U.S. Backs Off From Tough Stance on Its Trade Imbalance With Japan

All of a sudden, the Clinton Administration is on its best behavior with Japan.

You would think that the Administration’s bluster of the past 2 1/2 years--its threats to impose trade sanctions, its hopes of “breaking the backs” of the cozy, often-exclusive ties between Japanese companies and their suppliers--was simply a dream.

Right now, it looks like President Clinton can feel Tokyo’s pain. Japan is being treated with more or less the same tender solicitude it got during the Ronald Reagan and George Bush administrations. Threaten the Lexus or the Infiniti? If his Japan policy keeps moving at its current rate, Clinton might soon be doing TV endorsements for them.

The interesting questions are why this has happened and whether it will last.

The change in Administration policy started with the decision on June 28 not to impose trade sanctions on Japan for its restrictions on U.S. autos and auto parts.

The Administration had threatened to impose $6-billion worth of special duties on Japanese luxury cars. Clinton had succeeded in lining up surprisingly strong political support in Washington for a tough line. He even had House Speaker Newt Gingrich (R-Ga.) and Senate Majority Leader Bob Dole (R-Kan.) on his side. Yet the Administration at the last minute backed away from imposing sanctions and accepted very modest commitments from Japan to buy some more cars and auto parts, without any of the numerical targets on which the United States had once insisted.

Last month, the Administration took its next big step. With Treasury Secretary Robert E. Rubin taking the lead, the Administration moved to help the Japanese economy by supporting a stronger dollar against the yen. The U.S. dollar had purchased below 80 yen at one point last spring; last week, the dollar was buying nearly 100 yen.

These currency changes help Japan’s economy by making Japanese products less expensive in this country. They also make American goods more expensive in Japan. Quite a turnabout for the Administration, which had earlier pushed the value of the dollar down against the yen to help boost American exports and curb imports from Japan.

In explaining the support for a higher dollar, Rubin said he thought it was “the height of unsound policy to devalue yourself into competitiveness.” That was, essentially, what the Administration had sought to do over the previous year or two.

The Administration’s actions to help Japan have been matched by its rhetoric. There is no more tough talk. Administration officials sound as though they hope the confrontations over trade are a thing of the past.

Listen to the diplo-speak of Assistant Secretary of State Winston Lord, who told The Times in an interview last week: “We do feel--and it’s the unanimous view within the government, the economic agencies as well as the security-oriented ones--that we are moving into a new phase [with Japan], more of an implementation phase. We can have more public emphasis and focus on other aspects of the relationship, in particular the security dimension.”

Translation: Don’t look for any big new initiatives from the Administration to remedy the nation’s trade imbalance that allows Japan to maintain a surplus at monthly levels of more than $5 billion--levels the Administration used to call unacceptable.

Why the reversal? There are three larger factors at work. Call them alphabet soup, the Japanese banks and China.

First, the alphabet soup. The Administration has put great stock in creating stronger regional organizations for Asia--not military alliances like NATO, but ones strong enough to make sure that Asian countries don’t drift apart from the United States and form some exclusive club of their own.

These pan-Asian organizations are proliferating now. The biggest one, and the one the Administration cares the most about, is the Asia Pacific Economic Cooperation forum, or APEC. It holds the Asian summit meetings that Clinton attends each November--like the one last year where Clinton and other world leaders were caught in that memorable photograph: “I went all the way to Indonesia, and all I got was this batik shirt.”

At the Indonesia summit, the Administration won an extremely vague promise from APEC for free and open trade and investment throughout Asia by the year 2020. But there were no specifics, and everyone admitted that they had left the hard work, the make-or-break details, until the meeting this November.

This year’s summit will be held in Osaka, Japan. And the Administration desperately wants Japan’s help in winning a solid commitment to free trade, one that would apply throughout Asia in the coming decades. Some Administration officials acknowledge privately that this has been an important and growing factor in Administration policy toward Japan. Put simply, the Administration worried that there would not have been a successful APEC meeting this November if Japan were, at the time, suffering from American trade sanctions.

The only problem is, Japan doesn’t seem to be helping very much. Last week, Japanese Foreign Minister Yohei Kono told reporters in Australia that Japan didn’t want to push too hard for free trade, that there needed to be more “flexibility” for “sensitive areas” of the economy. Translation: Japan is trying to carve out some holes in any free-trade deal that will protect some sectors of the economy, like agriculture and its own rice market.

The second underlying factor has been a case of the jitters in Washington about the Japanese banking system. As the official estimates of bad loans by Japanese banks grow to levels of $400 billion to $500 billion, Administration officials have grown increasingly worried about some sort of meltdown that could affect the U.S. economy. For example, they have feared that if Japanese banks were to suddenly begin to sell off their $400 billion in U.S. bonds, that action could drive up interest rates in this country.

Japan’s banking mess was probably the main factor behind the Administration’s willingness to help Japan by letting the yen slide back down in value. Congress has been hammering away at the Treasury Department for failing to react quickly enough to last year’s financial crisis in Mexico. The Administration didn’t want to be accused of being too slow with Japan as well.

The third factor behind the new policy is China. Over the last few months, the Administration has been preoccupied by its friction with Beijing over Taiwan and with China’s missile tests.

This is not to say that the United States has decided to team up with Japan against China. It hasn’t. But Administration officials treat East Asia quite differently from the Persian Gulf, where they have forsaken balance-of-power politics toward Iran and Iraq in favor of tough, confrontational policies toward both of them.

In the case of Asia, the Administration now consciously shirks from having lousy relations with both Japan and China at the same time.

And so, as ties with China have soured this summer, those with Japan have improved. That may be part of a long-range trend, suggests Massachusetts Institute of Technology Japan scholar John W. Dower.

“A significant and somewhat ironic transformation appears to be taking place in the American perception of Asia,” Dower wrote recently. “Just as Japan replaced China as the dominant power in the Orient almost exactly a century ago, now China is--at least in the eyes of many Americans--about to replace Japan.”

Yet there is still that annual trade deficit of more than $60 billion with Japan. When he took office, Clinton promised dramatic changes. He said he would focus on results.

“The world needs these two countries [America and Japan] to cooperate,” Clinton said after his first summit meeting with Japanese leaders two years ago. “And it can only happen if we are making real progress on this trade deficit.”

Clinton’s first point may well be true. So far, his policies are proving the second point to be wrong.