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The Pacific Rim: Why Clinton Is At Sea


Economic Viewpoint

THE PACIFIC RIM: WHY CLINTON IS AT SEA

While President Clinton was in Seattle hosting the first meeting of a chimerical Pacific trade bloc, America's most distinguished Japanologists were holding their own meeting in Santa Fe, N.M., on "Japan as a Techno-Economic Superpower." Sponsored by Los Alamos National Laboratory, the conference concluded that, despite Japan's current recession and the splintering of the Liberal Democratic Party, the country's fundamental nature as a state-led economy--and hence its chronic trade surplus--was essentially unchanged.

Clinton grandly proposes that member nations of an obscure grouping called Asia-Pacific Economic Cooperation (APEC) should become a free-trade zone. But, as the Santa Fe meeting made clear, none of these nations views U.S.-style laissez-faire as an economic model. Instead, like Japan, the most dynamic Asian nations use government-industry links, subsidized capital, large conglomerates, and resistance to imports.

Reconciling the structural mercantilism of the Asian development model with the general openness of the U.S. will not be accomplished by generic appeals to free trade. Measured against the real trade issues, Clinton's Pacific Rim strategy is naive. Despite the hoopla, the Seattle conference made no progress on such concrete and knotty issues as getting Japan to open up, persuading China to liberalize either its markets or its human-rights policies, or bringing practical symmetry to trading relationships. At Seattle, Asian diplomats politely threw cold water on any transpacific trade bloc.

The one concrete step taken at Seattle was a joint pledge to cut tariffs. But Japanese tariffs are already low and roughly proportional to our own. The serious barriers are, of course, nontariff ones. Ignorance of how Japan really works leads to repeated policy blunders. Amazingly, the Clinton Administration still has not a single Japan specialist in a senior policy position.

VAGUE PIETIES. Unlike Mexico, a country heavily dependent on the U.S. and with a gross domestic product less than 5% of our own, Japan is not about to change its economic system to get greater access to the U.S. market. Japan already has all the access it needs. The U.S. will make progress on the trade imbalance only when it makes access to our market conditional on reciprocal access abroad, not by offering vague pieties about freer trade.

Taken together, the Administration's recent trade initiatives suggest ideological and strategic muddle. The North American Free Trade Agreement was ultimately sold as a weird hybrid of free trade and mercantilism. Lee Iacocca's ads for the NAFTA-support coalition crowed that the deal would create a North American trade bloc, with Europe and Japan "on the outside looking in." How, exactly, does this advance global free trade? To Europeans, NAFTA and the Pacific initiative look very much like the regional fortresses that the U.S. is always deploring.

The long-delayed Uruguay Round of General Agreement on Tariffs & Trade talks may be the biggest debacle of all. American sponsorship of GATT typically puts pressure on U.S. negotiators to give more than they get in order to win foreign support, and this round is no exception. On issues that really matter to U.S. exporters, such as limits on foreign subsidies and intellectual-property protection, U.S. negotiators have already caved in.

WEARING BLINDERS. Now, with the Dec. 15 deadline fast approaching, the U.S. is under pressure to relinquish one of the few levers it has. Section 301 of the trade act allows the U.S. to take action against restrictive foreign-trade practices and has had modest success in prying open Japan's semiconductor market and Brazil's computer market and in improving reciprocal patent protections. The draft GATT accord would sacrifice protection of the U.S. textile and apparel industries without creating offsetting market-openings in textile-exporting nations. In recent meetings aimed at a GATT breakthrough, U.S. Trade Representative Mickey Kantor proposed--what else?--more tariff cuts.

Our diplomatic muddle is the result of persistent ideological blinders. Orthodox trade theorists insist laissez-faire is the best route to economic growth. Confronted with the success of non-laissez-faire nations such as Japan and South Korea, they conclude that the resulting trade imbalance must reflect some U.S. failure, such as the budget deficit or not working hard enough. And if laissez-faire is the optimum, the only remedy is for America to keep setting a good example by not fighting back. Thus do our trading partners keep taking U.S. industry to the cleaners, with the complicity of our economic theorists.

Lately, groping for some insulation, U.S. Presidents have sponsored "free-trade blocs"--surely a contradiction in terms--thereby sowing confusion, contradicting our professed principles, and ducking hard questions of national economic interest. Is the goal more trade? More symmetrical trade? Universal free trade? Preferential trade? At Seattle, Secretary of State Warren M. Christopher kept describing NAFTA, APEC, and GATT as a "triple play." The triple play, sadly, could be on us.ROBERT KUTTNER


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