What Has Japan And The U.S. Making Nice? China

The U.S. and Japan pulled out the long knives during their trade dispute over Japan's auto market this summer, at the same time that Washington seemed to be pushing the yen to painfully high levels. That sense of economic confrontation, greeting the 50th anniversary of World War II's end, appeared to raise the risk of a meltdown of the crucial relationship.

But now, in a change of course, Washington and Tokyo are attempting to achieve a delicate truce. Joint intervention by the Bank of Japan and the U.S. Federal Reserve to rein in the superyen has lifted Japan's economic outlook. And even though the June auto pact has been widely attacked as toothless, Washington trade warriors are laying low in deference to President Clinton's minisummit with Japan's Prime Minister Tomiichi Murayama beginning Nov. 19 in Tokyo.

Why the new tone? Part of the explanation appears to be the growing power of China. Tokyo seems alarmed that Beijing is starting to throw its military heft around in the region. First, Chinese President Jiang Zemin ignored pleas from Murayama to shelve a planned nuclear weapons test. In retaliation, Japan slashed roughly $70 million in grant aid to Beijing this year. It didn't touch the far bigger $1.4 billion in development loans China receives.

NEW FLASH POINTS. But Beijing then launched tough verbal attacks against Tokyo, a beneficiary of U.S. nuclear protection, dredging up Japan's sordid wartime past. With the hard words coming so soon after Beijing's military exercises off the coast of Taiwan, Tokyo diplomats now openly worry about China's assertiveness. "We have many emotional issues between us," says one senior Foreign Affairs Ministry diplomat. "They could ignite at some point."

The U.S., too, could be attempting to breathe momentum into relations with Japan because of uncertainty over China. With American trade hawks quiet for the moment, the State Dept. and the Pentagon are making a big push to strengthen strategic ties with Japan. They want to use those relations as a building block to draw China into a regional security dialogue.

However, revitalizing U.S.-Japanese relations won't be easy. If Tokyo is counting on security ties to overshadow Japan's $60 billion-plus trade surplus, it could be in for a letdown. With everything from photographic film to wood imports to semiconductors still on the table, further trade flare-ups seem inevitable, particularly as the Presidential campaign moves into higher gear. Acting tough with Japan is a political winner at home, and Clinton may be tempted to hit that button.

DIVISIVE STRATEGY. There also seems to be a growing inclination to assert self-interest--perhaps even nationalism--in Japan. Even though the Murayama government in late September reaffirmed the effective 70% subsidy Japan pays for keeping 47,000 U.S. troops on Japanese soil, the alleged rape of a 12-year-old girl by three American GIs on Okinawa has raised populist pressures to send at least some of the Americans packing.

Complicating matters is China's keen interest in keeping U.S.-Japanese relations off balance. The reason: That reduces the risk it will face a united diplomatic front in Asia.

In short, the Americans are being drawn into a high-stakes power triangle with Japan and China, reminiscent of President Nixon's use of "the China card" against the Soviet Union. That's why Clinton's meeting with Chinese President Jiang Zemin in New York in late October, followed by his visit in Tokyo, shape up as part of a new great-power game in the world's most economically dynamic region.

Before it's here, it's on the Bloomberg Terminal.