Hosokawa was actually a positive step toward normalizing relations. Over the past 20 years, the game worked like this: Big Brother America told Little Brother Japan that it was sick of its passive-aggressive trade behavior; Little Brother Japan complained about the pressure but eventually signed agreements promising to do better; both sides smiled for the cameras; nothing changed. Now, finally, the two sides are arguing the way equally matched brothers are supposed to argue.
This is progress. Not long ago, the United States and Canada had a big fight over wheat. The United States and France had a nasty squabble over wine. In those cases, nobody started any rumors of war. When nations have a mature relationship, honest failure is better than phony “success.” The risks are not as great as portrayed. “I don’t think, substantively, the U.S.-Japan relationship has been damaged,” says Prof. Kent Calder of Princeton.
So if the fundamental relationship is not at stake, why not use this chance to drive home the American position? And for that task, why not use the most confrontational person in the Clinton administration? That would be Mickey Kantor, who wanted to be Clinton’s chief of staff but is much better suited temperamentally to being U.S. trade representative. There he uses his browbeating personality to good effect. Whenever the issue of getting tough on Japan has arisen in the past, Kantor said in his office last week, “There’s always this argument, “Don’t do it now, we’re having an election.’ Or, “Don’t do it now, our economy is weak.’ Or, “Don’t do it now, my mother-in-law is coming over for dinner.’ That’s why U.S. presidents have until now papered over our differences with cosmetic agreements.”
The latest version of that argument is, “Don’t pressure us now, you’ll weaken Hosokawa, America’s ally in reform.” But surprise, surprise, last week events didn’t weaken Hosokawa. While he may be out of power by the end of the year for other reasons, his failure to reach a cosmetic agreement actually enhanced his popularity at home. Showing considerable skill, he handled the fallout without pandering to nationalism. In the weeks ahead, because he’s a reformer who shares much of the American critique of Japan’s closed markets, he’ll push for changes with more sincerity than another leader might; already reports are mounting of big-time concessions. If things get hotter, he still has a good personal relationship with Clinton. Finally, despite all the fireworks, the Japanese are not reading this as a scheme dreamed up by Japan bashers; even the Japanese public recognizes that the improved American economy has dampened the bashing impulse in the United States. So all in all, the timing for getting tough turned out to be good.
Of course, forcing open inexcusably closed Japanese markets (such as cellular phones) won’t eliminate the trade imbalance. That depends mostly on macroeconomic changes within Japan (such as a huge tax cut) that will stimulate demand for consumer goods, including those made abroad. But even if the Japanese had more money to spend, the system won’t open up to foreign products until the rigged contracting and distribution networks – and the bureaucracies that support them – are forced to change. That is the process the United States needs to focus on.
But Kantor says he is tired of process: “Those process agreements didn’t work.” The American negotiators now want results. As Calder notes, the U.S. position on numerical targets (guaranteeing a certain percentage of selected commercial markets to imported products) is substantively weak but tactically strong. It’s substantively weak because it asks the Japanese to end their long-held policy of managed trade with a large new dose of. . . managed trade. Tactically, however, the Americans are getting smarter. “The Japanese so dislike numerical targets that they’ll quickly agree to [our] second-best options,” Calder says. In fact, Kantor has already backed off demands for numerical market share and is focusing on other vague quantitative signs of progress that may end up being grounds for a compromise. “Trust but quantify”, Kantor says, paraphrasing Ronald Reagan’s old line about the Russians. Even if all the posturing and quantifying amounts to merely a thimbleful in the larger ocean of trade, the New Clarity begins to put the U.S.-Japan relationship on a less phony footing.
