‘Nippophobia’ Affects Making of Trade Policy : From Grass Roots to the Capitol, Americans Blame Japan for Deficit Woes

U.S. Trade Representative Carla A. Hills thought her speech would be right on target when she flew to Chicago to address a trade conference earlier this month. It turned out to be 180 degrees off the mark.

Her remarks were on 1992--the effort by Western Europeans to create a single integrated market by that year. But the questions from the audience--mainly complaints about perceived unfair trade practices--were all about Japan. “She was really taken aback,” an aide said later.

Hills’ listeners in Chicago are not the only Americans who are up in arms over U.S. trade relations with Japan. She and other top officials have encountered a hail of tough questions in Congress, where angry lawmakers seem to be itching for a trade fight with Tokyo.

And out on the hustings, pollsters are finding widespread apprehension that newly rich Japan may be “buying up” America. A recent survey by the Washington Post and NBC News shows that 8 out of 10 Americans favor limiting Japanese investments in U.S. companies.

Many analysts had thought that last year’s Omnibus Trade Act, which firmed up U.S. procedures for identifying and retaliating against unfair trade practices, would dampen protectionist pressures this year. And the U.S. trade deficit improved in 1988, easing the economic strain.

Yet ill will toward Japan still dominates the making of trade policy in Washington.

“The trade bill appears only to have whetted Congress’ appetite,” said William N. Walker, who was a trade official during President Gerald R. Ford’s Administration. Walker, a lawyer who represents some Japanese clients, said “a virtual tidal wave” of anti-Japanese sentiment is “sweeping this city.”

“The whole thing has taken on a real intensity,” added Rep. Richard A. Gephardt (D-Mo.), one of Japan’s chief critics in Congress.

Walker complains that the nation is scrambling to find a scapegoat for the continued large trade deficit. “It is much easier to blame the Japanese for something we have caused than to clean up our own policies here,” he said.

But Gephardt has another explanation: “I think the perception is growing that Japan is really the most closed market in the world.”

No matter what its cause, the decided shift in mood is beginning to have an impact on the debate over trade policy.

Wouldn’t Work

At least two well-known business groups--including Hills’ own Advisory Council on Trade Policy and Negotiations, a committee of top corporate executives enlisted to help drum up support for free-trade policies--have declared that free trade will not work in the case of Japan.

Instead, in a major departure from America’s historic free-market approach, the advisory council and the Emergency Committee for American Trade have recommended that the United States negotiate specific targets for Japanese purchases of American goods in areas where the United States is clearly competitive.

Even the Bush Administration is beginning to question the traditional approach. On orders from the White House, an interagency task force has begun a full-scale review of U.S. economic policy toward Japan. The panel, one insider said, is studying all the options, including the specific import-buying targets that the business groups suggested.

And Commerce Secretary Robert A. Mosbacher, a longtime close friend of President Bush, has made trade relations with Japan a major theme. He has already increased the level of rhetoric against Japanese trade practices.

Tokyo is reacting with alarm. Japanese Foreign Minister Sosuke Uno, sensing mounting antagonism in Congress, asked last week for an emergency parley with Secretary of State James A. Baker III to discuss trade issues.

The State Department still has not responded to Sosuke’s request, but even if the two do meet, little is expected to emerge. Mitoji Yabunaka, a Foreign Ministry official, said later that “we don’t have a quick fix” for the continuing trade imbalance.

Absorbing More Imports

Taizo Watanabe, the ministry’s official spokesman, called on Washington to reduce its budget deficit and on U.S. corporations to step up their efforts to export. “The trouble is . . . the American economy is absorbing more imports again because of high growth,” he said.

Most Americans do not see it that way. The growing hostility is most apparent in the current dispute over the FSX, the advanced F-16-style fighter plane that Washington has agreed to help Japan design and build.

Although the Pentagon concluded a contract on the deal last November, the venture has become mired in criticism from congressional and Administration economic officials, who fear that Tokyo will use the technology to start its own aircraft industry and compete with the United States.

Defenders contend that the suspicions would never have come up if the venture had been with West Germany or any other U.S. ally.

But the real explosion could come on May 30, when the Administration is scheduled to issue a list of the countries that it plans to “target” for possible retaliatory action under last year’s Omnibus Trade Act because of alleged unfair trade practices.

If the Administration omits Japan from the list, it will face a firestorm from Congress that some analysts fear will be almost impossible to control. Yet if it targets Tokyo for eventual retaliation, it could touch off a trade war abroad.

Walker, for one, scoffs at suggestions that the target-setting approach can work with economies that are as large and complex as those of the United States and Japan. That even a handful of Americans believes that Washington and Tokyo could successfully manage trade between the two countries “is a testament to the thrall of the current ‘Nippophobia,’ ” Walker said.

Won’t Be Easy

Alan William Wolff, a trade official during President Jimmy Carter’s Administration who has been one of Japan’s most vocal critics, concedes that the decision on whether to cite Japan for trade violations will not be easy.

Japan “has little formal protection” against which Washington can retaliate, he admitted. Its tariffs are far lower than those of Europe or the United States. And recent trade liberalization efforts have reduced--or eliminated--most of the barriers in place before.

Instead, Wolff points out, Japan keeps import-buying at a minimum through “informal barriers” such as government procurement practices, an antiquated distribution system and a deeply ingrained preference for buying Japanese products rather than foreign goods.

Although the Bush Administration seems almost certain to cite Japan for some “unfair” trade practices, policy makers say the real thrust of any new policy will be to pressure Tokyo anew to change structural barriers such as its complex pricing and distribution systems.

Wolff argues that the United States and Japan also must work harder to correct broad economic imbalances that aggravate the trade problem--such as bringing their saving and investment patterns more into line.

Economists say the United States saves too little while Japan saves too much. That, in turn, results in disparities in their investment and spending patterns that make a huge U.S. trade deficit and a corresponding Japanese trade surplus almost inevitable.

Then, too, both government and private trade strategists warn that for all the frustration over trade issues, Americans must learn to keep their feelings about the Japanese economic threat in perspective.

A Key Ally

Japan still is a key U.S. political ally and an important strategic force in Asia. Washington needs Tokyo’s help in financing the U.S. budget deficit and in rescuing Third World debtors. And America needs Japanese investment money.

“If the current frustration and resentment becomes outright hostility,” Wolff warned, “then the stability of the postwar political and economic system would also be threatened.”

But keeping the lid on may not be easy. Despite Tokyo’s best efforts, Japan’s trade surplus with the United States has begun to widen again following some narrowing in 1988. And while official projections still forecast some further improvement, many analysts fear that the situation will worsen later this year and in 1990.

If that happens, it would only heighten the frustration here even further and intensify pressures in Congress to “get tough with” Japan, said Harald B. Malmgren, a Washington trade consultant.

In that case, Hills’ next speech before a business group might be about Japan instead of Europe. And it might be far less pleasant to digest.