Trying A Little Tenderness With Japan

When the Clintonites rode into Washington last January, they were gunning for Japan. Administration officilas were convinced that tough rhetoric would be enough to shrink a $50 billion trade imbalance and boost U.S. sales in the world's second-largest market. The "framework" agreement reached last summer, they reckoned, had finally committed the Japanese to achieving measurable results.

But as President Clinton prepares for a Washingotn summit with Prime Minister Morihiro Hosokawa on Feb. 11, signs are growing that the Administration is backpedaling on trade just as resistance in official Japan stiffens. Japanese bureaucrats have made it clear they have no intention of committing themselves to measurable foreign market-share increases in several key industries: auto parts, insurance, health-care equipment, and telecommunications. Daily barrages from Tokyo accusing Washington of trying to dictate U.S.-Japan commercial relations are taking their toll. "We've lost the high ground," laments one senior Clinton official.

Rather than ruin the Washington summit by declaring a trade war it might not win, the Clinton camp is hastily arranging an alternative strategy. Call it Plan B. In this version, some outward traces of the get-tough approach will certainly remain. Both sides, for example, will probably agree to track the number of foreign car distributorships in Japan. U.S. officials have also bypassed the bureaucrats and directly asked Japan's auto makers to sell more of Detroits's cars in their home markets. The result: Tokyo Nissan Motor Sales recently announced it would be selling Ford cars as early as April, and Toyota Motor Corp. will sell 20,000 Chevrolet Cavaliers a year, starting in 1996.

But from there, things get squishier. Reaching benchmarks in other categories, for example may post tougher problems. Yet while an agreement that merely calls for more talks or changes in Japanese bidding rules clearly won't cut it for trade hawks, the Administration seems ready to deal. Even while Washington is likely to demand more market access for key industries, it is preparing to give Tokyo some esy outs -- clauses allowing Japan to ignore targets if its economy doesn't improve.

TRADE THEORISTS. Such waffling may not be momentary stragtegy, either, judging by the statement coming from some Clinton heavies even the bulldog of U.S. trade policy, U.S. Representative Mickey Kantor, seems mellower. When asked what the overriding Administration goal is in the bilateral talks, he now speaks of achieving "convergence" in the two economies -- a return to a more traditional strategy of getting Japan to behave more like the U.S.

And some other Administration figures also privately want to abandon the hard-line approach entirely. The time and resources devoted to fruitless negotiations with Tokyo, they contend, would be better spent on efforts to open emerging markets in Asia and Latin America.

The idea of taking a softer approach largely comes from a new book, Reconcilable Differences? United States - Japan Economic Conflicts, from the Institute for International Economics. The book's authors, IIE Director C. Fred Bergsten and Marcus Noland, a senior economist at the Council of Economic Advisers, advocate opening the Japanese market by relying on agressive promotion of joint ventures -- in effect getting the Japanese to "invite" U.S. companies to join Japanese cartels. They also back a bilateral system for managing the yen-dollar exchange rate on the theory that persistent currency misalignments have been at the heart of the U.S.-Japanese trade tensions.

To trade hard-liners, such talk of convergences and joining the keiretsu is worrisome. They see these philosophical constructs as a cover for a return to the ineffective reforms of the Bush Administration. "If [U.S. negotiators] lose sight of the numerical targets, their credibility will be shot," warns Robert Orr, Mortorola Inc.'s director of government relation in Japan. But with Japan's economy in recession and Hosokawa's political reforms hanging in the balance, Washington has changed its tune. Tough talk, yes. Tough actions? Maybe later.

TABLE:                                  SORE SPOTS
                            Key points in U.S.-Japan trade talks
      AUTO                  U.S. wants faster growth of foreign dealerships in Japan.
      AUTO PARTS            U.S. wants Japanese auto makrets to buy $19 billion in
                            parts from U.S. suppliers
      MEDICAL EQUIPEMNT     Global share for U.S.-made equipment is 47%. In Japan,
                            it's stuck at 20%.
      SEMICONDUCTORS        American chipmakers want retaliation if market share
                            in Japan falls below 18%.
Before it's here, it's on the Bloomberg Terminal. LEARN MORE