It is no larger than a few grains of rice, but it was big enough to cause one of the most serious episodes between the U.S. and Japan since the end of World War II. It is the tiny microchip, a sophisticated bit of silicon that is the indispensable heart of the techtronic age, the raw material for everything from talking teddy bears to personal computers to intercontinental missiles. After the Reagan Administration imposed trade sanctions against Japan in an attempt to protect American makers of microchips, it suddenly looked last week as if the U.S. and Japan were headed for what could become a major trade row. In fact, Tokyo TV commentators described the event with the phrase Kaisen zen- ya (the eve of war), an expression used to describe the days before Pearl Harbor. In Washington, U.S. Trade Representative Clayton Yeutter, while insisting that a trade war was not at hand, nonetheless called the confrontation a "serious dispute."
Sizable shock waves rattled around the world in the wake of the U.S. action, which was prompted by alleged Japanese cheating in the sale of the useful semiconductors and by Tokyo's alleged intransigent protection of its domestic microchip market. Partially in response to the specter of trade confrontation, the Dow Jones average of 30 industrial stocks sank 57.39 points as the week began, its third worst plunge in history. Yet the amazing 4 1/2- year bull market in stocks, fueled in part by billions of dollars in Japanese investment money, recovered quickly, and the Dow closed the week at 2390.34, a record. In Tokyo money markets, the price of the U.S. dollar slumped to a doleful 144.7 yen, the first time in postwar history that the greenback was worth less than 145. Only 15 months ago it was 200. As tempers cooled by the end of the week, however, the dollar had climbed back to 146.05.
In both the U.S. and Japan, the Administration's tough action sparked widespread consternation. Japan's largest daily, Yomiuri Shimbun, editorialized that the sanctions were "detrimental to the interests of American consumers." The liberal daily Asahi Shimbun declared darkly that "trade war has now come about." In Manhattan, the usually pro-Reaganaut Wall Street Journal warned that "high-stakes trade retaliation, like Russian roulette, is a dangerous game, and the world doesn't benefit when the President of the United States leads by bad example."
Japanese officials rushed to keep the trade conflict from spinning out of control. Foreign Minister Tadashi Kuranari urged that "overall U.S.-Japanese relations should not be undermined by this issue." Makoto Kuroda, a senior member of the country's powerful Ministry of International Trade and Industry (MITI), prepared to hie to Washington. His job: to convey dismay at the bombshell U.S. decision to retaliate with some $300 million worth of tariffs on a wide range of Japanese electronic goods. In addition, former Japanese Foreign Minister Shintaro Abe has been named as a special envoy by Tokyo to help deflect the trade collision. But the sanctions will almost certainly go into effect as scheduled on or about April 17.