PERSPECTIVE ON TRADE POLICY : A Need to Look Beyond Japan : Complete NAFTA and the Uruguay Round of GATT and cultivate other Asian nations for faster, bigger payoff.

When President Clinton returns home from Japan after the annual summit of the world’s leading industrial nations this week, he wants to bring back an agreement to negotiate an expanded U.S. share of the Japanese market as a centerpiece of his economic diplomacy. The Administration’s frontal assault on Japan will not solve our trade deficit. In addition to the overall danger of diplomatic rift and destabilization of the U.S.-Japan relationship, this approach rests on an outdated view of America’s long-term economic interests. U.S. trade policy would be better served by trying to revive the sinking prospects for the NAFTA and Uruguay Round agreements.

Although a huge and stable economy, Japan is no longer the economic dynamo that will set the pace for the rest of the world. Its aging population is growing by less than 0.4% annually. More important, its economy is growing less rapidly than other areas around the world whose populations are also expanding quickly.

Total U.S. merchandise exports to eight Pacific Rim countries were more than $67 billion in 1992. U.S. exports to Latin America topped $75 billion in the same year, while those to Japan declined to $47 billion. GDP growth in Japan is running at less than 2%, while growth in other Asian and Latin countries ranges from 2.5% to almost 14% (China). Since 1984, we increased our exports both to Latin America and to East Asia (minus Japan) by amounts larger than the current trade deficit with Japan.

We should not ignore market barriers in Japan, but the diplomatic and trade agenda at the economic summit would produce more sustainable and important economic gains for the United States by reaching agreement on the Uruguay Round rather than on bilateral problems with Japan.

Moreover, the approach we are apparently taking with Japan, with some version of a guaranteed outcomes strategy, brutalizes the very concept of trade liberalization, which has allowed the United States to double its exports since 1986 and create more than 2 million high-paying manufacturing jobs. Too often, our trade negotiators forget that the primary purpose of their work is to benefit both consumers and producers.

An aggressive bilateral approach to Japan also obscures the fact that there are other, less confrontational ways to work toward reduction of the trade deficit. Most obviously, the ongoing Uruguay Round offers a multilateral forum for addressing three of the most pressing problems with Japan: agriculture, government procurement and services. Liberalization of the services market has great promise for the highly competitive U.S. financial services industry and for easing U.S. investment into Japan. Since merchandise exports increasingly follow foreign investment, this could go a long way toward reducing the deficit in goods.

We should also be more aggressive about opening markets further in the booming growth areas of Latin America and the Pacific Rim. We need to “focus like a laser” on completing NAFTA and use the 1993 APEC (Asia Pacific Economic Cooperation) meeting this fall in the United States to advance trade liberalization in the region.

Using this “economic cooperation” meeting instead of confrontational bilateral negotiations to advance trade liberalization has the added benefit of bringing the more dynamic economies of the Pacific Rim into the process. A different approach to Japan would also avoid the current fears in East Asia about managed trade that have led to a new solidarity with Japan not seen since the demise of the Greater East Asian Co-Prosperity Sphere.

Finally, Japan’s current political problems offer the opportunity for the United States to appeal to Japanese consumers, who are a potential ally in market-opening strategies. The rigid Japanese distribution and retailing system, as well as difficulties in market access, keep consumer prices higher in Japan than elsewhere. Given that some of the new party groupings in Japan may be more consumer-oriented, the United States could adapt its diplomacy toward a market-opening strategy that would appeal to these political groups.

In short, a Japan-centered trade policy designed to cut a merchandise trade deficit through managed trade addresses the wrong problems with the wrong strategy. It detracts political attention and capital from trade agreements with a faster and larger payoff, and it uses confrontational trade tools instead of a broader multilateral approach that has a better chance of success.

Both U.S. producers and consumers would benefit more in the long run if we worked harder to bring NAFTA and the Uruguay Round to a rapid conclusion, cultivated closer trade ties with APEC countries and tried to show Japanese consumers the benefits of a more open trade and marketing system.