A Trade Policy That Scolds Friends and Slaps the Wrists of Foes : Summit: Clinton must realize that global free trade is the only way to ensure economic growth. Naysayers must be made to toe the line.

On the eve of the Tokyo summit of the world’s seven most powerful industrial nations, the Clinton Administration has no coherent trade policy. The Uruguay Round of the General Agreement on Tariffs and Trade is stalled after three years of acrimonious negotiations. Talks to restructure U.S.-Japan trade relations are in rough seas. A district-court judge has put the North American Free Trade Agreement on ice. Economic nationalism is sharply rising around the world. The Administration’s response has been to undercut America’s most advantageous trading relationships while dodging the need to discipline its most problematic partners.

Although managed-trade concepts occasionally surface in Washington, the United States’ overwhelming economic interest lies with fostering global free trade. International trade unquestionably generates worldwide economic growth when its participants enjoy relatively unfettered access to each other’s markets and technologies, and free investment across borders. The United States, as the No. 1 economic power, must encourage nations willing to abide by such principles to unite and form a core group dedicated to world trade. Countries that refuse to go along should be isolated from the commercial mainstream.

In light of these long-established economic policy doctrines, America’s trade strategy seems self-evident: ally with countries in Europe, Asia and Latin America that accept the need for--and practice--reciprocity, while collectively insisting that countries such as Japan and China modify their self-serving trade, technology and investment behavior to meet global norms. Yet, in less than a year, the Clinton Administration has provoked a trade war with Europe, increasingly isolated the United States from the world’s fastest-growing economies in Asia and waffled on Japan, all but eliminating the possibility of building the political alliances necessary to defend an open world-trading regime.

The Administration’s apparent obsession with bashing the European Community is especially perplexing. The United States has enjoyed huge trade surpluses--more than $16 billion in 1992--with Europe in recent years. Even more important, U.S. companies dominate virtually all the high-tech and most manufacturing markets in Europe. Last year alone, the U.S. electronics-trade surplus with the EC rose to nearly $14 billion--by far the largest advantage American high-tech producers enjoyed with any part of the world. Yet, the Administration has reserved its sharpest attacks for the EC, which have set off a wine tariff war, held up the GATT accord and unleashed a threatened boycott of the G-7 meeting by the French prime minister--all to “punish” the Europeans for such concerns as French agricultural subsidies or European oil-seed promotion efforts.

Meanwhile, the Administration’s dogged insistence on devaluing the dollar to equalize America’s trade balance with Japan, a hangover from the George Bush years, has severely weakened U.S. influence throughout Asia. Most Asian countries--Korea and Taiwan, for example--are so desperate to find alternatives to their huge trade and technology deficits with Japan that they have brought down their trade surpluses with the United States to appease U.S. officials and attract investment. The cheap-dollar strategy, however, prohibitively raises costs for U.S. companies that want to do business in Asia and lowers American living standards. As the U.S. presence fades, the Asian “tigers” have to look east for future markets and technology, and to increasingly back Japan in trade disputes.

Even the Administration’s apparent get-tough strategy with Japan is riddled with contradictions. President Bill Clinton’s team appears to be repeating the errors of the past by insisting on bilateral, rather than multilateral, negotiations to maximize pressure on Japan and by eschewing broad quantifiable goals, such as eliminating the trade deficit in three years, in favor of issue-by-issue minutiae. Coupled with the recent demise of the Kiichi Miyazawa government, which once again raised U.S. Cold War fears that Japan would fall into anarchy if pushed too hard by its allies, America’s new Japanese policy, like the old, already seems more rhetoric than substance.

Rather than making enemies out of friends and going soft on chronic trade offenders, Clinton might ponder the lessons of a remarkable simulation held, in Boston, by the U.S. Air Force last May. Modeled on military war games, the simulation pitted some of the most aggressive U.S. academic, media and government trade hawks against a team of Japan experts in a struggle to define the terms of post-Cold War trade. Confounding all expectations, and the results of several previous simulations, the U.S. team won handily.

From the start, the Americans sought to exploit their country’s political and military influence, and widespread concern with Japanese economic practices, to build alliances that could force Japan to make concessions or be ostracized from global trade relations. So single-minded was this strategy that when the U.S. “president” was informed of a North Korean nuclear accident resulting in a low-level radiation cloud over Japan, he snapped, “What’s that got to do with the balance of trade?”

The U.S. team’s focus paid off handsomely in the simulation. At the start of the game, the United States demanded explicit reductions in Japan’s worldwide trade surplus, extensive technology transfers and greatly increased support for foreign investment in the country. When the Japanese team predictably offered a variety of largely empty gestures in return, the Americans successfully created a G-6--all the major industrial countries minus Japan--and orchestrated global sanctions against Japanese companies. Europe and the United States concluded a $40-billion joint research-and-development, investment and free-trade agreement, while South Korea, China and most ASEAN countries disengaged from Japanese economic relationships in favor of America.

While the world united against Japan, none of the doomsday scenarios that haunt U.S. strategic thinking--Japanese domestic chaos, imperialistic rearmament, regional instability--materialized. After a brief flirtation with a Socialist coalition government, the old guard of the Liberal Democratic Party recaptured power. In light of U.S. military might in the region, Japan made no serious effort to rearm. Eight years into the simulation, the Japanese team capitulated to virtually everything demanded of it.

Conflict gaming, of course, can never substitute for the complexities of real life nor do more than suggest interesting policy options. But, for a brief time last May, an American team was able to mount an aggressive Japanese and global trade strategy with more consistency and logic than can presently be found in the entire federal bureaucracy. Clinton would do well to consider the danger that, like his recent domestic economic program, policy incoherence could cause his international trade agenda to briefly flare like Fourth of July fireworks, and then fade unnoticed into the evening air.