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So Much For Brinkmanship


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SO MUCH FOR BRINKMANSHIP

When President Clinton welcomed Emperor Akhito on June 13, the White House put on a show of ceremony and deference befitting an exalted visitor. Never mind thorny trade disputes over auto parts, electronics, and computers. At one point, Clinton leaned forward almost in a bow to the heir of the oldest monarchy on earth. "Your majesty," the President intoned, "our determination to work with you is strong."

Compare that with the scene just a year ago. Japanese officials were holed up in a Tokyo hotel with U.S. trade warriors nicknamed "Stonewall" and "Bo," haggling over the outlines of an ambitious "framework" agreement. In a tone of confrontation, the Clintonites' goal was to force Japan to adopt numerical targets for opening its markets to U.S. goods.

Times sure have changed. Clinton now realizes that fundamentally reordering relations between the world's two largest economies is a lot tougher than he thought. The framework talks collapsed on Feb. 11 and fears of a trade war sent the dollar plummeting. Meanwhile, political turmoil in Japan left trade policy in the hands of intransigent bureaucrats, and the mounting standoff with North Korea over nuclear weapons has made Japan's strategic cooperation more important.

So it's no surprise that the Administration is being forced to overhaul its Japan policy. Gone is the dream of halving Japan's $121 billion global trade surplus, and U.S. negotiators are showing new respect for Japan's point of view in trade talks that resumed on May 23. "I can detect signs of U.S. policy changing," says one senior Japanese official. "Both nations have become wiser."

Where once U.S. trade hawks soared, Japan policy is being driven again by the diplomats: Secretary of State Warren M. Christopher and U.S. Ambassador to Japan Walter F. Mondale. At a recent Cabinet meeting, White House National Security Adviser Anthony Lake rebuked U.S. Trade Representative Mickey Kantor for letting U.S.-Japan relations deteriorate when Japan's help could be crucial in dealing with North Korea. The market worries of Deputy Treasury Secretary Roger C. Altman and White House National Economic Council Director Robert E. Rubin, both former Wall Streeters, also helped shift the Administration's strategy.

With their wings clipped, Kantor's trade hawks are under intense pressure to forgo a major breakthrough and cut individual deals on medical technology and telecommunications before July 8, when the annual economic summit of industrialized nations begins in Naples (chart). "There's a growing recognition that an agreement here and an agreement there is better than nothing," says Clyde V. Prestowitz Jr. of the Economic Strategy Institute.

"PRAGMATIC." So Kantor is showing new flexibility in measuring Japan's progress toward openness. But he's also expanding negotiations to include three new sectors--financial services, glass, and intellectual-property rights. The strategy is obvious: settle for sector-by-sector deals for cutting-edge U.S. industries. "That's not caving, that's being pragmatic," says Erin Endean, a top trade official in the Bush Administration.

The U.S. also has come out clearly on the yen. For months, the markets perceived that the Administration would encourage the dollar to weaken against the yen to reduce Japan's $60 billion surplus and began hammering the greenback. So the Treasury Dept. in early May orchestrated a 16-nation rescue of the dollar to keep it from falling below 100 yen. U.S. officials are hoping a pickup in Japan's economy together with a slowdown in U.S. growth will narrow the gap.

Not everyone is so sanguine. Grumbling about capitulation has erupted on Capitol Hill. Senator Carl Levin (D-Mich.) says the framework talks have been shattered. Fearful that the Clintonites will accept a toothless agreement with Japan before the economic summit, the electronics industry is bringing out its big guns. AT&T Chairman Robert E. Allen and Motorola Inc. CEO Robert W. Galvin will lobby the White House to voice industry concerns, sources say.

The Administration hasn't given up on threats altogether--it's just not going public with them. Privately, White House officials say, Japanese Prime Minister Tsutomu Hata has been informed that U.S. action against Japan under the so-called Super 301 law will hinge on progress made in trade talks by Sept. 30. That's the deadline set for the U.S. Trade Representative's office to cite unfair traders.

But that spat doesn't throw off the same sparks that the push for numerical targets did. For the time being, Main Street seems pleased with the pause in trade brinkmanship. "We need diplomacy that creates a more long-lasting relationship, not fiat and table-thumping in Washington," says William P. Madar, president and CEO of Nordson Corp., a Westlake (Ohio) machinery maker. And the new tune from the White House is that balancing economic and security interests with Japan is beginning to look, well, prudent.

U.S.-JAPAN TRADE TALKS: PROGRESS AND PITFALLS

U.S.-Japan negotiations resumed on May 23, and several agreements are imminent. Here's where the talks stand:

GOVERNMENT PROCUREMENT Negotiators are close to a deal in which Japan's Health Ministry will order hospitals to buy more U.S. medical technology. U.S. telecommunications companies worry, though, that the U.S. will accept a deal that falls short of increasing sales and market share in Japan.

AUTOS AND AUTO PARTS U.S. wants to establish "objective measurements of progress" that include the number of Japanese auto dealers selling U.S.-made cars and increased cooperation in joint research, development, and design projects among U.S. parts suppliers and Japanese carmakers. With the Japanese balking, agreement is still out of reach.

SERVICES A deal is within reach before the G-7 summit that would call for a "prompt and substantial increase" in sales by foreign insurance providers in Japan, but more work needs to be done to open financial-service markets.

DATA: BUSINESS WEEKDouglas Harbrecht in Washington, with Robert Neff in Tokyo, Zachary Schiller in Cleveland, and bureau reports


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