So once again, headlines warn of a trade war between the U.S. and Japan–as they have so many, many times in the past 30-odd years. So what else is new?
So, plenty. For one thing, this time it might really happen: the Clinton Administration swears it is dead serious about slapping penalty tariffs on Japanese luxury cars Wednesday. The announcement over the weekend that U.S. Trade Representative Mickey Kantor and his Japanese counterpart, Ryutaro Hashimoto, will meet Monday in Geneva may increase the prospects of an eleventh-hour deal to expand sales of U.S. auto parts to Japan and keep the penalties from being put into effect. But even that would not defuse the intensifying confrontation between Washington and Tokyo.
If a showdown is averted in this spat, another would come soon, and then another, until one shakes to the core the political relations between the two economic superpowers. “If there is maybe one more ‘standard’ deal, it will be the last one,” predicts Clyde Prestowitz, president of the Economic Strategy Institute. Chalmers Johnson, president of the Japan Policy Research Institute, warns, “In the post-cold war period, at a time when security ties are no longer holding the two sides together, trade disputes could become a way of life.” Some might reply that U.S.-Japanese trade disputes have been a way of life since at least the late 1960s: experts count 30 or more agreements since then that have temporarily kept the peace. Now Tokyo is replying to the tough talk out of Washington mostly with we-can-work-this-out noises. But that in a way is just the problem: the Japanese seem to think Bill Clinton will vacillate on trade as he has on issues ranging from Bosnia to gays in the military. Japanese automakers are talking only of an informal and unenforceable pledge to buy more U.S. car parts–not to be imported by Japan but to be built into the cars they assemble in America. That is exactly the sort of arrangement the White House insists it will no longer accept. And if it does swallow some minor compromise out of fear of the very real disasters of a true trade war, that may only stiffen its resolve to hang tougher next time around.
The unspoken bargain that has ruled U.S.-Japanese relations for decades is breaking down. Right through the Bush Administration, U.S. Presidents viewed Japan primarily as an indispensable cold-war ally. Annoyed though they might be by the gargantuan trade deficits that in the U.S.’s view resulted largely from Japanese protectionism, they would not push any trade dispute to the breaking point. In particular, they believed the U.S. must always keep its markets open, whatever its trading partners did–partly out of free-trade principle, partly as a way to reward anticommunist allies. Japan, for its part, grew expert at offering just enough–for example, “voluntary” quotas on auto exports in the early 1980s–to keep the U.S. grumpily mollified, while backing Washington all the way in world diplomacy.
But the cold war has ended, and new people have taken over in Washington and Tokyo. On trade, if nothing else, the Clinton Administration has been consistent and tough. The President has surrounded himself with advisers who have no qualms about closing U.S. markets to foreign products if that seems the best way to batter open foreign markets for American goods.
Kantor carries out this approach with gleeful bellicosity. In May he phoned the heads of Detroit’s Big Three automakers to tell them about his plan to slap 100% tariffs on Japanese luxury cars, making them virtually unsalable in the U.S. John F. Smith Jr., chief executive of General Motors, quoted Kantor to fellow GM bosses as saying, “We’re going to drop the bomb on them!”
That stand is driven by both economics and politics. Clinton strongly believes a tough trade policy is one way to increase U.S. prosperity while also broadening his popularity. His hard line has won support across the political spectrum from Newt Gingrich to unionized workers–an important but often unhappy part of Clinton’s Democratic base. Workers at a Ford plant in New Jersey, where the President spoke last week, lustily booed his description of Japanese trade practices, and loudly cheered his repeated pledge to impose tariffs on luxury cars.
The Clintonians are no longer asking Tokyo merely to lower a tariff here or repeal a quota there. That has all been done; the exchange value of the yen has climbed against the dollar besides–yet the U.S. trade deficit with Japan just keeps growing. So the U.S. is attacking the keiretsu: the groupings of Japanese companies, often linked by cross-ownership arrangements and tied to the same bank, that do business mainly with one another, freezing out competing buyers and sellers, both foreign and domestic. This system forms the very fabric of the way the Japanese do business, and it does more than outright trade barriers or even government “administrative guidance” to keep out foreign products.
Especially, it seems, U.S. auto parts. American car builders concede they do not yet make an auto small or cheap enough to sell well in Japan, even if more dealerships are opened to them, a current U.S. goal. Some U.S. auto parts such as shock absorbers, mufflers, tailpipes and disk-brake pads, however, sell for less than half to only a third the price of made-in-Japan parts of comparable quality. What then limits American parts to around 1.5% of the Japanese market? The keiretsu system, Americans conclude.
Thus the U.S. is demanding that Japanese automakers agree to a verifiable target for increased purchases of U.S.-made parts and that the Tokyo government bless the deal. As Japanese officials note, it amounts to a demand that the government order the carmakers to buy from U.S. firms rather than from their keiretsu suppliers.
It is a bad time for Washington to press such demands. The long reign of Japan’s Liberal Democratic Party, whose politicians could lean on bureaucrats and businessmen to meet U.S. demands, is over: shifting parliamentary coalitions have elected three Prime Ministers in two years. The power vacuum has enhanced the clout of the Ministry of International Trade and Industry, whose bureaucrats are primarily concerned with protecting the businesses under their tutelage. With the backing of Trade Minister Hashimoto, a fierce nationalist with his eye on becoming Prime Minister, they are more than ever inclined to tell Washington to go fly a kite.
Does that mean a trade war this summer? Probably not. The reasons are reminiscent, in a minor key, of why war gamers always thought the U.S. and the Soviet Union would not get into a deliberate nuclear exchange: the consequences would be too awful to contemplate. The Japanese could shut down the U.S. auto industry, which is dependent on some Japanese parts like alternators. By dumping the U.S. Treasury bonds they have bought heavily, the Japanese could also drive up American interest rates disastrously. The U.S., by clamping down hard on the $119 billion of Japanese exports it buys every year, could drastically deepen Japan’s economic woes. Dropping production could in turn accelerate price deflation, cause more bankruptcies and ravage a banking system already staggering under bad loans that could amount to as much as $1 trillion.
Those specters will probably push the two sides to a solution–this time. But other flash points abound. Already there are bitter disputes about cargo flights over the Pacific, complete with threats not to let each other’s planes land, and an Eastman Kodak demand that Washington punish Japan for a supposed conspiracy that limits Kodak’s sales of camera film there. The squabbling may boil over into global politics: Japan has announced that it will not join the U.S. in refusing to buy oil from Iran.
The U.S. and the Soviet Union were constantly haunted by fear that nuclear war would start if one side called a bluff that turned out to be no bluff. That dread died with the dissolution of the U.S.S.R.–but neither the U.S. nor Japan is going to disappear as an economic superpower.
–Reported by Bernard Baumohl and Tom Curry/New York, Irene M. Kunii/Tokyo, William McWhirter/Detroit and Adam Zagorin/Washington
More Must-Reads from TIME
- L.A. Fires Show Reality of 1.5°C of Warming
- Home Losses From L.A. Fires Hasten ‘An Uninsurable Future’
- The Women Refusing to Participate in Trump’s Economy
- Bad Bunny On Heartbreak and New Album
- How to Dress Warmly for Cold Weather
- We’re Lucky to Have Been Alive in the Age of David Lynch
- The Motivational Trick That Makes You Exercise Harder
- Column: No One Won The War in Gaza
Contact us at letters@time.com