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...Or Is He Dialing For Disappointment?


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...OR IS HE DIALING FOR DISAPPOINTMENT?

In a colossal miscalculation, the White House has utterly failed to grasp the nature of economic and political change in Japan. As a result, it aims for a quick fix to chronic U.S. trade deficits by threatening retaliation. The bet: The Japanese will come to their senses and surrender.

It just isn't going to work. The Japanese know that U.S. consumers want their Toyotas and Sonys, and that U.S. companies rely on Japanese components. They know that many U.S. companies are making profits in Japan, while Japanese companies employ many Americans at their U.S. plants.

Because the economies of

the two countries are so intertwined, most of the blunt instruments President Clinton is threatening would boomerang against U.S. interests. "The Japanese are rather jaded," says Glen S. Fukushima, a former U.S. trade official and currently vice-president of the American Chamber of Commerce of Japan. "Over the past 20 years, U.S. Administrations have cried wolf repeatedly and threatened various actions. But the Japanese have gotten tired of it. It's a credibility issue."

The real imperative is for Clinton to start crafting a more sophisticated long-term Japan policy. It should start with the recognition that yes, there may be change in Japan, but it is not going to create a mirror image of America's wide-open society. A confident generation of people in their 50s is taking charge, and they want to modernize Japan's distinctive brand of capitalism. But they'll do it on their own, thank you, and they're not going to be motivated by threats from Washington.

To come to grips with the structural causes of the deficit, Clinton should gear up his Administration's Japan savvy. Almost none of his senior people has lived in Japan or speaks Japanese. And no one is overseeing complex U.S.-Japanese linkages in trade, finance and investment, technology, and defense and security. A quiet weekend at Camp David with 100 of America's top Japan strategists from business and academia would be a start. Longer term, Clinton officials should regularly consult with an advisory group of real Japan experts. And they also should create a Japan policy office within the White House to speak with a single voice.

The goal should be a national economic vision with two objectives:

-- CrackJapan. Rather than preaching, the U.S. needs to redouble its efforts to export to Japan. Export and tax rules should encourage American companies to invest the time and money needed to penetrate Japan. Export financing channels should be opened. Investment should be encouraged, not penalized, because U.S. plants in Japan draw in exports from back home. "The U.S. needs to put as many resources into projecting commercial might into Japan as it has on military might," says John Stern, Tokyo representative for the American Electronics Assn. (AEA).

-- Linktradetobroaderrelations. It's naive to just talk about strengthening U.S. competitiveness without understanding what Japanese companies are doing in the U.S. The Committee on Foreign Investment in the U.S., for example, an interagency body in Washington, is failing to review Japanese purchases of smaller high-tech U.S. companies. The Internal Revenue Service hasn't followed through on cracking down against the transfer-pricing practices of Japanese multinationals. Both should get on with the job. And the Justice Dept. should come to grips with just how thoroughly keiretsu operating in the U.S. challenge the American notion of fair trade.

So without resorting to nasty brinkmanship, the Americans should quietly get their competitive and governmental act together. That would be far more effective than to keep dreaming about how U.S.-forced "change" in Japan will suddenly wipe out the trade deficit.William J. Holstein


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