What America Can Do
As President Clinton pursues free-trade initiatives elsewhere, Washington's primary goal with Japan must be to increase market share for specific U.S. products and investments. To that end, calm, polite, and calibrated pressure is in order. So far, Clinton has performed admirably. His refusal to paper over the failure of recent trade talks brings clarity and focus to the longstanding problem.
Now, he has to deliver. The Clinton Administration should avoid a public trade war of fierce words, defiant posturing, and the blunderbuss sanctions of wholesale tariffs and quotas. A vortex of retaliation is the last thing the U.S. economy, finally on a stable road of growth, needs right now.
A better way is to make access to the huge, open American market a quid pro quo for access to foreign markets. This is important not only for Japan but also for other countries, such as South Korea, that see Japanese mercantilism as an economic model to emulate.
Unless Japan opens its markets willingly, the U.S. has no choice but to negotiate through a calculated ratcheting up of pressure. Here are the options:
-- Deny Japanese commercial banks authority to operate in the U.S. as investment houses.
-- Renegotiate free-trade zones for Japanese auto and auto-parts makers.
-- Terminate government construction contracts with Japanese companies.
-- Bring antitrust suits against keiretsu in the U.S.
-- Initiate more transfer pricing actions against Japanese multinationals.
-- Investigate discrimination against women and minorities by Japanese companies in the U.S.
If it proves necessary, this policy of calibrated pressure could require the White House to coordinate measures by Treasury, Commerce, the IRS, and the Federal Reserve that raise the price Japan pays here for keeping markets closed there. In the post-cold war era, where foreign policy is economic policy, this sounds like a job for Robert Rubin's National Economic Council.