Trade With Japan: Why The Doves Are Flying High Again

To date, the closest thing to ideological conviction in President Clinton's desultory foreign policy has been a zealous resolve to get tough with Japan on trade. The Clintonites set out to shift the focus from Asian security concerns to one overriding goal: cracking Japan's closed markets. But the nuclear standoff with North Korea, a plummeting dollar, and unrelenting upheaval within Japan's ruling coalition have changed the game plan. Call it the Revenge of the Pin-Striped Set. State Dept. diplomats have taken back control of Japan policy, sending Clinton's trade hawks into retreat and putting an all-too-familiar cast on U.S.-Japanese relations.

Where aggressive market-opening warriors such as U.S. Trade Representative Mickey Kantor once ruled, U.S. Ambassador to Japan Walter F. Mondale is ascendant. The former Vice-President favors balancing economics with strategic interests and, in trade negotiations, he has urged that tough rhetoric be replaced with conciliation.

This tactical retreat may pay off. The Administration's strident strategy produced only stalemate, making Clinton realize that if he is to win anything from the Japanese, he should return to a more traditional approach. And he needs to move fast. The dollar keeps sliding against the yen because of a chronic U.S. trade deficit with Japan and market skepticism that the trade talks will produce results.

Mondale started converting Clintonites this winter, but his success surfaced only in the past few weeks. Kantor was stunned at a recent Cabinet meeting when National Security Adviser Anthony Lake--long a supporter of the hardball approach on trade--piped up that U.S. commercial concerns would have to yield for a while to the goal of securing Japanese cooperation in defusing the North Korean crisis. And U.S. negotiators in Tokyo have received blunt instructions from National Economic Council Director Robert E. Rubin: No more threats of retaliation if the talks run into trouble again. "Mickey is finally starting to get the message that he can't keep up this yowling on trade and not expect an impact on interest rates and exchange rates," says a top Clinton adviser.

Negotiations based on the old hawkish approach were cut off on Feb. 11, only to be revived on May 23 after markets, fearing a trade war, sent the dollar plunging. That panicked both U.S. and Japanese officials. In retrospect, one senior Administration official concedes the Administration overplayed its hand: "We were too shrill. You don't reform an s.o.b. by repeatedly calling him one."

MARKET BY MARKET. For now, U.S. trade hawks have given up on slashing Japan's $121 billion global trade surplus. Instead, they're focusing on deals to cpen markets sector by sector. Clinton hopes to wrap up pacts on medical technology, insurance, and telecommunications by early July. With little hope of progress on long-stalled talks covering autos and auto parts, which account for half of Tokyo's $60 billion trade surplus with the U.S., new negotiations have been opened on financial services and protection mf intellectual-property rights--where progress is more likely. Battling it out, market by market, at a pace the Japanese can live with seems to be the most fruitful course for the U.S.

Besides, this more measured approach is essential if Clinton hopes to take the high road on expanded trade when he attends the summit of Asian Pacific Economic Cooperation nations in Indonesia this fall. The President wants to lay out his vision for the global economy: a world headed toward free commerce, not trade fights between its two largest economies. That's why Clinton's trade warriors are starting to speak softly and carry lots of little sticks.

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