No Letup in Trade Pressure on Tokyo, U.S. Officials Say : Asia: Washington doesn’t see Japan’s recession as reason to back off. Summit run-up likely to be tense.

A few weeks ago, one of the Clinton Administration’s senior policy-makers recalled with annoyance the time last year when Japan argued that its airlines were too economically fragile to permit new competition from American carriers.

“Here we’ve had bankruptcies, restructuring, a real shakeout in our own airline industry,” the U.S. official said. “Now that we’re lean and mean, they can’t keep us out. Japan can’t say we’re too good and ban us from their market. What if we’d said that to Toyota and Datsun in the 1960s?”

It was just a casual remark, but it illustrated the changing dynamics between the United States and Japan. And it demonstrated why the relationship between the two countries seems headed for a period of considerable tension as President Clinton and Japanese Prime Minister Morihiro Hosokawa prepare for a summit next month.

The American economy is strengthening, while Japan’s remains in deep recession. The best-selling car in America is a Ford, not a Honda. For the first time since Harvard professor Ezra F. Vogel published his 1979 bestseller, “Japan as Number One,” the perception is taking hold in America that the Japanese economy might be downright mortal.

Does this mean the United States will ease the pressure for Japan to bring down its huge trade surplus with the rest of the world?

Absolutely not, answer Administration officials. In a series of recent interviews, top U.S. officials made it plain that despite Japan’s recession--or indeed, in some ways because of it--the United States intends to mount an intensive new drive for Japan to open up its markets to foreign goods.

“The basic economic facts of the world haven’t changed because we’re up and they’re down,” said W. Bowman Cutter, deputy director of the National Economic Council. “The fundamental fact is that the Japanese economy has not been as open as the U.S. or European economies.”

His remarks underscored another important way in which Washington’s policy toward Japan is changing. In the past, members of Congress like Majority Leader Richard A. Gephardt (D-Mo.) led the way in pressing for tough trade measures with Tokyo.

Now, under the Clinton Administration, Congress is relatively quiet and the executive branch is leading the charge. Today, Treasury Secretary Lloyd Bentsen will meet with Hosokawa in Tokyo to discuss transpacific trade problems in advance of next month’s summit. Clinton took office a year ago with a pledge to end or radically reduce the American trade imbalance with Japan.

Administration officials acknowledge that the President decided to back off last July while elections were pending in Japan. And he continued to avoid confrontation in the summer and fall after Hosokawa took over as the first prime minister in nearly four decades from outside Japan’s Liberal Democratic Party.

Hosokawa’s campaign to revamp Japanese politics suffered a severe blow on Friday when lawmakers voted down his package of reforms, and some observers said the prime minister might even be a lame duck when he faces Clinton in Washington--if the summit goes ahead as planned.

But with the American trade deficit with Japan still running at $50 billion to $60 billion a year, Administration officials realize they need to make headway with Tokyo quickly--or face the prospect that the President will be criticized in the 1996 election for having failed in his Japan policies.

Cutter and other top U.S. officials argue that the Administration has already given more than enough time and breathing room to Hosokawa’s coalition government. “We have to tell Hosokawa, ‘We laid low, we gave you a few months, we held back. You have to come through at this point,’ ” another senior U.S. official said.

At the moment, it appears Washington and Tokyo have such vastly different expectations of one another that they are on a collision course.

There have been suggestions that, during their meeting scheduled for Feb. 11, Hosokawa may ask Clinton to help ease Japan’s recession.

Yoichi Funabashi, Washington bureau chief for Tokyo’s Asahi Shimbun, said recently that the Hosokawa government may seek temporary depreciation of the yen so Japanese companies can have “better confidence for the future.” Such a change in the exchange rates would make Japanese exports to this country cheaper and U.S. exports to Japan more expensive.

Administration officials scoff at that idea, noting that there are some in Washington who believe the yen should be pushed to even higher levels. And more broadly, they reject the principle that the Administration should ease its trade policies to help Japan climb out of recession.

“In the midst of the (American) recessions of 1979, 1982 and 1989, we kept our markets open,” Cutter said. “We lost manufacturing jobs, and Japanese industry gained. . . . We’re not asking the Japanese to do anything we haven’t done.”

For their part, Japanese officials regularly insist that their economy is already open--although last August, Hiroshi Kumagai, Hosokawa’s trade minister, acknowledged that “Japanese markets are extremely closed in invisible ways.”

Administration officials contend that the proof is in the results: Japan still imports far fewer manufactured goods--when measured against the country’s gross national product--than any of the world’s other leading industrialized democracies. And Japan’s trade surplus, both with the United States and the world as a whole, remains huge.

In the American view, the recession in Japan has altered the dynamics of the negotiations between Washington and Tokyo in a number of ways.

First, Administration officials say the slump has inevitably increased protectionist pressures in Japan. “This is the scariest downturn they’ve had since the end of the war,” Cutter said. “We’re running into extraordinary resistance.”

Second, the recession has heightened fears in Washington that without some dramatic changes in policy from Tokyo, the American trade deficit with Japan may widen still further. Because of the downturn, Japanese consumers can be expected to buy fewer goods.

Third, Japan’s recession appears to have touched off a new sense of resentment in Washington about Japan’s restricted markets. Administration officials argue that the United States has already withstood economic pain and dislocation and that Japan should be prepared to do so too.

“Japanese companies had unfettered access to our markets to beat the (expletive) out of us for years,” said one senior Administration official. “Other countries have accepted the pain of adjustment. . . . In some sense, Japan forced us to get lean and mean in many sectors.”

Finally, the recession has prompted the Administration to argue that opening markets and stimulating greater consumption would be in Japan’s own interest. “Because the economy is weak, 100 yen ought to buy as much as possible,” one White House official said.

Cutter said he felt officials in Tokyo could end the practice by which Japanese companies charge higher prices for goods at home than they do overseas. “They can do what we did in America from 1945 to 1955, which is to feed consumer demand. They could do that and still come out of this with a savings rate which is 50% higher than ours.”

The strengthened American economy would appear to give the United States greater leverage than before in dealing with Tokyo. But some American critics believe the Administration policy is doomed to failure because Japan has no intention of changing the way it does business.

“The Japanese are playing hardball economic warfare, and the people in Washington aren’t prepared for it,” said UC San Diego professor Chalmers Johnson. “Hosokawa is giving the illusion of change. But the truth is that the Japanese are buying time.”

Johnson argued that Japan’s long-term strategy is to integrate its economy with the rest of Asia, buying low-technology goods from its neighbors and feeding the fast-growing demand in places like China and Southeast Asia. “The Americans don’t have the same leverage as in the past,” Johnson said.

Administration policy, however, remains based on the premise that Japan can and will change. “Our goal is a Japan that is truly integrated into the world economy,” one senior U.S. official said. “We want a Japanese economy that responds like a normal economy--so that, for example, if the exchange rates go down, people in Japan buy more imports.”

What happens if the Administration fails, and Japan’s economy doesn’t change in the way that Clinton and his aides are hoping?

“It’s not that we will suddenly declare economic warfare,” Cutter said. “But the current direction (of economic relations) has been corrosive, and it will get more so.”

“I don’t think it would be hard to build an anti-Japanese groundswell in the consumer sector here,” another Administration official said. “Our population believes Japan doesn’t play by the same rules. Our corporations are tired of it.”