A Lack of Respect : Washington was not making extreme demands on the Japanese during the trade negotiations. But Tokyo fought the terms vociferously. Is it time to re-think U.S.-Asian relations?

The most remarkable aspect of the latest U.S.-Japan trade squabble is that Tokyo did not jump at Washington’s tepid “market-opening” requests months ago.

Since the 1992 U.S. presidential election, Japanese bureaucrats had warily waited for a trade dispute to surface. They should have been elated when they finally received the Clinton Administration’s demands. As detailed in an article the U.S. government recently published in Japan, Washington made three requests to redress America’s enormous bilateral auto trade imbalance.

* U.S. negotiators asked Japan to more vigorously enforce its anti-monopoly laws so Japanese dealerships could sell foreign cars without fear of reprisal from auto makers like Toyota and Nissan.

* They sought deregulation of Japan’s costly car-safety inspection system and open, competitive bidding among licensed shops. This, the Americans hoped, would reduce the exorbitant, often arbitrary levies Japanese “safety” inspections add to the price of imported vehicles.

* Washington wanted Japanese auto makers to voluntarily announce specific measures to open up their notoriously closed auto parts procurement networks. Making matters easier for Japanese firms, it eschewed any numerical targets and offered to treat plans to increase automobile production in the United States, or to import U.S.-built autos to Japan--which most Japanese firms had already announced--as “voluntary” programs. To further allay Japanese fears, top U.S. officials publicly declared that the voluntary plans would only be regarded as “business forecasts,” not binding “commitments”--unlike the 1991 bilateral semiconductor pact, which carved out a fixed percentage of the Japanese market for foreign manufacturers.

Japan should have leaped at such a deal. That it chose not to says much about the challenges of 21st Century Asia. While they might have to formally agree to Washington’s anti-monopoly and deregulation requests, Japanese bureaucrats could postpone any real progress for years. Voluntary plans to open Japanese auto parts procurement correctly addressed the most critical factor behind the two countries’ trade imbalance--the tight integration of major auto firms and their suppliers in Japan, compared with the traditionally hostile relations between the Big Three auto makers and local firms in the United States. But without much more comprehensive measures, the plans would almost certainly have little effect.

Japanese suppliers enjoy far more procurement and investment stability than their U.S. counterparts; they can easily invest in the capabilities necessary to meet their customers’ requirements in Japan--and in the United States. About 30%, or $4.8 billion, of all Japanese auto parts imports are bought directly by the Big Three. Close to 30% of Japanese-owned U.S. parts factories, according to a recent survey, only serviced Ford, GM or Chrysler.

As long as such supply-base asymmetry persists, Japanese manufacturers would likely secure an increasing share of the total automotive market on both sides of the Pacific--no matter what brand name might appear on a finished automobile. Japanese trade officials long ago could have met Washington’s trade demands without seriously jeopardizing their country’s competitive position.

Instead, Japan fought the United States tooth and nail. It spent millions to line up Asian and European opinion against U.S. demands. It bought advertising to motivate U.S. interest groups to repudiate their own government’s position. But since Japan’s food and raw-material import dependencies and its huge stake in the U.S. market unquestionably make it far more vulnerable than the United States to a prolonged trade dispute, why did it so vociferously resist a deal it finally couldn’t refuse?

The hostile tenor of the trade negotiations was largely set by a new breed of younger, more aggressive Japanese bureaucrats--typified by Japanese trade minister Ryutaro Hashimoto--seeking high-profile causes to fuel their political ambitions. Openly contemptuous of older, postwar politicians--whom they view as too subservient to the United States--they believe their nation is both different from, and better than, its now declining Western counterparts. Using the trade dispute to strike a defiant pose, their message especially resonates among younger Japanese with dim memories of a once all-powerful America, and dimmer still of the cataclysmic war that profoundly shaped their elders’ lives.

Japan was also motivated by the conviction that, given official U.S. ambivalence about the need for any trade policy, if it inflicted as much punishment as possible in a dispute it could eventually afford to concede, far more substantive bilateral demands could be avoided in the future. By subjecting the few U.S. leaders who dared to fight for their nation’s welfare to a scorched-earth opposition, the Japanese hoped to raise the costs of future trade disputes above a threshold most U.S. politicians would cross.

Finally, Japan’s intransigence was bolstered by the coincidental, but strategically critical strains in U.S.-China relations that occurred after Taiwan President Lee Teng-hui’s visit to the United States and CIA charges that China sold missile components to Pakistan and Iraq. Stung by what it saw as U.S. insensitivity, and concerned that its own skyrocketing, Japan-sized trade imbalance with the United States would likely provoke U.S. retaliation, Chinese leaders recalled their ambassador and refused to be mollified by Washington’s hurried extension of most-favored-nation trade status for another year.

The Chinese began to echo much of the anti-Western rhetoric flowing from Japan just as the auto trade dispute reached its peak, pillorying the United States as a “nation in decline” and suggesting that Asian development models were clearly superior to the Western variety. More than at any time in the recent past, both of Asia’s major political and economic powers were bashing America in favor of an “Asia first” philosophy.

Thus, the auto dispute was shaped not only by the details of car manufacturing, but also by fundamental contradictions in U.S.-Asian and domestic economic policy that must be resolved before trade concerns can be productively addressed.

Indeed, a serious re-examination of the Cold War premises of U.S. security arrangements in Asia is long overdue. Much of the dispute with Japan, and increasingly with China, results from the clash between antiquated assumptions about the paramount position of the United States in regional security arrangements and Asia’s economic achievements. Many experts believe that if the United States encouraged Asian nations to take a regional and world role consistent with their industrial capabilities--while subtly stressing the linkages between such responsibilities, U.S. security guarantees and economic cooperation--now intractable trade issues would be more easily resolved. Both Korea and Singapore, for example, have quietly reduced their once enormous trade imbalances with the United States in recognition of their strategic stakes with Washington.

Similarly enlightened, tough-minded approaches to countries like Japan and China are also mandatory. Rather than approach trade in isolation, Washington should link political and security concerns--which particularly motivate the new breed of Asian leaders such as Hashimoto--to real progress on crucial industrial issues. This reduces the likelihood that trade disputes will be used as an opportunistic springboard for anti-U.S. political posturing, and provides incentives for ambitious politicians to accommodate, not virulently oppose, legitimate U.S. concerns.

At the same time, the United States needs a domestic economic strategy responsive to Asian challenges, because the “market-opening” demands it made in the auto dispute will have little effect unless U.S. suppliers are far better linked to their customers. The revival of the U.S. semiconductor industry after severe setbacks at the hands of the Japanese, for example, is now widely credited for the joint-industry efforts to foster cooperation among top-tier manufacturers and their suppliers, producing tight procurement and R&D; networks to compete with similarly organized groups in Japan. Simply demanding deregulation or voluntary “plans” without also recognizing--as the Japanese concede--that most Asian countries pursue supply-base strategies different in kind from traditional U.S practices, only guarantees chronically unbalanced trade between the United States and Asia.

No matter how it was temporarily resolved, the continuing U.S.-Japan trade dispute ultimately challenges the United States to adjust to a rapidly changing Asia. At root, Japan’s response was motivated by broader political concerns for respect and recognition. Until America clarifies its thinking about Asia along such dimensions, serious solutions to its trade concerns will remain elusive.*