Economies Intertwine : U.S.-Japan Ties Grow Amid Barbs

So belligerent are the words flying across the Pacific that the United States and Japan might seem to be on the verge of another Pearl Harbor.

Rep. Richard A. Gephardt (D-Mo.) organized his unsuccessful presidential campaign almost exclusively around an attack on Asian trade policies, particularly in Japan and South Korea. And shortly after Congress approved the trade bill last month, Hajime Tamura, Japan’s minister of international trade and industry, lashed out at U.S. lawmakers, saying, “Isn’t there anti-Japanese and racial discrimination sentiment behind their move?”

But the underlying economic relationship between the two economic superpowers is moving in the opposite direction. Despite the immense U.S. trade deficit with Japan, the two nations are actually coming closer together, not drifting further apart.

‘Grinding of the Gears’

“What we’re hearing is the grinding of the gears as these two economies become more interdependent,” said Ellen Frost, a former Defense Department official who recently wrote a book on the U.S.-Japanese relationship for the Council on Foreign Relations.

Nathaniel Thayer, director of Japanese studies at Johns Hopkins’ School of Advanced International Studies here, said: “Regardless of the trade dispute, we are in the midst of building a si1852271717they have a profound, unexpected and unwelcome effect on each other.”

Much of the public trade dispute between Japan and the United States is as ritualistic as an elaborate Kabuki play. “The two governments do not resolve trade problems,” Thayer said. “The2032170081until the trade problems resolve themselves.”

Gulf Between Societies

Yet despite the growing ties between the United States and Japan, a vast gulf remains between the two societies. Neither side understands the other’s starkly different economic structure and social organization.

For instance, some Japanese blame racial prejudice for their trade disputes, in large part because they live in such a homogeneous, race-oriented society themselves. Hence Tamura’s suspicion that racism accounted for the U.S. trade bill.

“I disagree with what Tamura’s saying completely,” said California Rep. Robert T. Matsui (D-Sacramento), a key member of the House Ways and Means Committee who is the son of Japanese immigrants. “I can understand their frustration, but I wish that sometimes they could understand ours.”

Tamura particularly attacked the legislative provision imposing relatively mild sanctions on Toshiba Corp. after a subsidiary sold militarily sensitive submarine technology to the Soviet Union.

It was not racism, Matsui said, that explained congressional anger toward Toshiba. Congress voted for the sanctions, he said, because “many members perceived that the Japanese were not taking the issue as seriously as we would have liked.”

Analysts agree that Japan’s perception of racism in the outside world often reflects Japan’s tendency to look at other nations as if they behaved as Japan does.

“Japan doesn’t have much racial diversity itself and has a terrible reputation in the rest of Asia as a closed society,” said Edward Lincoln, a Brookings Institution specialist on the Japanese economy. “There’s a tendency to see others as they see themselves. The danger is that many Japanese are so eager to see any criticism of them as racially motivated because that makes it easier for them to dismiss it.”

Tamura’s attack attracted widespread attention outside Japan. “Japan Says U.S. Trade Bill Is Racist and Protectionist,” the U.S. edition of the Financial Times of London blared in a front-page headline. The Washington Post ran a similar story. And the Los Angeles Times headlined a Page 1 story: “Japanese See Racial Bias in U.S. Trade Bill.”

Plays Provocative Role

Japanese officials, insisting that Tamura does not reflect the predominant Japanese view, say he plays the same sort of provocative role in his country that the prickly Sen. Jesse Helms (R-N.C.) plays in Washington. “This was all off the cuff,” Shinichi Nishimiya, a first secretary at the Japanese Embassy here, said sheepishly when asked about Tamura’s remarks.

But even former Prime Minister Yasuhiro Nakasone, probably the most internationalist Japanese leader in history, provoked outrage a year and a half ago when Japanese newspapers quoted him as contending that blacks, Puerto Ricans and Mexicans have pulled down the level of learning in the United States. Nakasone seemed to be implying that racial diversity in the United States is responsible for many of its economic problems.

U.S. views toward Japan are no less shaped by cultural and historical forces. At least in part, Americans display such exasperation with Japan because they have so much difficulty giving up the protective attitude they adopted after the U.S. victory in World War II and the subsequent occupation of Japan.

“Japan-bashing is just one step removed from the paternalism resulting from the occupation of Japan,” Thayer said. “Because Americans feel close to Japan and identify with its success, they believe they have the right to speak out, critically and indeed harshly.”

‘Japan Bashing’ Origins

“Japan bashing” has become a regular feature of the relationship between the two nations. Such foreign pressure, termed gaiatsu in Japan, has even been encouraged by many Japanese who want to exert leverage on their country from the outside.

The “immobility” of the Japanese system, Japanese journalist Yoichi Funabashi says in a new book on recent dollar diplomacy, “is a product of institutional and cultural factors that include the bottom-to-top, consensus-oriented decision-making process. . . . Gaiatsu , in fact, became institutionalized in the Japanese decision-making process, the rigidity of Japan’s economic policy-making process providing the environment in which it took root.”

But for all the shouting at Japan, the United States has aimed remarkably few punitive measures at Tokyo.

“No other country has been so tolerant of Japanese market penetration,” says I. M. Destler, a trade policy specialist at the University of Maryland. “Given the market share some Japanese products have gained in the United States, the response has been quite mild.”

Rooted in Japan’s Success

Destler also dismisses arguments that anti-Japanese prejudice is a key force behind the trade bill. “Basically,” he said, “it is a response--a misguided one, I believe, but genuine anyway--to Japanese economic success. The reason why Japan stands out in American trade policy is because Japan stands out in American trade.”

Last year’s dispute over Fujitsu’s proposed takeover of Fairchild Semiconductor, then owned by the French company Schlumberger, illustrates Destler’s point.

At a cocktail party during the fracas, a Japanese trade official asked a U.S. policy maker why Washington was so upset about the prospect that the firm would be owned by a Japanese company. After all, he pointed out, “it’s already foreign-owned; it’s owned by the French.”

The American immediately shot back, only half in jest: “Yes, but we know they (the French) can’t do anything with it, and you can.”

Fujitsu, upset by the adverse publicity, ended up withdrawing its proposal before the Reagan Administration could rule on the takeover. That allowed Fairchild eventually to be bought at a bargain-basement price by a U.S. computer chip maker.

Capital Inflow Grows

Despite the Fujitsu-Fairchild dispute, the inflow of Japanese capital into the United States continues to pick up speed as Japanese investors look for the best places to put the money they have earned from selling goods in the United States and other foreign countries.

While most analysts consider these tighter economic links between the United States and Japan both desirable and inevitable, some trade experts are very worried about the trend.

The United States has already become dangerously reliant on Japanese capital, argues Clyde Prestowitz, a former top Japanese trade expert in the Commerce Department during the Reagan Administration. “The Treasury shivers before every bond auction--are the Japanese going to show up?” complained Prestowitz, who wrote a recent book attacking U.S. free trade policy.

Prestowitz said the United States should set ground rules that would channel Japanese capital primarily into joint ventures with U.S. firms and “into high value-added manufacturing rather than screwdriver assembly plants.”

Japanese investment in the United States, Prestowitz contends, does not necessarily improve U.S. competitiveness. “Let’s remember,” he said in a breakfast session with Times reporters and editors in Los Angeles, “that British investment in India turned it into a colony.”

Of course, British investment in the late 19th Century also turned the American economy into the world’s most formidable competitor, allowing the United States to surge past Britain itself as an economic power even before World War I.

Basic Economic Changes

The paradox of the current trade imbroglio between the United States and Japan is that efforts to reduce Japanese protectionism can do little to ultimately resolve the trade imbalance in the absence of more fundamental economic changes in both Japan and the United States.

“By themselves, trade measures are ineffective in addressing those trade problems that afflict an entire economy,” Destler said. “Common sense suggests that if we are selling less than we are buying, it must be because our market is open, drawing others’ goods in while they are blocking ours. But on this issue, common sense is wrong.”

In fact, Destler said, the trade deficit has been driven by the need to attract foreign capital. Throughout the 1980s, the United States has needed more cash to maintain its high levels of consumption and investment than it has been able to generate with its lower levels of production and savings. It has had to turn abroad to make up the gap.

Foreigners could invest in the United States only if they had dollars. And they could earn dollars only by selling goods and services to the United States. Hence, Destler said, the trade deficit developed as part of a giant mechanism to recycle dollars--out of the United States in the form of purchases of imports and back into the country in the form of investments.

Fiscal, Monetary Policies

This situation was aggravated by the conflict between the loose fiscal policies of the Reagan Administration, which increased federal borrowing, and the tight monetary policies of the Federal Reserve, which drove up interest rates to help bring down inflation.

By contrast, Japan was following policies that were the exact opposite of the United States’--a restrictive budget combined with high savings. As a result, Americans were spending more than they produced, while the Japanese were saving more than they invested at home. The result was inevitable--a U.S. trade deficit financed by capital outflows from Japan.

Now, the situation has begun to turn around in Japan, where cuts in tax rates, a soaring real estate market and fiscal stimulus have set off a domestic spending boom that is beginning to suck in imports and slash into Japan’s trade surplus.

The question now facing the global economy is whether the United States can turn around its trade deficit as well, reducing its federal borrowing so that it can better finance its export boom and other business investment out of the nation’s own domestic savings.

Times staff writer Art Pine contributed to this story.