New U.S.-Japan Merger: Is America a Junior Partner?

In the international economic struggle against Japan, many U.S. politicians depend on entrepreneurs such as Apple Computer Co. founder Steven P. Jobs, whose latest firm, Next Inc., just introduced a dazzling new computer.

But if Next stands as a symbol of U.S. potential to hold the technological line, it also demonstrates the increasing difficulty of mapping the border between the two economies. For Next’s fortunes are entwined with Japan’s Canon Inc., which provides key technology for the computer, handles distribution in Asia and owns one-sixth of the company.

Rules in the conflict are rapidly changing: “Events in the commercial world are running at 78 rpm while events in the political world are running at 33, if that,” said GOP strategist Mitchell E. Daniels Jr., president of the Hudson Institute.

The key commercial event driving--and confounding--politics is the continuing integration of the U.S. and Japanese economies. Japanese investment here rises, joint ventures proliferate, U.S. manufacturers grow increasingly dependent on Japanese components and Japanese manufacturers move more operations to the United States. This powerful trend is generating intense but contradictory political currents that baffle both parties.

Growing Japanese commercial presence has stirred public fears of U.S. economic decline and calls in Congress for renewed efforts to protect U.S. positions in key industries. But the very process of integration complicates the development of policies that respond to it.

“It is making it harder to identify what an American firm is,” said Jeff Faux, president of the Economic Policy Institute. “Is it one with 51% ownership by American individuals or institutions? Or is it a firm that operates in America and maybe is owned by somebody else? There is no legal answer to this.”

That blurring complicates the debate now heating up over how to defend U.S. competitiveness in cutting-edge technologies--such as advanced semiconductors, fiber optics and high-definition television (HDTV), which some maintain could be the key consumer electronics product for decades to come. In a study released last week, Faux’s institute warned that failure to develop a U.S. HDTV industry could cost 2 million jobs by 2010.

The Bush Administration, though, has rejected calls for greater government spending on HDTV and it has reportedly prepared cuts in the existing research budget. Worried legislators maintain the Administration is contemplating the elimination of support for Sematech, a consortium blending public and private funds to conduct basic research in the semiconductor industry.

Even as George Bush rejects such partnerships, support for them is moving toward the center of the Democratic economic appeal. That is the latest stop in the party’s long search for a policy that would respond to the voters’ persistent but vague unease about the nation’s economic future. With both unemployment and inflation restrained since the first part of the decade, most Democrats have viewed the fears of national decline as their best--perhaps only--opportunity to talk economy to the voters.

In the early 1980s, House Democrats twice pushed through “domestic content” legislation aimed at preventing U.S. auto manufacturers from moving jobs abroad; when that failed in the Senate, House Democrats proposed an industrial policy aimed at nurturing “sunrise” high technology industries. But that sank too, in interminable disagreements with Rust Belt Democrats over how much emphasis should instead be placed on reviving “sunset” manufacturing industries.

Then House Democrats turned toward tough trade legislation sponsored by Rep. Richard A. Gephardt (D-Mo.), which imposed automatic sanctions on countries that ran large trade surpluses with the United States. That died in the Senate--to the relief of many Democrats who feared being labeled protectionist.

Yet Gephardt’s tough talk on trade struck sparks with voters although he justifiably took enormous criticism for focusing too much blame on foreign trading partners and not enough on failures at home.

Since then, Gephardt and other House Democrats have shifted emphasis again. Without diminishing criticism of foreign partners for closing markets, they are now revisiting a form of industrial policy aimed at restoring U.S. capacities. A wide spectrum of liberal activists calls for greater public investment in education and research and the creation of “industry-led” government partnerships to nourish U.S. companies in emerging industries, particularly HDTV.

At the same time, Gephardt, Rep. Mel Levine (D-Santa Monica) and other House Democrats have stepped up efforts to prevent U.S. technology from being exported. Their fight with the Bush Administration this spring over its deal to construct the FSX fighter plane with Japan ran on fears of providing critical technology that the Japanese could then use to challenge U.S. civilian aircraft manufacturers.

But even as the Democrats sharpen their America-first program--and prepare for war with Bush over his retreat from the government’s modest efforts to support emerging technologies--the ground may be shifting beneath them. While the political debate hardens into the language of conflict, much of the commercial dialogue gravitates toward the vocabulary of cooperation.

The FSX fight was intended to help no firm more than Boeing Co., one of America’s premier exporters. And yet, after Democrats spent months warning about allowing Japan into the civilian aircraft industry though the back door, Boeing recently invited three Japanese partners through the front door to participate in the construction of its next major plane. Even more striking was the recent announcement that the semiconductor industry, which supports a government program to encourage U.S. production of HDTV, is negotiating to design and supply components for Japanese HDTV firms.

Advocates insist these alliances only underscore the need for government to bolster threatened strategic industries. Without the prospect of government help, they maintain, these industries can only choose between allying with the Japanese or falling fatally behind them.

But if the alliances are good business, they are unquestionably bad politics for the advocates of “industry-led” partnerships. Firms in such alliances--like firms dependent on Japan for key parts--could be less likely to push Capitol Hill for programs that might offend their partners. Voices urging greater synergy--and less competition--between the two nations could become dominant.

But that point is not here yet--certainly not in the minds of the voters, or in important segments of the business community. Just last week, a task force of industry leaders recommended an ambitious government program to revive the ailing semiconductor industry.

Bush is likely to recoil from all suggestions that smack of industrial policy. Though the Administration has pressed for greater access to the Japanese market, it has thought little about ensuring that U.S. manufacturers can compete in battleground industries.

In the long run, greater integration between the U.S. and Japanese economies may be inexorable. But if Americans fear they are slipping into junior-partner status, Bush could face charges of unilaterally disarming the United States in what is becoming the most pressing test of national strength.