Even Bill Clinton couldn't quite believe it. At a hastily called White House meeting on June 29, the President and his Japan-hands erupted in belly laughs over the strange turn of events in Tokyo: Tomiichi Murayama, leader of Japan's eadfly Socialist Party, had just become the fourth Japanese head of government in a year. "Gee," Clinton chortled, "and I didn't even get a chance to meet the last Prime Minister."
But the guffaws quickly gave way to sober debate as the Clintonites were once again forced to revise tactics for dealing with their most vexing economic rival. Forget tough rhetoric. Forget about quantitative measures to judge progress. Washington is struggling to find a new plan to finally crack Japan's closed markets.
"LEAKY ROOF." For now, the Administration intends to capitalize on a strengthening yen to keep up pressure on the Japanese. At the same time, Clinton plans to push for new multilateral trade deals to squeeze Japan further for concessions. "The Japanese are living in a lousy house with a leaky roof," snipes a senior U.S. official. "We have to force them to start taking responsibility."
Federal Reserve policymakers seemed to buy into Clinton's plan. On July 6, the central bank decided against a hike in U.S. interest rates that would have stemmed the dollar's slide against the yen. The White House believes the problem is not that the dollar is too weak but that the yen is overvalued against all world currencies. The Fed agreed, deciding it was more important to keep the U.S. economy growing than to rescue the dollar. "The Fed is letting Japan know what it already suspected," says former Fed Vice-Chairman Manuel H. Johnson Jr. "The U.S. won't shoot itself in the foot for the Japanese."
Clinton intended to deliver another message on July 8 as he and the new Japanese Prime Minister gather for the annual economic summit of industrialized nations in Naples. Instead of focusing on U.S.-Japanese frictions, the President was set to announce an initiative for global trade and investment talks led by all seven summit nations.
The new effort would grapple with issues left unresolved under the General Agreement on Tariffs & Trade last year. They include protection of copyrights and patents, deregulation, new codes for foreign investment, and country-to-country enforcement of antitrust laws. Japan has resisted U.S. entreaties to cut bilateral deals in most of these areas.
The Clintonites' hope: to place the ball squarely in Japan's court. They fear that major market-opening trade deals with Tokyo's bureaucrats are out of the question until after parliamentary elections expected this fall. So the U.S. wants to make Japan pay a price for delay. A strong yen could drive up the cost of Japanese exports, angering Japan's business executives.
FRUITLESS TALKS. Clinton also hopes to unite the U.S. and Europe against Tokyo. Paula Stern of the Progressive Policy Institute notes that a global approach is far preferable to slugging it out toe-to-toe with Japan, which won the public-relations battle last year by casting U.S. bilateral proposals as a form of managed trade. "To take on Japan samurai-style is bruising, and we don't come out looking good," she adds.
Administration critics note that talks have lasted more than a year without narrowing Japan's $60 billion trade surplus with the U.S. "The Administration's policy is disintegrating right before our eyes," complains Representative Jim Kolbe (R-Ariz.), chairman of the House Wednesday Group, a Republican caucus on trade and investment. But he admits, "there's really not much anybody could do at the moment."
That sums up Clinton's dilemma. He can't control dollar-yen values, and multilateral trade deals take years to conclude. His best hope is that the rest of the industrialized world also is impatient with Tokyo. And though Japan has resisted similar pressures in the past, the strong yen's effect on exports ultimately could force it to compromise. Wishful thinking by the Clinton trade warriors? Perhaps. But right now it's all they've got.