U.S.-Japan Ties Are Slipping : Fence-Mending Is Needed on Both Sides of the Trade Deficit

William Watts is the president of Potomac Associates, a policy research organization located at the Johns Hopkins University School of Advanced International Studies in Washington. He visits Japan frequently.

The United States' continuing emphasis on the bilateral trade deficit with Japan is beginning to be felt there in worrisome ways.

With a velocity that both impresses and frightens a frequent visitor to Japan, the mood toward the United States has turned skeptical and critical. Rapid strengthening of the yen has caused paper losses to Japanese investors in American government paper and securities, estimated at a minimum of 3 trillion to 5 trillion yen--$25 billion to $35 billion. Unemployment, fueled by weakened exports, is up sharply; bankruptcies burgeon. Frustration with "unfair" American demands and pressures (the mirror image of American complaints about "unfair" Japanese trading practices) has spawned a mood of resentment in some quarters. Recent U.S. sanctions, imposed not against Japanese chip makers, the alleged culprits of "dumping," but against other manufacturers with products not essential to American industry, strike many Japanese as eminently "unfair." So, too, do American complaints about the bilateral trade imbalance, given the enormous U.S. budget deficit.

Such resentment adds fuel to nationalist sentiment, as titles of two current best sellers suggest--"The War Between the United States and Japan Isn't Over Yet," written by a prominent social and literary critic; and "Japan Is Not Wrong, It Is America That Is Wrong," by a respected growth-oriented economist and former cabinet adviser.

Serious and influential Japanese with whom I talked during a trip to Tokyo last month--government officials, Diet members, businessmen, journalists, educators and so on--were virtually unanimous in their concern that events threaten to take command. Human intervention and problem-solving, if not exercised early and vigorously, may be inadequate. Their fear is exacerbated by a sense that the chief executives in both Tokyo and Washington are preoccupied with internal political stresses that divert their attention from "the most important bilateral relationship in the world," to cite Ambassador Mike Mansfield's oft-quoted phrase.

Critical and emotion-laden problems lie ahead. For example, debate is now under way on procurement of the next stage of fighter aircraft for Japan's Self-Defense Forces. The United States has proposed a co-production effort, one that would both strengthen already close security ties and help ease the unacceptable bilateral trade deficit. Inward-looking interests in Japan--including, as it was put to me, a powerful combination from the Japan Defense Agency, the Ministry of International Trade and Industry, Mitsubishi Heavy Industries and members of the governing Liberal Democratic Party--favor a purely Japanese-designed and -produced model. They are convinced that it would surpass anything that the United States or anyone else could make.

Given Japan's track record, is there any reason to doubt that confidence? But is it in anyone's interest--Japan's included--to see one of Japan's industrial giants take a unilateral lead in armaments output? That would surely guarantee an immediate linkage of economic and security issues, so carefully kept apart over the years by policy makers in Tokyo and Washington. Inflammatory comments by leading U.S. senators about Japan's failure to do enough for its own defense, made after the loss of 37 U.S. Navy men in the Persian Gulf, are only a foretaste.

Some observers--both Japanese and American--suggest that fault in the current economic imbroglio is due chiefly to American shortcomings, particularly budget deficits and lack of competitiveness. That does not stand up under close scrutiny. Thoughtful Japanese leaders acknowledge that much needs to be done on their side of the Pacific as well. Further market opening is essential, and domestic spending must be increased. Housing is one key area: More land should be made available for construction to give average Japanese the chance to enjoy the fruits of their economic gains. Inadequate housing development not only minimizes a major source of domestic capital investment; it also minimizes the potential for domestic consumption: A new, bigger home means new appliances and furnishings and room to store all the family appurtenances that Americans take for granted.

If there is blame to share, there is opportunity and responsibility to share. If American and Japanese leaders--political and business--allow the current spiral of charges and countercharges to proceed unrestrained, the very fabric of the relationship will be seriously weakened. From that, only our adversaries would benefit.

At a conference I attended on U.S.-Japan relations and links with the Soviet Union in the glasnost era, one Japanese asked his fellow participants whether Japan had a "Russian card" to play against the United States. Absolutely not, responded a leading Japanese political scientist. But there is an "American card," he said: Japan and the United States are now so interrelated and interdependent that we cannot exist without each other. Certainly, if current economic frictions get truly out of hand, triggered by further sanctions, retaliation and protectionism, America can sink Japan in 20 seconds. But, he added, the United States itself would go down two days later.

These comments were not made as a threat, but as a simple statement of fact. Japan and the United States need each other. We are locked in the economic counterpart of the Soviet-American nuclear balance, codified in the doctrine of Mutual Assured Destruction. Let Japan and the United States not fall prey to economic MADness.

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