THE RIGHT WAY TO BALANCE TRADE WITH JAPAN
No allied relationship has been more affected by the end of the cold war than that between Washington and Tokyo. Following the mid-April talks between President Clinton and Prime Minister Kiichi Miyazawa, it is clear that the "special relationship" between the two countries is over. Previous Administrations were willing to subordinate vital American economic interests to larger security issues. President Clinton has redefined U.S.-Japanese relations as a matter of trade and investment between equals.
The Administration is also dumping hallowed myths about Japan, particularly the belief that Japan's economy, with enough outside prodding, will eventually emulate the openness of America's economy. It probably won't, ever. As a consequence, officials such as U.S. Trade Representative Mickey Kantor and the President himself are putting forth a set of specific, quantifiable goals for particular industries aimed at cutting Japan's $50 billion trade surplus with the U.S. They are trying to imitate the success of the semiconductor agreement reached in the mid-'80s, which set a goal of a 20% share of Japan's market by 1993 and reached it. Now the U.S. is targeting high technology, auto parts, insurance, construction, and other industries for quick results. Such managed trade angers Japan, but Tokyo has offered few alternatives to restore some semblance of trade balance.
Clinton, however, is off the mark in suggesting that his "No.1" way to reduce the deficit is depreciating the dollar. To be sure, U.S. exports to Japan have nearly doubled since the dollar was first devalued in 1985. The weakened dollar has also brought relief to U.S. auto makers and other domestic manufacturers that have long battled Japanese rivals. But that relief may prove short-lived. The superyen has only forced Japanese manufacturers to grow more competitive while boosting the balance sheets of Japanese banks. A high yen also boosts the cost of doing business in Japan.
No one is suggesting that the dollar should be returned to its overvalued state of a decade ago. But instead of relying on the currency market to help balance the trade deficit, it's better that the Administration set specific trade targets and negotiate achieving them. We don't like managed trade, either, but to pretend that Japan is as open as the U.S. won't solve the problem--and won't produce a fruitful partnership of equals.