US is spoiling for a fight on import barriers: America and Japan are on the brink of a trade war, reports from New York and Tokyo confirm

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The Independent Online
INITIAL EFFORTS by the Japanese prime minister, Morihiro Hosokawa, to prevent a damaging trade war with the United States appear unlikely to satisfy the Americans, who made it clear again on Friday that they are spoiling for a fight over Japan's import barriers.

Officials in Washington, when asked about the new list of 'voluntary' measures Mr Hosokawa requested from his government, said the proposals appear to be a restatement of 'the empty pledges that weren't good enough the first time around'. US trade experts say the Clinton administration - complaining of Japanese cynicism with respect to early agreements, and emboldened by the relative strength of the American position - is determined to wrest 'quantifiable guarantees' on market access from Tokyo this time.

The US is not insisting on 'numerical targets', Bowman Cutter, deputy US trade representative, said, but it does want both a macro-economic commitment to reduce Japan's current account surplus with the world and 'a commitment to genuine openness in individual markets'. He added: 'Those two things are all we want. But that is what we want.'

This is hardly the first time the US has used the threat of sanctions - in this case, dollars 300m ( pounds 200m) worth of duties against cellular phones and probably other consumer electronics products - in an attempt to redress supposed 'under-importing' by the Japanese, which by some estimates totals dollars 200bn annually. Twenty separate attempts to pry open the Japanese domestic market have been initiated since 1978, the year the US trade deficit with Japan first topped dollars 10bn.

But in contrast to earlier efforts the Americans this time seem far more willing to take their threats to the brink of an all-out trade war, apparently confident that the growing US economy can better withstand a confrontation than can the Japanese. Support for Mr Hosokawa's resistance to the American demands has already been eroded by the jump in the yen in the past week, a trend US Treasury officials did nothing to discourage.

The rise in the yen towards a rate of 100 to the dollar - 'the ultimate trade sanction' as one economist put it - threatens to offset the entire effect of Mr Hoskawa's economic stimulus package and devastate the country's exporters. Japanese cars sold in the US, for example, are already selling for dollars 2,000 more than their Detroit rivals. By one estimate, less than 5 per cent of Japanese exporters will cover their costs at Friday's closing rate of 104.58 yen to the dollar.

Washington also is far less worried than it once was about Japan's scope to retaliate against sanctions, which will not be announced until St Patrick's Day on 17 March and would not come into effect for another three months. The rebound in US high technology has meant American industry is less dependent on Japan for key components like computer chips (although there is some concern about a potential shortage of colour screens for PCs).

Perhaps most importantly, Japanese financial institutions, which bought more than one- third of the US government debt sold at some Treasury refunding auctions in 1988, now account for less than 10 per cent of the market. The probability that the Japanese may now respond by dumping US bonds to drive up interest rates 'is so low as to be a very, very far-fetched contingency', Mr Cutter said.

Mr Clinton's critics say Washington is resorting to a 'primitive form of mercantilism' in using exchange rates to weaken Japan's resolve and warn about the long-term dangers of competitive devaluation. But frustrated American trade negotiators, past as well as present, defend the administration's hard-ball tactics, citing Japan's record of signing liberalisation agreements only to circumvent them.

Clyde Prestowitz, the Reagan-era negotiator who has become one of Japan's harshest critics, notes that Japan's trade surplus with the US has persisted since the late 1960s despite growth and recession in Japan, a long boom in the US in the 1980s followed by five years of stagnation, the rise and fall in the Tokyo stock market and a sizeable shift in exchange rates - particularly since the 1985 Plaza accord, when the yen was worth roughly half what it is today in the US.

The story of how Motorola was denied access to the Tokyo- Nagoya market, by being coupled with a firm already committed to NTT cellular technology, is only the latest in a long series of apparently cynical manoeuvres.

US negotiators have tried a variety of sectoral approaches, receiving pledges to deregulate industries, to encourage foreign buying and even to guarantee imported products a certain market share.

These, along with macro- economic approaches like the structural impediment talks, the 1986 Maekawa initiative to stimulate domestic consumer demand and the Plaza accord, have, however, failed to budge Japan's persistently low rate of imports - 6 per cent of GDP.

President Clinton, however, seems prepared to press his advantage regardless. 'They simply cannot continue to pursue the policy they pursued when they were a poor country growing rich,' he said on a popular New York radio programme. 'They are a rich country now, and they can't export to the world while keeping their own markets closed. And I think they know that.'

(Photograph omitted)