Sticky business, trade wars. During the cold war, all the U.S. and Soviet Union demanded of each other was that they keep their missiles in their silos and their soldiers behind the lines. National interest was based on external military and political behavior. Borders were crucial.
Not so in trade wars. The blunt talk at the Clinton-Hosokawa summit highlights a radical new change in global affairs: America's foreign policy has become economic policy, and its national interest is inextricably intertwined with the internal workings of other countries. Japan, with its mercantilist policies, has long known this. Now, with this economic summit, the U.S. is signaling that it, too, is starting to learn.
President Clinton's instincts are to play the new game of geo-economics through free trade--note his strong support of NAFTA and GATT. He thinks open markets are the best means to boost competitiveness, promote growth, and generate jobs.
But the bedeviling trade deficit with Japan is challenging America's patience. For 20 years, Tokyo and Washington have been blaming each other for the problem. In the 1980s, an economically ascendant Japan lectured America about its low savings rate, its terrible budget deficits, and the pathetic quality of its products.
Now, in the 1990s, the roles are reversed, and a rebounding America is lecturing Japan about closed markets, domineering bureaucrats, and subordination of consumers to producers. Just as the U.S. felt threatened, so now does Japan.
Yet Japan was right in the 1980s, and the U.S. is right in the 1990s. In truth, the hectoring from Japan helped pressure America to do the right things to regain its competitive edge. The question now: Can the Administration play the same role and help Japan do the right thing and change? What Japan must realize is that opening its markets will help not only consumers but their protected industries, such as insurance, that need the stimulus of global competition.