Trade War Fears Send Dollar Plunging : Analysis: U.S. and Japanese economies are so entwined that neither can afford all-out battle, economists say.

As economic tensions between the United States and Japan continue to worsen, it is highly unlikely that they will escalate into an all-out trade war because too much is at stake and the nations’ economies are too closely intertwined, economists say.

A trade war--involving high tariffs, embargoes or other retaliatory measures--would have wide-ranging effects, particularly if it applied to economic sectors in which the Japanese dominate the market: ceramic packages used in the manufacture of integrated circuits, flat-panel computer display screens, videocassette recorders or cameras, for example.

While there are alternative suppliers for some of these products, the result of trade interruptions would be higher prices or limited supplies for both industry and consumers.

But economists and industry officials doubt that either the Japanese or the U.S. government will allow the current disagreement to escalate to encompass such sensitive areas. “Both countries have too much to lose to allow that to happen,” said Mustafa Mohatarem, an economist with General Motors Corp.

The Clinton Administration is expected to rule today that Japan has violated an agreement to open its market to U.S.-made cellular telephones. The expected ruling would come only days after talks between President Clinton and Japanese Prime Minister Morihiro Hosokawa stalled on setting specific goals for opening up Japan’s domestic markets to more U.S. imports.

The United States is still considering whether to impose trade sanctions to force Japan to open its markets. Yet such sanctions would not be likely--at least in the short run--to imperil the web of relationships that has grown between Japanese and U.S. firms.

As in the past, any sanctions would likely focus on consumer goods--such as cellular phones--to avoid adding costs or lessening the competitiveness of U.S. manufacturers dependent on Japanese components, economists say.

Finding such products is not always easy. In 1989, the Bush Administration put together a list of items targeted for possible trade sanctions, including auto parts, electronic goods, minivans and cosmetics, said S. Linn Williams, a deputy trade representative in the George Bush Administration.

“I got 300 letters in response to that list” from companies arguing that sanctions would “drive up the price of my product, make me less competitive and lead me to fire American workers,” he said. “Whether or not that actually happened was unclear.”

Still, “no one is going to put tariffs on products for which there aren’t adequate substitutes,” said Richard L. Drobnick, director of USC’s Center for International Business. “If certain kinds of Japanese products are prohibited from entering, or assessed high tariffs . . . substitute products would come, either from non-Japanese firms or produced here.”

The dispute over cellular telephones concerns Motorola Inc., one of the world’s largest makers of the devices. Motorola argues that Japan has failed to honor a 1989 agreement to open more of its markets to U.S. products.

The expected ruling by the Clinton Administration might eventually pave the way for tariffs on Japanese-made cellular phones imported into the United States. Motorola officials declined to speculate on the effects such tariffs would have on its operations.

Any sanctions would have only minimal effects on firms like PacTel Cellular, one of the nation’s largest providers of cellular service, which resells Motorola and other brands of cellular telephone equipment.

“Fewer than 30% of the phones (we sell) are made by Japanese manufacturers, so we don’t think there will be a significant impact on our business,” said Susan Rosenberg, a spokeswoman for PacTel Cellular in Walnut Creek, Calif.

When the Reagan Administration applied sanctions in response to a purported breach of a U.S.-Japan semiconductor agreement in 1987, the list encompassed laptop computers, affecting companies like Toshiba. But that didn’t stop Toshiba from selling such computers in this country.

“Companies generally moved production facilities into the U.S. or someplace else to avoid the effect of the sanctions,” Williams said. “There’s a school of thought that sanctions are effective for maybe six months and, after that, the company against which the sanctions are applied figures out a way to do business around them.”

In the long haul, a trade war would be hard on both partners.

“The U.S. and Japanese economies are married to each other,” said Lawrence Krause, a professor at the Graduate School of International Relations and Pacific Studies at UC San Diego. “Over the longer run, if, in fact, we cannot resolve our differences . . . then Japanese firms and U.S. firms have to reconsider how much commitment they have to each other.”

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